Business Solutions

Breaking Through Audits

The two-year ALJ delay could shut many providers down. Can the industry get CMS to see sense on audits?

• By David Kopf
• Apr 01, 2014

“Onslaught.” “Flood.” “Avalanche.” Those are just some of the words that have been used to describe the Centers for Medicare and Medicaid’s pre- and post-payment audit programs for Medicare. Perhaps another appropriate descriptor would be “wall.”

Steadily, brick by brick, CMS has been building an audit system that, whether intentionally or not, is effectively shutting providers out of the Medicare business. From the outset CMS’s ramped up audits were a concern to Medicare providers, including DMEPOS providers, because the Recovery Audit Contractors (RAC), Comprehensive Error Rate Testing (CERT) and Zone Program Integrity Contractors (ZPIC) audits were being conducted largely by auditing contractors that were set up by large technology firms that were using very vague interpretations of Medicare guidelines, which threw many recoupments into question.

As CMS began doubling its program integrity budgets and adding new programs, it began crowing about the amount of claims it was recovering through the contractors (the latest announcement, from last month, was that the federal government recovered $4.3 billion in 2013 as part of its Medicare anti-fraud efforts), and warned of increasing waste, fraud and abuse. Clearly, CMS sees the program as essential and successful, which means it is here to stay.

So providers worked with their referral partners to implement solid documentation procedures, and began appealing claims that auditors recouped. That’s when providers discovered high rates of overturn at the appeal level, and realized that they could find a way to get their money back despite audit contractors’ broad interpretations. It wasn’t a perfect system, but at least providers were seeing some daylight.

That is until the start of 2014, when a letter from Nancy Griswold, the chief judge of CMS’ Office of Medicare Hearings and Appeals (OMHA) stated OMHA was going to delay assigning an Administrative Law Judge to any new audit appeals for two years. The reason cited was a backlog of 357,000 claims appeals stacked up in the system that were pushing the current turnaround time for an appeal to 16 months.

But that backlog was a fait accompli that many in the industry and in other healthcare fields impacted by the audits claim CMS should have known about. Over the past three years, the agency’s radically revved up audits have resulted in appeals growing by 184 percent. Meanwhile, “the resources to adjudicate the appeals remained relatively constant” at 65 administrative law judges, Griswold wrote in her memo. While OMHA received 1,250 appeals a week in January 2012, it received more than 15,000 appeals a week by November 2013. How could CMS not realize OMHA would need additional ALJs, especially with the high rate of overturn?

“The huge increase in the volume of appeals is a direct result of the significant increase in the number of audits being conducted,” says Wayne van Halem, CFE, AHFI, president of The van Halem Group LLC, which helps providers contend with Medicare claims audits. “CMS keeps awarding lucrative contracts to private audit entities to find ‘t’s that aren’t crossed and ‘i’s that aren’t dotted, yet the beneficiaries clearly needed the services that were provided.

“Getting before an ALJ is generally the first time where reason enters the equation and we still see a large number of claims overturned, so providers should and will continue to fight,” he continues. “Rather than spend hundreds of millions of dollars to increase the volume of audits which subsequently increases the volume of appeals, why not spend some money on increasing staff and lessening the burden on the judges in the Office of Medicare Hearings and Appeals?”

“Something is going to have to change with the current audit program,” says attorney Edward Vishnevetsky, who is an Associate in the Business Litigation section of the Dallas office of industry law firm Munsch Hardt Kopf & Harr. “If you’re going to delay appeals for at least two years, at least don’t take the money back during that time frame.

“So there needs to be a reprieve,” he continues. “Either we get the 90 days in order to have a hearing that statute requires, or you can’t take our money back. Otherwise it’ll just be the end of providers. And obviously this is more than just DME providers … Something needs to change.”

Quantifying the ALJ Delay’s Impact

The problem with the ALJ delay is that the impact goes far beyond a simple delay. On the face of things, one might conclude that a recouped reimbursement might be sitting in limbo for a while, and that’s it, but the impact goes much, much further that.

In last month’s issue of HME Business, Vishnevetsky wrote an “Observation Deck” column (March 2014, page 34) about the overall impact of the ALJ delay on providers, and the impact is staggering. Vishnevetsky used a hypothetical scenario in which CMS notifies a provider that 40 percent of its claims were incorrect and resulted in an overpayment of $150,000. Extrapolating the denial percentage to all of the provider’s claims for those HCPCS or CPT codes within the past five years, CMS says the provider must repay $4.5 million in overpayments.

