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Challenging Medicare teaching physician audits

By William H. Maruca, Esq.

The Office of Inspector General (OIG) of the Department of Health and Human Services continues to expand its Physicians at Teaching Hospitals (PATH) audit program, which in 1996 produced multi-million dollar settlements from two Pennsylvania teaching facilities. In reaction, the Association of American Medical Colleges (AAMC), the American Medical Association, the Medical Group Management Association (MGMA) and other organizations have mounted concerted efforts to challenge the standards applied to facilities undergoing audit.

The key issues in these audits are the level of teaching physician presence and involvement required when billing Medicare for supervising services residents, the documentation of such involvement and the retroactive application of standards for supervision and documentation.

In 1995, the OIG recovered $30 million in a settlement with the Clinical Practices of the University of Pennsylvania. Last year, OIG settled with the Thomas Jefferson University Medical Center and its faculty practice plan for nearly $12 million. In July of 1996, the OIG announced its intention to expand the audit program to 125 academic medical institutions nationwide.

Provider organizations are raising serious concerns with the PATH initiative. First of all, OIG has applied standards retroactive to 1990, which were only clarified in regulations effective July 1, 1996. The requirements for the personal presence of teaching physicians and documentation of such presence was, by the Health Care Financing Administration’s own admission, vague and inconsistently enforced until that time.

Secondly, the Thomas Jefferson and Penn settlements involved double and treble damages, and OIG and the Justice Department have indicated that institutions may be subject to exclusion from Medicare, criminal prosecutions of individual academic physicians and fines of $10,000 each under the Federal False Claims Act unless they consent to similar settlements. Physician groups and teaching institutions believe that application of such draconian penalties to enforce such poorly-communicated, if not retroactive, standards is patently unfair.

The audit initiative has taken two forms: purely government-conducted audits (PATH I), and a self-audit alternative (PATH II) which implies, but does not guarantee, more lenient penalties.

Physician representatives are seeking to limit the retroactive application of the standards articulated in the regulations effective July 1, 1996, and to eliminate the criminalization of reasonable billing practices consistent with then-current regulatory interpretations, and to eliminate inappropriately harsh penalties for such alleged violations.

Physical Presence

The PATH audits look at medical records for teaching physician services from January 1, 1990 through 1995. OIG has stated that the appropriate standards for teaching physician participation were set forth in a 1969 Intermediary Letter issued by HCFA’s predecessor, “IL-372”. Despite the failure of the government to articulate a clear standard in IL-372, and the more than two decades of inconsistent interpretation and enforcement of IL-372, OIG is using that document to impose a standard that the teaching physicians must have been physically present in all cases involving residents and must have documented in the medical record that they were present while the resident rendered care.

IL-372 has been characterized by HCFA in the preamble to the 1996 regulations as “vague”, “ambiguous”, and “not vigorously enforced”. Medicare regulations at the time required only that the attending physicians furnished “personal and identifiable direction” to interns and residents who were participating in the care of the patient, and required the “personal supervision” of residents and interns only in the cases of major surgical procedures and other complex and dangerous procedures or situations. “Personal supervision” was not defined, nor was there any official requirement of physical presence at that time. In fact, it was the very controversy over multiple interpretations of IL-372 by HCFA, the General Accounting Office (GAO) and the various Medicare carriers which lead to the development and adoption of the 1996 regulations.

A 1992 memo from Charles Booth, then-director of the Office of Payment Policy, had instructed regional HCFA offices to require physician presence in all cases involving residents. This policy was never fully implemented, and HCFA’s position was put on hold by the director of the Bureau of Policy Development until the issue could be fully investigated. The 1992 “Booth Memorandum” was never given retroactive effect by any HCFA office.


The second major dispute is over the level of documentation required to establish the required level of teaching physician direction of residents.

OIG has refused to accept countersignatures as sufficient evidence of teaching physician involvement. OIG has required additional evidence of the teaching physician’s involvement in the medical record, either completed by the resident or by the teaching physician.

IL-372 recognized notes and orders in the patient’s records that are either written by or countersigned by the supervising physician. A subsequent Intermediary Letter, IL-70-2, indicated that if the physician countersigned the entries in the record pertaining to the patient’s history and the record of examination and tests, it would be presumed that the physician personally examined the patient and determined the course of treatment to be followed.

There is nothing in any legislation or regulation which would have put teaching physicians on notice that more documentation was necessary.

