Office of Inspector General issues new supplemental compliance program guidance for hospitals

by Thomas H. Taylor, Attorney, Johns, Flaherty & Collins

On January 31, 2005, the Office of Inspector General (“OIG”) published a supplemental compliance program guidance for hospitals, supplementing the original guidance published in 1998. The original compliance program guidance provided hospitals with the OIG’s recommended framework for establishing effective compliance programs. The new supplemental compliance program guidance is intended to supplement, not replace, the original one by providing hospitals with additional guidelines for complying with Medicare and other federal health program requirements.

High Risk Areas Of Fraud and Abuse

The supplemental compliance program guidance offers insight to hospitals concerning the OIG’s current and future enforcement priorities. The following areas of potential fraud and abuse are subject to close scrutiny by the OIG:

1. The submission of accurate claims and information;

2. The antikickback statute and Stark physician self-referral statute;

3. Hospital payments to physicians under gainsharing agreements;

4. The Emergency Medical Treatment and Labor Act (“EMTALA”);

5. The provision of substandard care;

6. Inappropriate discounts and incentives to patients;

7. The HIPAA privacy and security regulations; and

8. Billing Medicare and Medicaid more than a hospital’s usual and customary rates.

This newsletter will highlight the key points in the OIG’s supplemental compliance program guidance.

A. Submission of accurate claims and supporting information

One of the most important compliance risks for hospitals involves the preparation and submission of accurate claims. All claims for reimbursement from Medicare and other federal health programs – as well as supporting medical records and documentation – must be complete and accurate, must reflect medically reasonable and necessary services, and must be ordered by an appropriately licensed and credentialed provider who is a participating provider in the health care program in question.

Key problems that hospitals must avoid include inaccurate or incorrect coding, upcoding, unbundling of services, billing for medically unnecessary services, billing for non-covered services, duplicate billing, insufficient documentation, and false or fraudulent cost reports. From the OIG’s perspective, the areas of most concern include the following:

1. Outpatient procedure coding. The supplemental compliance program guidance encourages hospitals to take extra steps to comply with the ambulatory procedure coding requirements of the Outpatient Prospective Payment System (“OPPS”), with particular emphasis on the training and qualifications of coders. Hospitals must ensure that medical records are complete and support the level of service claimed. Other risk areas include: billing on an outpatient for “inpatient only” procedures; submitting claims for medically unnecessary services by failing to follow local medical review policies and local coverage determinations; submitting duplicate claims or otherwise not following the National Correct Coding Initiative guidelines; submitting incorrect claims for ancillary services due to outdated Charge Description Masters; circumventing multiple procedure discounting rules; improper evaluation and management codes; and, improper billing for observation services. On the latter point, hospitals must remember that Medicare covers observation services only for patients with diagnoses of chest pain, asthma or congestive heart failure.

2. Admissions and discharges. The supplemental compliance program guidance advises hospitals to update their admission and discharge policies to reflect current Centers for Medicare and Medicaid Services (“CMS”) rules. Key risk areas include: the failure of hospitals to comply with the “same-day rule”[i]; abuse of partial hospitalization payments by hospitals reimbursed on a per diem basis for services rendered to behavioral and mental health patients; same-day discharges and readmissions; violations of Medicare’s post-acute care transfer policy[ii]; and, improper churning of patients by long-term care hospitals which are co-located in acute care hospitals and qualify for PPS-exempt status.

3. Supplemental payments. The supplemental compliance program guidance reminds hospitals to comply with Medicare requirements concerning supplemental payments including payments for: pass-through items for new technology and drugs; DRG outlier payments; services in improperly designated “provider-based” entities; certain items and services furnished in connection with clinical trials; cardiac rehabilitation services; and, certain direct and indirect graduate medical education expenses.

4. Use of information technology. The supplemental compliance program guidance encourages hospitals to pay particularly close attention to their computerized billing, coding and information systems to ensure compliance with Medicare coding and billing requirements, as well as the HIPAA privacy and security regulations.

The supplemental compliance program guidance states that hospitals must disclose and return any known overpayments resulting from mistaken or erroneous claims. The knowing submission of a false, fraudulent or misleading claim, as well as the failure to return known overpayments, can result in False Claims Act liability, civil monetary penalties, exclusion from Medicare and other serious consequences.

B. Compliance with Stark and Anti-Kickback Statutes

Hospitals can face significant financial exposure if their financial relationships with referring physicians and other health care organizations fail to comply with the antikickback statute and the Stark physician self-referral law.

