Rooting out physician fraud: The government’s plan

By Michelle Peirce and Meghan Cosgrove

Physicians and other health care professionals should take heed: the Office of Inspector General (OIG) of the Department of Health and Human Services, which is responsible for rooting out health care fraud, recently announced its areas of focus for 2008.

The OIG’s “Work Plan” for fiscal year 2008 was released on Oct. 1, 2007.

The plan sets forth the government’s priorities for investigating health providers, including physicians, for potential health care fraud.

Health care fraud concerns are, or should be, on all physicians’ radars. Complex and sometimes counterintuitive rules and regulations can create traps – civil, administrative, and criminal – for even the best-intentioned physician.

These concerns have been magnified in recent years for a variety of reasons.

First, the Deficit Reduction Act of 2005 dramatically increased the federal government’s role in combating health care fraud and abuse.

Under the Act, the OIG is guaranteed an additional $25 million per year for fiscal years 2006-2010. In general, the Act’s expansion, plus the fraud provisions contained in the Health Insurance Portability and Accountability Act of 1996 (HIPAA), increase the odds that any single physician could be examined.

Second, because health care fraud and abuse has become a policy priority for both the federal and state governments, the OIG has noticeably picked up the pace of its audits and investigations. From April 1, 2006 to March 31, 2007, the OIG estimated a $2.3 billion recovery from its audit activities, a 249 percent increase from the same period five years ago.

All of this adds up to an environment where physicians and other providers must pay meticulous attention to Medicare regulations and ensure that the individuals who do their billing adhere to them as well. Failure to do so can result in civil or criminal penalties, exclusion from participation in federal health care programs like Medicare and Medicaid and loss of medical licensure.

Although the OIG’s 2008 Work Plan covers all health care providers, such as nursing homes, hospitals and others, this article highlights the new areas affecting physicians and other health professionals.

Medicare assignment rules

The OIG plans to examine provider compliance with Medicare assignment rules.

Under Medicare regulations, the right to reimbursement for health care services belongs to the beneficiary – the patient.

The patient legally assigns his or her right to payment to the treating physician in exchange for the physician agreeing to accept payment directly from Medicare.

Providers who accept assignment agree to accept the Medicare fee schedule amount as payment in full and may not charge a Medicare patient more than the applicable deductible and co-payment amount for Medicare-covered services.

Violating a provider’s Medicare assignment agreement may result in civil monetary penalties and possible exclusion from Medicare and other federal health care programs.

The OIG warned of potential liability for assignment violations in a March 2004 Fraud Alert. A participating physician entered into a settlement agreement with the OIG to resolve allegations that he charged Medicare patients a $600 annual fee for services that he alleged were “not covered” by Medicare.

In the Fraud Alert, the OIG concluded that these services were, in fact, covered, and that the physician had violated his Medicare assignment agreement. Although the violation at issue in the Fraud Alert was in the context of an additional charge for a concierge or boutique medical practice, any additional fee for a Medicare-covered service, beyond a patient’s applicable deductible or co-payment, can violate a provider’s Medicare assignment agreement.

In 2008, the OIG plans to examine the extent to which providers may be billing patients in excess of this amount and assess whether patients are aware of their rights and responsibilities regarding potential assignment violations.

Sleep and polysomnography services

Sleep study is another area that has apparently caught the OIG’s attention.

Medicare reimburses for polysomnography tests (studies of sleep cycles and behaviors) performed at a sleep clinic when those studies are “medically necessary” and a patient has symptoms consistent with sleep apnea, narcolepsy, impotence or parasomnia.

According to the Work Plan, Medicare payments for sleep studies have increased from $62 million in 2001 to $170 million in 2004 – a 174 percent increase.

Although not explicitly stated in the Work Plan, it has been argued that physicians’ financial investments in sleep labs may explain the dramatic increase in physician ordering of sleep studies.

In most cases, a physician referral to an entity in which the he or she had a financial interest would be prohibited under the Stark Law, which bars a physician from referring a patient for certain “designated health services” to an entity with which the physician, or the physician’s immediate family member, has a financial relationship.

