Lessons Learned the Hard Way: Case Studies from Compliance Consulting, and Consulting Support in Civil & Criminal Legal Matters

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1 Lessons Learned the Hard Way: Case Studies from Compliance Consulting, and Consulting Support in Civil & Criminal Legal Matters Jeffrey E. Sinaiko Senior Vice President April 25,

2 Outline Who we are Compliance Consulting Civil and Criminal Legal Matters Case Studies Transplant Laboratory Physician Practice Complex Reimbursement Issue 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 2

3 Who We Are Sinaiko Healthcare Consulting is a leading healthcare management consulting firm, assisting clients with mission critical assignments nationwide. Founded in 1990 by Richard Sinaiko, now employ staff of 20 Second company, The Coding Source, providing coding certification training, placement and outsourcing Service Lines: Operational / Reimbursement Performance Improvement Coding Audit Compliance Valuations Litigation Support Strategic Planning Serve academic medical centers, medical groups, health systems, IPAs, health plans and payors, with a particular emphasis on the provider side of the industry National practice; performed work in over 30 states and 2 foreign countries 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 3

4 Compliance Consulting Types of Projects Billing/Reimbursement Audits Coding Audits Operational Reviews Policy and Procedure Review and Development Training and Education Troubleshooting Issue Specific Guidance New Program Review Compliance Program Implementation, Review and Improvement Gap Analyses 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 4

5 Civil & Criminal Legal Support Types of Projects Billing audits Coding audits Complex interpretation of laws, statutes and guidance implementation Expert opinions/reports Expert witness testimony Independent Review Organization (IRO) Industry standard Gap analyses 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 5

6 Case Studies 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 6

7 Transition to an Independent Practice A medical center employed physicians under the academic medical center exception to the corporate practice of medicine law The academic nature of the medical center was not sufficient to sustain this status Thus the employed physicians had to be transferred to a foundation 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 7

8 Transition to an Independent Practice Situation: Transition 70 hospital employed physicians to independent physician organization Several different transplant specialties included in group Practicing entirely in hospital based space/clinics Need to separate hospital pre-transplant services and post-transplant ( physician ) services Operational, financial, reimbursement and customer service impacts 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 8

9 Transition Issues Staffing Issues Foundation must provide separate staff for provision of hospital and physician services I.D. badges must clearly identify private practice vs. hospital affiliation It is important that the private practice staff be exclusively dedicated to physician activities (when being paid for by physicians) Space Issues Pre-transplant/hospital service space must be clearly segregated from other space. Separation to occur by designating a floor, a ½ floor, or a wing for hospital services Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 9

10 Transition Issues Billing Issues (primarily governmental payors) Physician organization will bill Medical Center for the provision of services to hospital patients, e.g. pre-transplant testing Payments to the Physician organization in the provision of such services will be included in the Medical Center s costs Accordingly, the physicians will bill and receive reimbursement for the professional service provided in its exclusive use space 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 10

11 Transition Issues Reimbursement Issues (primarily government payers) The removal of new physician service space from the Medical Center license prevents the Medical Center from allocating overhead to those services The Medicare program requires that space and staff costs used for such services be allocated to a non-reimbursable cost center The allocation between pre and post-transplant services, for example, was subject of recent Intermediary audit Separation may address Medicare Intermediary concerns Should be an increase in physician reimbursement since space is no longer on hospital license and subject to a site of service reduction 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 11

12 Sharp Transplant Case Background Situation: US filed a complaint against Sharp HealthCare for violation of the False Claims Act (31 U.S.C et seq., and the California False Claims Act, Cal. Gov t Code et seq. US accused Sharp of submitting false claims for reimbursement in connection with its heart and kidney transplant centers since Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 12

13 Major Issues Cost Report Costs were reported on the Medicare Cost Report for employees who either performed functions for the organ transplant centers that were not reimbursable as organ acquisition costs or worked fewer reimbursable hours than reported Worksheets, time studies, motion reports or other documentation for transplant center staff (transplant nurse coordinator, financial coordinator, social worker, medical doctor, secretary and home health nurse) were not verifiable by independent auditors Other costs included on cost report inaccurately 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 13

14 Major Issues Medical Directorships Excessive payment for medical directorships for physicians affiliated with the transplant centers Directorships required few, if any, substantive duties by the physicians Compensation based on contracted hours, not on actual hours worked Some of these dollars ended up on cost report 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 14

15 Major Issues Lease of Office Space Below market rents for physicians affiliated with the transplant centers Leases should be based on fair market value (FMV) prices, not on volume of referrals Rental compensation paid to the hospital was not accurately reported as income on the annual cost report to offset expenses Research institute used hospital space for research (about 30% of time) for which it did not compensate the hospital the expense for that space was inappropriately allocated on the cost report Hospital staff used by the physicians for private practice purposes were not taken off the cost report for the time spent on private/non-transplant center work; the potential compensation due to the hospital by the physicians was not collected to offset expenses and can be seen as an inducement 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 15

16 Major Issues Other Contracting / Financial Coordination Issues Coordination of Benefits for new Medicare Patients (age of 65 primary insurance change) Varying case rate time periods Payment of contracted physicians versus faculty physicians (pay-out delays) Authorization requirements: tracking, documentation, benefits included (e.g., pharmacy benefits) Organ acquisition cost tracking Billing for split organ procurement Issues surrounding different organs Living-related donor charges Organs that take precedence when multiple organ transplantation 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 16