1. Antikickback statute.

The supplemental compliance program guidance advises hospitals to consider whether their business arrangements with physicians and other referral sources[iii] violate the federal antikickback statute. The antikickback statute is a criminal law prohibiting the solicitation, payment or receipt of financial or other remuneration in exchange for the referral of patients covered by Medicare and other federal health programs.

If a hospital has a financial relationship with a physician or another referral source, the hospital must take appropriate steps to ensure that such payments are not a financial incentive or inducement for the referral of items or services reimbursable, in whole or in part, under Medicare or another federal health program.

The potential consequences for violating the antikickback statute are serious, including imprisonment, criminal penalties, civil monetary penalties, and exclusion from Medicare and other federal health programs. Compliance with the antikickback statute also is a condition of payment under Medicare and other federal health programs. Consequently, a violation of the antikickback statute also could trigger False Claims Act liability if it results in the submission of a claim for payment under Medicare or another federal health program.

The OIG suggests that hospitals use the following two-step analysis to evaluate their potential exposure to liability under the antikickback statute.

1. First, does the hospital have a financial relationships with a referral source that is in a position to generate Medicare or other federal health program business for the hospital? Referral sources that should be considered include physicians and other providers, ambulance companies, hospices, home health agencies, nursing homes and other hospitals.

2. Second, with respect to each such relationship, is one purpose of the remuneration to induce, encourage or reward the referral of business payable under Medicare or another federal health program? Significantly, the referral of business need not be the sole purpose. If the remuneration is motivated, at least in part, by a desire to induce, encourage or reward such referrals, the arrangement violates the antikickback statute unless a safe harbor exception applies.

The OIG is particularly interested in arrangements that potentially interfere with clinical decision-making, increase costs for Medicare, other federal health programs and patients, increase the risk of overutilization or inappropriate utilization, or raise patient safety or quality of care concerns.

(a) Suspect Arrangements.

The supplemental compliance program guidance identifies the following suspect arrangements that hospitals are encouraged to review carefully to assure compliance with the antikickback statute:

1. joint ventures with physicians and other referral sources;

2. compensation arrangements with physicians;

3. relationships with other health care organizations such as hospices, home health agencies, skilled nursing facilities, ambulance companies, pharmaceutical companies and durable medical equipment suppliers;

4. recruiting bonuses, incentives and arrangements;

5. patient discounts;

6. medical staff credentialing policies; and

7. malpractice insurance subsidies.

The OIG cautions hospitals to take appropriate steps to ensure that such arrangements are structured to avoid the appearance of being disguised incentives or rewards for past or future referrals.

(b) Exclusive Contracts.

It is not uncommon for hospitals to enter into exclusive contracts with hospital-based physicians and physician groups for the delivery of anesthesia, radiology, laboratory, pathology, hospitalist and other services. The OIG cautions hospitals about the potential antikickback statute concerns of exclusive contracts.

Arrangements requiring physicians to provide certain management, staffing, administration, clinical or other services to the hospital without charge or at a discount should be scrutinized carefully. The same holds true where a physician or physician group offers or is required to furnish radiology equipment, teleradiology connections and information systems without charge or at a discounted cost.

For example, radiology groups have been known to provide equipment, information systems and medical directorship services to hospitals without charge or at a discount in exchange for an exclusive contract to provide the professional component of all radiology services at the hospital. From the OIG’s perspective, the value of free or discounted equipment, information systems and services provided to the hospital could be characterized as an inducement or reward for the referral of professional radiology services. Nonetheless, the OIG states that it will not treat such arrangements as violations of the anti-kickback statute if the overall contract or arrangement is consistent with fair market value, taking into account the value attributable to the exclusive arrangement.

Although there are no guarantees, a hospital’s use of an open competitive bidding process to solicit proposals from competing radiology groups might help protect the hospital against a subsequent claim that the resulting arrangement violates the antikickback statute. In any event, the OIG notes that the facts and circumstances of a particular exclusive contract will determine whether the scope and volume of the services reasonably reflects the value of the exclusivity. Uncompensated or below market arrangements for goods, equipment and services are subject to close scrutiny.

(c) Relationships With Other Referral Sources.

The OIG encourages hospitals to carefully review their financial and other relationships with home health agencies, nursing homes, durable medical equipment companies, laboratories, pharmaceutical companies and other hospitals that refer patients covered by Medicare and other federal health programs. Examples of remuneration that can trigger antikickback statute liability include free or discounted items and services, as well as the relief of financial obligations. Hospitals that loan funds to referral sources at below market interest rates, for example, should carefully assess the antikickback implications of such transactions. The same holds true where hospitals write off the amounts owed by referring entities.

(d) Physician Recruitment Arrangements.

