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Policing billing for Medicare audits

By R. Michael Kemler, J.D., L.L.M. & John B. Reiss, Ph.D., J.D.

The Medicare statute contains an important coverage exclusion that affects physicians’ ability to bill for services under Medicare Part B. The statute provides that no payment may be made for expenses incurred for services that “…are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member…” (42 U.S.C. Sec. 1395y(a)(1)(a)). Congress authorized the Health Care Financing Administration (HCFA) to delegate administration of physician payment under Medicare Part B to fiscal agents called “carriers”, which are customarily private health insurers. While HCFA makes national coverage decisions, which totally preclude payment for non-covered items and services, the carriers make the individual patient coverage decisions which affect payment for those particular services. The principal carrier function is to make payments, and to deny or reject payment if the physician’s or practice’s billing pattern is atypical and cannot be supported by the physician or practice involved.

Thus, if a physician or practice presents a billing pattern substantially higher than the regional average, that physician or practice is at risk of denial of reimbursement. Usually, this takes the form of a request for recoupment, since in the post-payment scenario, Medicare has already paid and the medical review or audit is retrospective. (We note that the Peer Review Organization reviews the appropriateness of medical care provided patients, through utilization review and quality assurance activities).

Before we discuss carrier coverage decisions, we briefly note that national coverage decisions, reported in the Coverage Issues Manual (HCFA Publication 6) and its associated Transmittal Letters, prohibit payment for drugs, devices and procedures for which HCFA has determined there is no medical necessity. For example, lung volume reduction surgery only is permitted as part of a national clinical trial; keratoplasty is not paid for when it is correcting a refraction problem, but may be for other purposes; electrostimulation of wounds is not covered. If a physician submits a bill for items or services excluded from coverage by the Coverage Issues Manual, Medicare will not make payment, as relevant, either for the item and its associated services, or for the services provided the patient. If the physician has not asked the Medicare beneficiary to sign a waiver of liability form in advance of providing the items or services involved, the patient is not obligated to pay, so the physician will receive no payment. Therefore, it is important to keep track of the national coverage decisions.

HCFA has published a “Carrier Manual”, which is designed to provide guidance to carriers in administering their payment obligations under Medicare. The Carrier Manual sets forth, in far greater detail than the statute and regulations, carrier authority. The Carrier Manual states, “…the Act requires you to apply ‘safeguards against unnecessary utilization of services furnished by providers.’ Further, ‘Apply MR (Medical Review) policy and conduct prepayment and postpayment reviews to identify inappropriate, medically unnecessary, or excessive items/services and take action where a questionable practice is found.’ Also, ‘[u]nderlying both prepayment and post-payment MR is the analysis of claims data to focus MR efforts in the most significant areas of over-utilization.”

In Pennsylvania, Pennsylvania Blue Shield, as carrier, has established Xact Medical Services to carry out the Carrier Manual functions, described above. Xact performs audits of Medicare-participating physicians, including the medical and surgical specialties. Audits are conducted initially on a desk or in-house basis. If the desk audit reveals billing patterns unacceptable to the carrier, Xact staff will normally visit or talk with the physician or practice involved. If discussions do not lead to an auditor finding of acceptable billing practices, then an audit will be conducted. The size of the audit may vary (as to the number of patient bills reviewed) according to the size and scope of variation from billing norms.

When Xact Medical Services performs an audit, a staff medical review auditor will forward a letter to the physician or practice under audit informing him/her of the audit, identifying whether it is a sample audit or a more broadly based one, identifying the cases audited and indicating the time available for a response. The notice of an audit by Xact (or any other carrier auditor) should be regarded as a “finding” that, based upon the HCFA 1500s filed by the physician/practice (together with any other material submitted), the physician/practice has billed at a higher level than average as compared with the normal billing practices in the region for the procedure codes billed.

Since an audit notice is, in effect, a finding of overbilling, a physician or practice that has received notice of an audit should take the matter seriously. It should secure health law counsel for advice and assistance in developing the case for the medical necessity of each of the services billed and subject to audit; and it should respond in detailed fashion, demonstrating medical necessity. We note that the physician’s involvement in the defense of an audit is critical in order to identify the necessity of particular diagnostic and treatment procedures. The effort is, in fact, a joint one. The risks of failing to respond to an audit are two. First, it is a certainty that the carrier will request recoupment of the Medicare reimbursement paid for the services under audit, an amount that could be substantial. Second, there is a distinct risk that the services billed will be referred by Xact to the United States Attorney’s Office for a civil action seeking monetary penalties, under the False Claims Act, 31 U.S.C. Section 3729, and possible criminal action.

One effective methodology for addressing audits is to utilize normative standards. Xact did a sample audit of 30 cases, in three discrete disease categories, in a surgical specialty practice, which arose largely because a new member of the practice did his surgery in-house rather than referring to hospital as his predecessor did, which markedly changed the billing patterns of the practice. The physician’s submission, in response to the audit, drew heavily upon the American Academy standards for the surgical specialty in question. A brief memorandum of law was submitted as to the Carrier Manual limits on audit practices. A memorandum describing the American Academy recommended diagnostic and treatment procedures for patients in each of the three disease categories was drafted; and, finally, “decision trees” for each of the 30 cases were submitted. These “decision trees” delineated precisely how the Academy standards were properly applied in each case. The result of the effort was that Xact insisted upon recoupment of some $200, as compared with a recoupment exposure of many thousands across the 30 cases. Often Xact will make a specific recoupment demand in their audit notice, which did not occur in the sample audit referenced above. In conclusion, cooperative, interdisciplinary lawyer-physician work is important in defending carrier audits.

R. Michael Kemler, J.D., LL.M. , is a practicing health lawyer in Philadelphia, and former member of Office of the General Counsel, U.S. Department of Health and Human Services. John B. Reiss, Ph.D., J.D., is chairman of the Health Law Department of Saul, Ewing, Remick & Saul in Philadelphia, and was previously director, Office of Health Regulation, Department of Health and Human Services, and assistant commissioner of health in New Jersey.

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