Now, factoring in the Extended Repayment Schedule (ERS), which Medicare will approve if the total amount of all outstanding overpayments is 10 percent or greater than the total Medicare payments made for the previous calendar year, Vishnevetsky’s example yields two sobering results: the provider must pay $97,560.61 in principal and interest each month; and based on the delay, the provider will pay $3,512,181.96 before an ALJ adjudicates the claim.

If the provider decides to not go the ERS route, and brings their audit to the Re-determination and Reconsideration levels of appeal, the provider must still pay interest on all unpaid overpayments within 30 days of the provider’s receipt of the Initial Demand Letter until the overpayment is repaid in full, Vishnevetsky points out. The rate on that interest is 10.125 percent. Based on his hypothetical example, if the provider wins 40 percent of the claims at the Re-determination and Reconsideration levels, then CMS will begin recouping approximately $2,768,343.75 after the Reconsideration decision is issued.

And beyond that, once the provider needs to make payments, there is a stringent program for ensuring the provider adheres to payments. If the provider doesn’t make payment arrangements with CMS, or CMS cannot recoup the overpayment debt in 180 days, then the debt becomes delinquent. Delinquency ushers in a whole new set of problems because CMS will refer the case to the Department of Treasury, which will begin collecting under the Treasury Offset Program (TOP), which can begin collecting funds via various sources of debtor income.

Not a pretty picture. So what’s the bottom line for many HME provider businesses under such a scenario?

“It’s gone,” Vishnevetsky states. “If you have any extrapolations, your business is gone. Unless you have significant financial capital.”

The Audit Contractor Gravy Train

Compounding the vexation felt over the two-year ALJ delay is that it’s not just a problem for providers, but a temptation for audit contractors. Despite a history of faulty audits that have been regularly overturned at appeals, now these contractors can engage in this behavior unconcerned about future overturns, because providers might not survive to see their day before an ALJ.

“My biggest concern is that if you are a RAC auditor, this just sounds like gravy,” Vishnevetsky says. “If we take two to three years to get to a hearing, and I [as an auditor] get paid on a percentage of what I collect, I’m going to put everyone on extrapolated pre-payment or post-payment audit, and I know that they’re not going to be able to fight anymore, not because they don’t have the time, but because they can’t sustain their business. If you can’t maintain your business, then you can’t maintain your license, and if you can’t maintain your license, then you can’t even appeal.”

So to be able to fight an appeal two or three years down the road, a provider needs to keep its license, which means it needs to maintain its accreditation and storefront. That’s a lot of investing to even be allowed to appeal when a huge chunk of its claims could be have been recouped, and the provider could be paying all those attached fees.

“You still have to be putting out money just to fight to get the money that might have been taken inappropriately by Medicare,” Vishnevetsky says. And that’s if the provider were able to exist. There’s a strong change it could have folded due to those fees and financial pressures by the time two or three years rolls around.

“And Medicare will use that information to make its numbers to look attractive and more appealing, depending on how much fraud and abuse is being controlled,” Vishnevetsky explains. “They’re going to say ‘Well, we just got another $25 billion in overpayments due to fraud and abuse,’ not indicating how much of that figure is related to overpayments that took two years to go through the process and so the company had to fold.”

That’s a gloomy scenario. If there is one bit of respite in the current audit situation facing providers, it is that their personal liability is somewhat mitigated (unless there were actual fraud and abuse). Except for their surety bond, that is.

“A lot of providers don’t realize that their surety bonds are personally guaranteed,” Vishnevetsky explains. “So you could be responsible for that additional $25,000 of your surety bond — let alone that your company folded.”

Fighting Back

This scenario means that the industry really has only one option: overturn the entire audit process by fighting back. To that end, the American Association for Homecare, working with other healthcare interests, has assembled a broad audit agenda that is a combination of legislative objectives to reform the program, as well as initiatives to work with CMS and OMHA to change the system in the meantime, so as to at least give providers some sort of respite while the two-year delay is in effect.

To that end, during the American Association for Homecare’s March 11 Washington Update at Medtrade Spring, Kim Brummett, vice president of regulatory affairs for AAHomecare, presented a broad set of far-reaching audit reform recommendations the industry would pursue. They included:

• Conduct independent reviews of contractors to hold them accountable.
• Interest penalties for MACs when claims are overturned.
• Remove ability for MACs to issue “clarifications.”
• Enhance review of DME providers who do not respond to audit requests.
• Limit the number of audits a DME provider can receive during a given period.
• Reinstate “clinical inference” policy.
• Require that electronic health records include DME medical necessity documentation.
• Mandate use of a template such as in the power mobility device prior authorization demonstration.

And there is some collaboration happening. In a recent forum with Judge Griswold, AAHomecare president and CEO Tom Ryan explained the dire situation facing providers. That resulted in setting up a meeting with key CMS staff. The association president said those efforts to work on solutions in the agency are an ongoing process.