Although hospitals often provide incentives to recruit a physician to join their medical staffs and provide medical services, such arrangements need to be structured carefully to minimize the potential for antikickback statute liability. Safe harbor protection is available under the antikickback statute for recruiting incentives only if they are offered to attract primary care physicians to health professional shortage areas.[iv] Unfortunately, this safe harbor is limited and does not (i) protect recruitment arrangements in areas not designated as health professional shortage areas, (ii) the recruitment of specialists, or (iii) joint recruitment with existing physician practices in the area. Key points that should be reviewed and evaluated by hospitals when using recruiting incentives include the size and value of the recruitment benefit, the duration of payout, the practice of the existing physician, and the need for the recruitment. Of note, incentives paid out over more than three years are subject to heightened scrutiny.

(e) Discounts.

To encourage open and legitimate price competition, the antikickback statute has a safe harbor exception for certain discounts offered to patients that submit claims to Medicare and other federal health care programs. Significantly, however, the safe harbor applies only to discounts that are properly disclosed and accurately reported on the hospital’s cost report.

(f) Malpractice Insurance Subsidies.

In light of the growing professional liability insurance crisis and its potential impact on patient access, the OIG has established a limited safe harbor covering medical malpractice premium subsidies for obstetrical practitioners in health professional shortage areas. This safe harbor does not apply to other practitioners. Before offering malpractice insurance subsidies to other providers, hospitals are encouraged to review the arrangements carefully to minimize the risk of antikickback law exposure.

The supplemental compliance program guidance offers a number of factors that should be considered by hospitals when providing such subsidies. Hospitals also should review OIG Advisory Opinion No. 04-19, published on January 6, 2005, approving limited malpractice insurance subsidies for two neurosurgeons who were confronted with significantly higher premium costs.

2. Stark.

As a general rule, Stark prohibits hospitals from submitting – and Medicare from paying – any claim for designated health services[v] if the referral thereof comes from a physician with whom the hospital has a prohibited financial or investment relationship. The prohibition also applies when a member of the physician’s immediate family has a financial or investment relationship with the hospital. The OIG encourages hospitals to use the following three-step analysis when evaluating their compliance with Stark:

1. Is there a referral of a designated health service from a physician to the hospital? If the answer is “no”, there are no Stark law issues to worry about, although compliance with other Medicare laws such as the anti-kickback statute also should be evaluated. If the answer to that question is “yes”, a hospital should answer the next question:

2. Does the physician (or an immediate family member thereof) have a financial or investment relationship with the hospital furnishing the designated health service? If the answer is “no”, there are no Stark law issues to worry about, although antikickback and other issues should be considered as well. Conversely, if the answer to the question is “yes”, a hospital should answer the final question:

3. Does the financial or investment relationship fall within one of the safe harbors or exceptions under Stark? If not, the physician’s referral of a designated health service to the hospital violates Stark.

The potential consequences for violating Stark are severe. They include denial of payment for claims made under arrangements that violate Stark, refund of all payments previously made by government, commercial and private payors under such arrangements, civil fines of up to $15,000 for each claim for a service that a person knew was made under a prohibited arrangement, and civil fines of up to $100,000 for each arrangement where the principal purpose was to circumvent Stark. Hospitals and physicians that knowingly violate Stark also are subject to exclusion from Medicare and other federal health programs.

Significantly, a suspect financial relationship can result from practically any kind of direct or indirect ownership, investment or compensation relationship between a hospital and a referring physician. Examples of suspect compensation relationships include space and equipment rental contracts, medical directorship contracts, personal services contracts, and employment relationships between a hospital and a referring physician.

Hospitals are encouraged to review all of their contractual, compensation and other relationships with referring physicians and immediate family members to ensure that they comply with Stark requirements. The OIG also recommends that hospitals develop systems and supporting documentation to ensure that all potentially suspect relationships are carefully evaluated to assure compliance with Stark. Among other things, this means that hospitals should obtain and safeguard appropriate documentation to support the fair market value of such compensation and other arrangements.

3. Gainsharing Arrangements.

Many hospitals have entered into or considered creating incentive relationships that allow physicians to share in any reduction in the hospital’s patient care costs attributable to the physician’s services. Even though such relationships might serve legitimate business purposes by improving efficiency, reducing waste, and enhancing profitability, they are generally prohibited under Section 1128A(b)(1) of the Social Security Act.

Hospitals that make gainsharing payments to physicians are subject to civil monetary penalties of up to $2,000 for each patient covered by the gainsharing arrangement. Such arrangements also implicate the antikickback statute if the gainsharing payments are intended to influence or reward physician referrals to the hospital.

