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Lawsuit targets clawback plan on Medicare claims

Rochester Business Journal
January 4, 2013

An initiative of the Centers for Medicare and Medicaid Services has independent contractors taking a second look at Medicare claims already paid. The process is creating reams of paperwork for hospitals while at best wringing out questionable savings for taxpayers, area health care officials say.
Contractor-driven Medicare clawbacks are a major problem for hospitals nationally, the American Hospital Association says. It, along with four hospitals in Missouri, Michigan and Pennsylvania, has filed a lawsuit challenging the legality of the program.
The action, filed in November in federal court for the District of Columbia, claims that the use of outside contractors violates the administrative procedures provision of Medicare law. The trade group also maintains hospitals should get at least some payment for many of the claims CMS is retroactively denying.
The U.S. Department of Health and Human Services did not respond to a request for comment regarding the action's claims.
If the lawsuit succeeds, it could have consequences for the Patient Protection and Affordable Care Act, which counts on savings wrung from Medicare to help pay for its reform initiatives.
Known as recovery audit contractors, the Medicare claim reviewers have the power to look back three years and reverse previous claim approvals, requiring providers to return Medicare payments they received.
CMS pays the contractors on a contingency basis, individually negotiating fees based on a percentage of money recovered from claims they deny. That arrangement saves taxpayers the costs of regular salaries and benefits that reviewers would collect as full-time government employees. But critics say it encourages contractors to make harsh judgments.
And while CMS has given Congress documentation showing funds the audit program has saved, local health system officials point to millions of dollars in extra costs their hospitals are racking up to deal with the audits.
The audit contractors also are supposed to look for instances when Medicare underpaid hospitals and then authorize corrective payments. Although the retroactive review programs could benefit hospitals, contractors have turned out to be far better at finding overpayments than correcting underpayments, the AHA asserts in court papers.
The hospital group's complaint cites figures reported to Congress by CMS, showing that 4 percent of audit contractors' determinations in claim reviews during a three-year demonstration project before 2009 found that Medicare had shortchanged hospitals. Since then, contractors have clawed back $1.86 billion from providers and authorized $245.2 million in additional payments to providers.
Hospitals can challenge the clawbacks, and when they do, they succeed more often than not, the AHA complaint states, citing figures culled from hospitals belonging to the 5,000-member trade group.
But while claim challenges often succeed eventually, local hospital officials said, the process of shepherding challenges through a five-step review can take two years to complete, adds incalculable hours of staff time, stresses overworked administrative staff and ties up funds.

'Bounty hunters'
The problem with the recovery audit contractor program lies less with the idea of retrospective claim review than with CMS' model of using independent contractors, suggested Leonard Shute, chief financial officer of the University of Rochester's Strong Memorial and Highland hospitals.
"I have no problem with retrospective reviews," Shute said. "We've had that for years. It's different with the RACs. They're bounty hunters."
A bugaboo for hospitals has been the high number of reversals of claims in which patients admitted for medically appropriate treatments could have been more appropriately cared for in outpatient settings.
Forty-one percent of the audits' adverse determinations during the demonstration phase did not dispute the medical necessity or otherwise question the appropriateness of the short-term patients' treatments, the AHA states in court papers. But the claims were rated as deniable on the grounds that patients could have been cared for just as well in less expensive ambulatory settings.
For audit contractors, short-term stays are low-hanging fruit, said Christine Miller, Unity Health System director of corporate compliance. But in focusing on such stays, the for-hire claim reviewers end up punishing hospitals for being too good at what CMS has long asked them to do: cut costs by cutting utilization.
"For years the focus has been on shortening stays," Miller said. "We got good at it. Now we get reviewed because it puts us on the radar for ambulatory questions. There's a question of fundamental fairness."
In reviewing claims for admissions made one, two or three years earlier, contractors have the benefit of hindsight, she said. Even if a patient could have been treated as well in an ambulatory setting, that might not have been clear to the emergency room doctors or attending physicians who decided to admit that patient for a hospital stay.
The contractors "already know the end game," Miller said. "Our doctors had no way of knowing the outcome at the time."
Besides raising patient safety concerns, Miller said, if an outcome is not good, a decision to send a patient to an ambulatory center can come back to bite a hospital and the admitting physician in the form of a malpractice suit claiming the patient should have been hospitalized.
In an evaluation of the audit contractor initiative's three-year demonstration project, CMS found that it worked well. Providers challenged 14 percent of audit determinations and won 33.3 percent of those appeals. The program's net return to the Medicare Trust Fund was $693.6 million, according to the Medicare agency's 2008 report to Congress.
But since then, the AHA maintains in its lawsuit, figures gathered from association members show that U.S. hospitals have on average won reversals in 75 percent of the challenges to contractor audit findings.

Local wins
Over the past two years, Unity Hospital has tracked the national average, winning 75 percent of the challenges it has made, Miller said.
Strong Memorial and Highland hospitals have done better than the national average, winning reversals of 80 percent of contractors' retroactive claim denials, said Diane Zimmerman, whose liaison position with the University of Rochester Medical Center was created to deal with the contractor audits.
Since the program's inception, URMC has repaid $325,000 and is in various stages of appeals on an additional $1.7 million in claims retroactively denied by contractors.
Miller declined to supply details on Unity's costs for the contractor audits. Still, like the URMC officials, she said the program's full cost to hospitals goes far beyond the money returned to Medicare. Over the past two years, Unity's costs for the contractors' recovery audits included $104,000 in consulting fees and $13,000 for copying. But not all audit-related costs are easily determinable, she added. 
The audits consume incalculable hours of staff time, URMC's Shute said. Zimmerman and assistants to her, whose work time is equivalent to two full-time jobs, are devoted to recovery audit contractor issues. Determining exactly how many more hours are spent on recovery audit matters by employees who have broader responsibilities would only compound an impractical exercise.
Shute's and Miller's complaints echo points raised in the AHA suit, whose progress they are following. The local officials also endorse the AHA's other main point in the suit: Even if retroactive denials are allowed to stand for claims involving medically necessary Part A short-term hospital stays, CMS should at least pay the lower Part B rate that Medicare allows for ambulatory treatments. As it now stands, CMS simply asks for all of the Part A money back.
"Neither the Medicare Act nor its implementing regulations erect any administrative barriers to full Part B payment following a Part A denial." the AHA asserts in court papers. "CMS' refusal to pay for these services is unlawful, and it is hurting hospitals and patients alike."
Doctors who order short-term stays for patients do so in good faith, applying their best medical judgment to the facts of a case, Unity's Miller said. Some of the contractors reviewing those decisions are doctors, but others are not. Why, she asked, should the judgment of a registered nurse or licensed practical nurse whose only acquaintance with a case is paperwork have more weight than that of a physician who was on the scene?

1/4/13 (c) 2013 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email

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