In addition to pursuing those reforms in a collaborative fashion with the various agencies involved, the association is also working on drafting audit reform legislation, Brummett said. That legislation, according to Jay Witter, vice president of Government Affairs for the association, has been in the works for a couple of years with various parties, and, at press time, was set for a release sometime in April.

“It’s very close to being finalized,” Witter said at the Washington Update. “We’re very sensitive because of competitive bidding efforts on the Hill; we don’t want to ask for too many things. But we are close. We have built the foundation and we will be making an announcement very soon about a huge audit effort.”

In pursuit of those legislative aims, Brummett met with the Senate Finance Committee at a special roundtable meeting last month to discuss various audit reform recommendations. The agenda she pursued included:

• Stop new audits until the backlog is cleared up.
• Stop interest penalties until an audit is through all levels of appeals.
• Stop the recoupment/repayment process until an audit is through all levels of appeals.
• Issue guidance to Durable Medical Equipment Medicare Administrative Contractors (DME MACs) to allow for timely filing override on continuous rental or supply claims.
• Issue guidance to DME MACs to require reopening after a re-determination on a technical denial.
• Evaluate the Qualified Independent Contractor (QIC) to determine if this step is effective or merely a stop-gap on the way to the Administrative Law Judge.
• Assign greater weight to clinical inference: let the medical record speak to the need of the patient and pay for services based on those facts.

Also, the association is already gearing up the advocacy efforts that would back lobbying efforts on behalf of such legislation. Witter noted that the advocacy challenge for the industry and provider advocates will be to simplify audits, which are a very complex issue. To help simplify the issue in a way that will resonate with lawmakers and staff and help “sell” the issue, the association is also collecting provider stories about their audit frustrations and the negative impact the program is having on their businesses and patients. (To submit stories, providers should email [email protected].)

“I get calls all the time, and at first they’re anecdotal and very sad stories,” Brummett says. “But we’d like to gather those stories, because they help give impetus to [the legislation]. … It really helps to paint the picture.”

Also, to help providers keep track of their audits so that they can begin to get a clear picture of the source and extent of the audits they are facing, AAHomecare has created an audit tracking tool that is available to all providers. This will help providers quantify the audit impact so that the industry can discuss those numbers with lawmakers. That is available as an Excel spreadsheet at www.aahomecare.org/issues/audits.

“What we find is that when providers call and we ask, ‘Where did you get your audit from?’ or ‘How many audits have you gotten?’, many are not really sure,” Brummett says. “This really forces each of us to know those things. We want to aggregate numbers, so that we can demonstrate to CMS and Congress the number of audits we are getting. If nothing else, start tracking what’s happening to your company.”

The Legal Route

In addition to the legislative approach, there is a legal aspect of CMS’s approach to audits, as well, Vishnevetsky says. CMS, via the audit contractors, is recouping provider money when it doesn’t necessarily know if it can truly do so, and is then holding it for at least two years due to the ALJ delay. That’s especially disconcerting due to the high level of overturn once providers elevate their appeals through the process, but it also might be out of legal bounds.

“This is a taking without due process,” he explains. “And that issue is still very relevant and part and parcel of what’s occurring. … I think this has serious grounds for a due process violation.”

Besides recouping claims for two years without giving providers a chance to fight back, the entire notion of a delay could fall outside federal law, Vishnevetsky argues.

“There are rules and statutes that govern how long it takes an ALJ to provide an opinion and go to a hearing, which is 90 days,” he explains. “By taking two years, that is essentially re-writing the law, and they’re not following notice and comment rulemaking, which is what’s required. So my argument would be that if it says 90 days and you’re taking two years, you’ve effectively changed the law, and you haven’t done that in the appropriate manner, so it is arbitrary and capricious under the Administrative Procedures Act.

“As a provider, if I’m required to respond within 30 days, and I don’t, I lose my appeal,” Vishnevetsky continues. “If [CMS] doesn’t respond according to [its] statutory period of 90 days, what happens? Nothing. So the law needs to change. And the only way to really make the law change, in my opinion, is by legislative means, or you file a lawsuit that will have legislative implications.”

All that needs to happen for these arguments to be made in court is for someone in the industry to take up the issue.

“Hopefully someone in the Medicare Part B community will file a constitutional lawsuit on this issue,” Vishnevetsky says. “Because I don’t see a reprieve coming very quickly.”

To that end, Vishnevetsky says his firm has been in discussions with some larger providers and other entities within the industry to see if such a suit could be feasible.

“The difficulty is that it is an expensive endeavor,” he explains. “But I think the chances of success are reasonable.”

This article originally appeared in the April 2014 issue of HME Business.