Significantly, the OIG recently issued several advisory opinions that approved limited gainsharing arrangements designed to incent physicians to use less expensive surgical equipment and supplies without adversely affecting patient care.[vi] Again, however, it is important to structure gainsharing arrangements carefully to minimize the hospital’s exposure to civil monetary penalties and other adverse consequences.

4. EMTALA.

Under the Emergency Medical Treatment and Labor Act (“EMTALA”), hospitals are required to screen and stabilize all patients who present to their emergency departments and certain other facilities. Hospitals cannot delay medical screening exams or treatment of an emergency medical condition to inquire about a patient’s method of payment or insurance status.

EMTALA includes a number of other requirements that should be reviewed by hospitals to assure compliance. Key requirements include:

1. Performing a medical screening exam on each patient who presents to the emergency department;

2. Refraining from transferring a patient with an unstable emergency medical condition unless a physician certifies that the benefits of transfer outweigh the risks;

3. Stabilizing patients with emergency medical conditions;

4. Ensuring that the receiving hospital has available space and qualified personnel, and has agreed to accept the transfer;

5. Making and sending copies of the patient’s pertinent medical records to the receiving hospital; and

6. Accepting appropriately transferred patients from other hospitals.

The supplemental compliance program guidance encourages hospitals to review and update their medical staff and other policies to assure compliance with EMTALA requirements. The OIG also recommends training of all medical and other hospital staff.

5. Substandard care

The supplemental compliance program guidance reminds hospitals that they are subject to exclusion from Medicare and other federal health programs if they provide substandard items and services to any patient. Neither knowledge nor intent is required to exclude a hospital or practitioner from participating in federal health programs. Indeed, the patient who is the subject of substandard care need not even be a Medicare patient.

The OIG encourages hospitals to carefully review their existing patient care activities to assure compliance with the Medicare Conditions of Participation for Hospitals.[vii] Compliance with federal and Joint Commission for the Accreditation of Healthcare Organization patient safety standards is also important.

6. Other Issues.

The supplemental compliance program guidance discusses a number of other issues that should be carefully reviewed by hospitals in connection with their compliance programs. Such issues include the provision of gifts or free services to Medicare and other federal health program patients, the waiver of copayments and deductibles for Medicare and other federal health program beneficiaries, the provision of preventive care screening examinations, compliance with the HIPAA privacy and security regulations, and routine charging of Medicare and Medicaid patients more than the usual and customary amounts charged to other patients.

The OIG concludes by reminding hospitals about the seven key elements of an effective compliance program including designation of a compliance officer and compliance committee, development of compliance policies and procedures, development of open lines of communication, compliance training and education, internal monitoring and auditing, corrective action when compliance problems are identified, and enforcement of disciplinary standards.

The OIG encourages hospitals to promptly report known compliance problems. The OIG also states that timely reporting will demonstrate the hospital’s good faith and will serve as a mitigating factor when the OIG evaluates and imposes administrative sanctions.

If you have any questions about the supplemental compliance program guidance and other compliance-related issues, please contact Thomas H. Taylor at 608-784-5678.

[i] Unless certain conditions are met, the “same-day rule” mandates that hospitals include on the same claim all OPPS services provided at the same hospital, on the same patient, on the same day. See Medicare Claims Processing Manual, chapter 1, section 50.2.

[ii] Under Medicare’s post-acute care transfer policy, a hospital will receive a per diem transfer payment in lieu of the full Diagnosis Related Group (“DRG”) payment, if the patient is discharged to certain nursing homes and other post-acute care settings with one of 30 DRG’s.

[iii] Examples of referral sources whose relationships with hospitals should be scrutinized carefully include nursing homes, home health agencies, emergency ambulance services, durable medical equipment vendors and providers, and pharmaceutical companies.

[iv] See 42 CFR §952(n).

[v] The final Stark I regulations define “designated health services” by specific CPT codes to include, among other things: clinical laboratory services; radiology services including magnetic resonance imaging, computerized tomography scans and ultrasound; radiation therapy services; physical and occupational therapy services; home health services, certain durable medical equipment and supplies, parenteral and enteral nutrients, equipment and supplies; prosthetics; outpatient prescription drugs; and, certain other inpatient and outpatient hospital services.

[vi] See OIG Advisory Opinion Nos. 05-01, 05-02, 05-03, 05-04, 05-05 and 05-06.

[vii] See 42 CFR Part 482. The conditions of participation relating to qualify assessment and quality performance improvement are set forth in 42 CFR §482.21. The conditions of participation relating to the medical staff are set forth in 42 CFR §482.22.