Auditors: FL overbilled Medicare $374 million in 3 years

Florida Health News--July 23, 2008

By Bill Hirschman

Florida hospitals and doctors overbilled Medicare by more than a third of a billion dollars since 2005, according to results from a pilot program to become permanent this fall.

The three-year project identified $374 million in overcharges on claims from Florida alone, government reports show. Overcharges totaled nearly $1 billion from all six states that were checked.

After paying expenses, the six-state project refunded $700 million to taxpayers. While that’s only a small fraction of Medicare’s total spending during the test period, health policy analysts say it’s significant.

“Certainly that’s not going to solve the financing challenge, but Medicare needs every dollar it can get,” said Marilyn Moon, a former Medicare trustee who now is health program director for American Institutes for Research.

The program’s real worth, she said, is the message it sends both to Medicare providers and a skeptical public. “You want to set a standard that says we are going to audit, we are going to make sure these are legitimate claims.

“Hospitals are probably less likely to try that same kind of overbilling in the future,” Moon said.

Florida hospital officials don’t challenge the idea behind the program, but they argue the pilot was plagued by logistical problems and poor judgment. Thousands of watchdogs’ decisions were overturned.

“We’re not going to claim (the pilot project) was perfect, but it was a demo and we’ve learned from it, said George Mills, deputy director of financial services for the Centers for Medicare and Medicaid Services.
C. Kennon Hetlage, CEO of Memorial Hospital West in Broward County and board chairman of the South Florida Hospital and Healthcare Association, called the process “onerous.”

Officials with the federal Centers for Medicare & Medicaid Services (CMS) were so pleased with the results of the pilot, which ended in March, that they are making the program permanent and expanding it across the country. “We just have tremendous long-term financial issues in Medicare financial solvency,” Mills said.

Contractors will be selected by late September. The program should be operational in 19 states, including Florida. shortly after that, said Melanie Combs-Dyer, CMS senior technical advisor. Other states will be phased in during 2009, and the entire country should be covered by the program no later than January 2010.

The project came about because of government auditors’ estimates that taxpayers were losing $10.4 billion each year to doctors and hospitals that overbilled the government for serving Medicare patients. That was equivalent to nearly 4 percent of claims from hospitals, skilled nursing homes and doctors.

If CMS could reduce that loss, Mills said, the trickle-down effect would stave off higher deductibles, premiums and co-pays for beneficiaries.

So in March 2005, Medicare officials hired companies they called “Recovery Audit Contractors” (RAC) and put them to work in states with the most claims: Florida, New York and California. The program expanded in 2007 to Massachusetts, South Carolina and Arizona.

The RAC firms sifted through claims, looking for overpayments ranging from unintentional coding errors to what might be interpreted as fraud. For instance, one hospital billed for three colonoscopies conducted the same day on the same patient.

The results were astounding, CMS said. The RAC watchdogs identified $992.7 million in overpayments in the six states. The RAC that was checking Florida claims found 236,000 overpayments totaling $374 million.

Some hospitals felt the sting. Nearly half of Boca Raton Community Hospital’s $28 million financial loss in 2007 resulted from the program, according to The Palm Beach Post. The losses led the hospital to replace its CEO and postpone building a $600 million academic medical center at Florida Atlantic University. Officials at the hospital declined to be interviewed for this article.

Hospital groups claimed the RACS were “bounty hunters” because they got a percentage of every claim they questioned, even if their decision was later overturned on appeal.

Providers nationwide appealed about 14 percent of the RAC denials, and a third were overturned. Many appeals are pending.

In Florida, 17 percent of RAC allegations were appealed and 40 percent of appeals were successful.

Complaints about RACs during the pilot project spurred CMS to change some of the rules for the permanent program. Health-care providers said:

–The payment system for RACS created an incentive to flag too many claims. The agency changed the rules so that now RACs get a bonus only if the claim rejection is upheld on appeal.

–RACs sometimes overwhelmed them with demands for voluminous records. CMS has limited the number of records that can be requested.

–More than 40 percent of the RAC denials were classified as “medically unnecessary services,” but often those services were ordered by the patient’s physician. CMS will require RACs to hire medical directors who can be consulted about medical appropriateness.

For its part, the Las Vegas company hired to recoup the money in Florida, Health Data Insights, “is proud of the work we did on the pilot project and our efforts to improve the process going forward,” wrote Lane Edenburn, executive vice president and general counsel, in an e-mail reply to questions.

Financial hits like those at Boca Raton Community Hospital are rare, he added. About 94 percent of Florida hospitals lost less than 2.5 percent of the reimbursements they claimed in 2007. The recent CMS evaluation showed roughly two-thirds of the providers in Florida and South Carolina lost no money at all.

Health-care providers don’t oppose the program’s goals, said Walter Bussell, CFO for Memorial Hospital West. In some cases, RACs found errors in hospitals’ favor, returning $37.8 million in the six states. More important, the RACs highlighted systemic problems in hospitals’ billing systems that could be corrected, Bussell said.

As proof of the RACs’ effectiveness, CMS officials point out that the error rate on billings dropped to just under 4 percent last year, down by 10 percentage points from a decade earlier.

Health-care providers should aggressively challenge RAC denials, said Joanne Erde, a partner with the Duane Morris law firm of Miami. “I will encourage everyone to file on appeals on every outstanding claim, not just on the merits but (challenging) the procedural basis,” she said.

Alyssa Keefe, senior associate director of the American Hospital Association, wants CMS to impose greater penalties for poor RAC performance and to allow hospitals to rebill the government if a claim is denied unfairly. She also wants RACs limited to 12 months of records instead of three years.

Above all, Keefe wants the rollout slowed down to give CMS and the medical community time to tweak the system further.

“Stop and fix it,” she said.