17 Lessons Detailed tracking of time and expenses (staffing, and nonstaffing) is vital Clear distinction between pre- and post-transplant (or more generally, hospital vs. non-hospital) services is critical Follow the revenue to allocate the expenses and rationalize the operations All physician contracts should be scrutinized by legal counsel and the FMV determinations should be well documented 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 17

18 Laboratory Billing Engaged by a criminal defense attorney to conduct a oneday site assessment, followed by a probe sample billing audit to determine whether or not the laboratory's clinical, operational, and billing practices are consistent with industry standards and representative of a legitimate laboratory business Clinical reference laboratory - providing services to physician offices and clinics by performing lab tests on blood or urine specimens and providing results of those tests to their clients 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 18

19 Lab Situation Site Visit After conducting the site review and interviewing employees of the laboratory, it appeared that the laboratory was engaged in providing legitimate laboratory services in accordance with industry standards The required infrastructure and processes of a fully functional laboratory appeared to be present, and, with the exception of atypical volume, were viewed as industry standard 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 19

20 Lab Situation Audit A random sample of thirty (30) accounts was taken, representing a total of 107 laboratory tests The net result of tests reviewed resulted in potential overpayments by Medical to the laboratory of only $72.45 The errors made on claims were not unusual billing errors, so we did not believe this represented a significant finding 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 20

21 Lab Situation Reason for the investigation Payor ran the potassium levels for all their patients for the last year. A significant number of the results indicated that the potassium levels were incompatible with human life. The laboratory was buying bad blood to run tests and bill under patient s Medi-Cal numbers received from local physicians under an illegal kickback arrangement. Lab owners were fined and went to jail 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 21

22 Major Issues Illegal kickback arrangements Aggressive marketers whose income was tied to the number of the illegal kickback arrangements made Fraud underlying otherwise seemingly legitimate operation 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 22

23 Lessons Just because billing is clean within industry standards doesn t mean that fraud was not committed Compliance assessment must be more thorough than just billing/documentation Operational assessments/truly understanding the nature of the business and the manner in which it is conducted is key 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 23

24 Expert Witness Case Former CFO of a large physician practice company was terminated after he discovered and informed company executives of Medicare fraud related to the repayment of credit balances Sinaiko was asked to: review several thousand claims for the appropriateness and timeliness of refunds and credit balance processes provide expert witness testimony on findings, as well as company s adherence to industry standard regulations 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 24

25 Major Issues The following were found to be in violation of Medicare Rules and Regulations. In many cases, they also violated the company s internal, written policies and procedures: Medicare and/or secondary payers overpaid on claims, but often were either not refunded, or refunded years after the fact only when asked Transfers were made between various claims on a patient s accounts, even though those claims were not involved in the credit balance in question Monies which should have been refunded were written off to an internal code WOTI (write of to income, believe it or not!) Patients often asked to pay the entire charge up front (sometimes even more than the charge), rather than the group first billing Medicare and any applicable secondary insurance The credit balance report was not being worked on a regular basis, contrary to written policy Patients and secondary payors being billed simultaneously 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 25

26 Lessons Credit balance reports must be worked on a regular basis, but no less than monthly Company policies addressing refunds, overpayments, and credit balances must be reviewed to ensure that they adhere to Medicare, Medicaid and other payor s Rules and Regulations It is far worse to have written policies that are correct, but not followed Staff working credit balances must have their work reviewed on a regular basis (weekly is optimal) to ensure that they are adhering to appropriate company policy It is not acceptable to transfer credit balances to other claims simply to zero out credit balances and the practice of transferring balances from one account to another with a balance must be done very carefully Medicare patients should not be asked to pay before the provider receives the allowed amount from Medicare/primary insurance and/or the secondary payor Monitor information systems settings to ensure statements, billing cycles, etc. are what they are supposed to be 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 26

27 Other Cases and Lessons Coding Case: Prominent Medical Group under Corporate Integrity Agreement for upcoding/unbundling Lesson: Prominence is no protection 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 27

28 Other Cases and Lessons Provider Number Case: Hospital-owned group self-disclosure for manipulation of billing under various physicians provider numbers Lesson: Short-term stop-gap measures can become major problems when left in place for the long-term 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 28

29 Overall Lessons Document arrangements, policies and procedures thoroughly Maintain detailed/accurate/supportable expense and revenue tracking Track time and expenses where hospital/physician services are co-mingled and follow the general rule that reimbursement and expense should strictly follow one another Perform regular independent audits - not just of billing, but of time tracking, allocations, space usage, etc. Incorporate recommendations for improvements and/or address audit findings in a timely fashion 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 29

30 Overall Lessons Do not ignore the squeaky employee or patient Start with a strong contract between hospital and physician and stick to both the letter and spirit of the agreement Maintain open lines of communication and make employees feel that their concerns are being addressed The 60 Minutes consideration - Even if a practice is not outright committing violations, how would the organization look on the cover of the local paper or if Dan Rather shows up at your door to investigate the issue? 2003 Sinaiko Healthcare Consulting, Inc. Proprietary and Confidential 30