General polysomnography tests are not categorized as a designated health service under Stark, making physician ownership of sleep clinics a viable option.

Nonetheless, the increased volume of sleep studies has apparently caused the OIG to decide to investigate compliance with the medical necessity guidelines for sleep tests. Accordingly, providers can expect a careful review of their decisions to refer a patient to a sleep lab and bill for that care.

Medicare payments for psychiatric services

The OIG will review Medicare payments for psychiatric services to ensure compliance with §1862(a)(1)(A) of the Social Security Act, which provides that Medicare will only pay for services that are “medically necessary.”

The nature of psychiatric services, as well as special rules that limit the coverage and reimbursement of these services under the Medicare program, can make it difficult for providers to support the medical necessity of the services provided.

Medical necessity audits typically focus on whether the supporting documentation justifies the services billed.

Thus, some psychiatrists and psychologists, especially those whose reimbursements appear higher than other similarly-situated practitioners, may find themselves the subject of audits in 2008.

Independent Diagnostic Testing Facilities

Independent diagnostic testing facilities (IDTFs) perform diagnostic procedures independent of a physician office or hospital.

These facilities have a history of non-compliance with Medicare regulations leading to improper payments.

In 2008, the OIG plans to audit these facilities to review the appropriateness of the services they provide as well as their billing patterns in areas with a high concentration of facilities.

The announcement of this audit comes on the heels of these facilities becoming subject to a new standard, under the Nov. 1, 2007 Medicare physician fee schedule final rule, meant to curtail certain leasing arrangements by these facilities that may facilitate the overutilization of diagnostic services.

Specifically, the new standard prohibits a facility from sharing space or equipment with, or from leasing or subleasing their operations to, another Medicare-enrolled individual or organization.

Services performed by social workers

Another key area included in the OIG’s Work Plan concerns services furnished by clinical social workers to inpatients of Medicare participating hospitals or skilled nursing facilities.

Under consolidated billing requirements for services provided at these facilities, those services are payable under Medicare Part A and cannot be separately billed by a clinical social worker under Medicare Part B.

Accordingly, the OIG says it will look for “double billing” by the hospital or skilled nursing facility under Part A and by the clinical social worker under Part B.

Physicians or facilities with concerns about this type of billing should consider an attorney-controlled audit. This audit can determine whether there is a potential problem and the audit should remain privileged.

Other new areas

The four remaining new risk areas outlined in the Work Plan are more targeted.

These include a review of geographic areas with high ultrasound services utilization, the appropriateness of Part B payments for certain physician services, physician reassignment of benefits and long distance physician claims for home health and skilled nursing facility services.

Ongoing audits and investigations

The OIG’s 2008 Work Plan also lists a number of areas that, although not new, will continue to be a high priority and are important to keep in mind.

Physicians should be aware of the OIG’s continued interest in compliance with Medicare “incident to” regulations – which involve services performed by ancillary staff members that are integral although incidental to a physician’s professional services – including the requirement of direct physician supervision over these services.

The OIG also will continue to evaluate the financial relationships among parties that deliver and utilize MRI services. This investigation may be tied to the Illinois Attorney General’s recently re-filed lawsuits against MRI centers suspected of alleged kickbacks to referring physicians through allegedly sham leasing arrangements that essentially paid referring physicians for MRI and CT scan referrals.

Finally, Medicare paid almost $2 billion for interventional pain management procedures in 2005. Given the high rate of growth in this relatively new medical specialty, the OIG plans to continue to review the appropriateness and oversight of Medicare payments for these procedures.

You can read the OIG’s Work Plan for 2008 on Massachusetts Medical Law Report’s website at:

Questions or comments should be directed to the editor at: reni.gertner@mamedicallaw.com

Michelle Peirce and Meghan Cosgrove are lawyers at Donoghue, Barrett & Singal, P.C., in Boston. Peirce is a litigator whose practice includes representing physicians and hospitals in licensure actions and civil and criminal enforcement actions. Cosgrove is a health law attorney who concentrates in regulatory and administrative health law as well as fraud and abuse issues on behalf of health care providers.