Evaluation and Management Guidelines

The OIG is also seeking to retroactively apply HCFA evaluation and management guidelines which did not take effect until August 1, 1995. The E&M guidelines originally released to carriers in November, 1994 were jointly developed by HCFA and various physician representatives in recognition that there was no uniform policy for reviewing claims for evaluation and management services until that time.


To the extent that PATH audits uncover undercoding, OIG has refused to offset amounts which could have been legitimately reimbursed if properly coded against any amounts which were improperly paid due to failure to meet the supervision and/or documentation requirements. OIG is relying on a sampling and extrapolation process to estimate the amount of overpayment, but takes the position that such extrapolation is improper for crediting amounts of underpayment.


Billing irregularities in connection with teaching physician claims are being treated by OIG as false claims violations. The False Claims Act authorizes damages in the amount of three times the actual overpayment, plus fines of $10,000 for each false claim, plus exclusion from Medicare and Medicaid, as well as potential criminal penalties. Under the circumstances, it is questionable whether any violation of the retroactively-applied standards should be subject to such penalties, particularly criminal penalties, given the absence of reasonable notice of the standards at the time the claims were submitted.

AAMC Position

The AAMC has submitted a position paper to June Gibbs Brown, the Inspector General of HHS, as well as Bruce Vladeck, Administrator of HCFA, Donna Shalala, Secretary of Health and Human Services, and Attorney General Janet Reno to apply the following guidelines in the PATH audit initiative:

• Countersignature by the teaching physician, in and of itself, should be adequate documentation that the physician provided a “personal and identifiable” service, as required by statute and regulation, until July 1, 1996, when a more explicit documentation requirement went into effect.

• For physician visit services, HCFA’s documentation guidelines for evaluation and management services should not be used as an audit tool except for services furnished on or after August 1, 1995, the effective date of the guidelines.

• During an audit, examples of overcoding of services should be offset against examples of undercoding.

• Double and treble damages, fines for each “false claim”, threats of criminal prosecution of individual physicians and of exclusion from the Medicare program, cannot be justified as punishment for violation of retroactively imposed standards, and should play no role in any audit of pre-August 1, 1995 coding of evaluation and management services (physician visits) or pre-July 1, 1996 documentation of reimbursable services by teaching physicians.

PATH II Voluntary Audits

The OIG has offered the opportunity to perform self-directed audits as an alternative to a government-directed audit. The Thomas Jefferson settlement represented the first so-called PATH II self-audit case.

PATH II gives teaching institutions the opportunity designate a third-party auditor of their choice, to be approved by the Office of Inspector General, prior to any government-initiated audit.

There are significant strings attached to the self-audit approach. Chief among these drawbacks is the waiver of the attorney-client privilege for materials generated through the self-audit. The independent auditor must comply with guidelines established by OIG and has an affirmative obligation to identify and report any fraudulent claims or improper coding practices.

The OIG is encouraging providers to elect the self-audit option with vague promises of leniency in imposing penalties. OIG has made it clear that all overpayments discovered will be recovered. Thomas Jefferson University Medical Center believed that the PATH II process reduced their total repayment liability from triple the amount of overpayments to double that amount, resulting in savings of $6,000,000. However, OIG will not guarantee that a PATH II audit will result in no more than double damages.

Some advantages of the PATH II process are the ability to select an institution’s own auditor, with the approval of OIG, and the ability to control the audit process in a way that minimizes disruption of ordinary operation. The auditor must be an independent organization, and may not have a pre-existing relationship with the facility. There is no provision for credit of the cost of the audit against any repayment to Medicare. Therefore, the cost of the self-audit must be weighed against the potential savings in repayment obligations and the waiver of confidentiality.

Provider organizations are seeking to improve the conditions under which a self-audit would be conducted. The first goal is to establish a binding commitment that the penalties would be appropriately limited in exchange for cooperating with investigators under a self-audit option. A second important goal is to limit the waiver of confidentiality to communications associated with the audit itself, as opposed to a blanket waiver.

Ultimately, the resolution of the controversy relating to Medicare payment for teaching physician services may require legislative as well as regulatory solutions. AAMC, AMA, MGMA and other provider organizations are seeking relief on multiple fronts, including Capitol Hill, the Clinton Administration, and potentially, the courts.

William H. Maruca, Esq., is director with the Pittsburgh law firm of Kabala & Geeseman. Mr. Maruca chairs a Task Force on the PATH Audit Initiative for the American Academy of Healthcare Attorneys.

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