United States: Government Panelists Address Fraud and Abuse and LTCHs at ABA Conference

On November 6-7, 2003, the American Bar Association ("ABA"), Health Law Section held its first annual Washington Healthcare Summit in Washington, D.C. (the "ABA Summit"). The conference offered a wide variety of panel discussions and presentations on recent legal developments affecting the health care industry. Representatives from the government, provider and patient associations, and attorneys in private practice offered multiple perspectives on some of the most significant issues that health care providers face today. Several presentations on health care fraud and abuse and a panel discussion on long-term acute care hospital ("LTCH") reimbursement and regulation provided particularly valuable insights.

Jonathan L. Diesenhaus of the Department of Justice (the "DOJ") Civil Division, Fraud Section discussed ways that the DOJ is interpreting the federal civil False Claims Act to bring false claims cases against health care providers for violations of unrelated laws that lead to false claims, otherwise called "bootstrapping" cases. Some of the most common bootstrapped false claims cases involve allegations that a provider has violated the federal anti-kickback statute or the Stark law prohibiting physician self-referrals. The DOJ has interpreted the False Claims Act in this expansive way on the theory of implied certification, i.e., that health care providers who participate in federal health care programs must comply with every law that has a nexus to billing federal health care programs, and that a violation of any such law could also constitute a violation of the False Claims Act because the provider has impliedly certified that it is in compliance with those laws each time it submits a claim for a service or item to a federal health care program for reimbursement.

The DOJ representative stated that the materiality of the violation is taken into consideration before a lawsuit is filed. Moreover, the DOJ must prove each element of the False Claims Act and the underlying law to prove its case. He also acknowledged that both the Second Circuit Court of Appeals and the Fifth Circuit Court of Appeals have issued decisions that disagree with the DOJ’s theory of implied certification or its estimation of materiality in certain circumstances. Nevertheless, the DOJ continues to refine its use of the False Claims Act in this manner with new cases filed each year.

Generally, these types of bootstrap-ping cases allege a violation of the anti-kickback statute. However, the Stark laws, if applicable, pres-ent an easier case for the DOJ to try because it is not an intent-based law like the anti-kickback statute. A Stark false claims case alleges false billing as a result of a prohib-ited referral by a physician. The DOJ will sue the hospital for sub-mitting the false claims but may or may not sue the physician, depend-ing on the facts involved.

In another session, Lewis Morris, General Counsel of the Department of Health and Human Services ("HHS"), Office of Inspector General (the "OIG"), discussed the responsibilities of the OIG and ways that his office is currently exercising its authority. According to Mr. Morris, the Office of Counsel at the OIG is comprised of approximately 65 people who act as "agents of positive change" or watchdogs for HHS programs. The OIG is an independent office, but reports to the Secretary of HHS. It has no programmatic operating responsibilities. In the Office of Counsel’s function as in-house counsel, it advises auditors and evaluators, including 350 criminal investigators, 80 percent of whom conduct examinations of the Centers for Medicare & Medicaid Services ("CMS") and CMS programs to identify overpayments and other program inefficiencies.

The OIG also uses its enforcement authority to exclude health care providers from participation in fed- eral health care programs, impose civil monetary penalties ("CMPs"), and require corporate integrity agreements ("CIAs"). While the OIG has eased some of the requirements in CIAs for providers that, for example, have compliance programs already in place, Mr. Morris also stated that the OIG will use its CMP authority "creatively" in future kick-back cases while continuing to interpret the anti-kickback statute broadly, using the Greber "one purpose" test. However, because of limited time and resources, the OIG expects to file cases where one or more "evils" are present (e.g., anti-competitive effect, inappropriate patient steering, harm to the Medicare program). Moreover, providers should talk to the OIG earlier rather than later when exclusion is a possibility, i.e., before a settlement is finalized with the DOJ.

As a preventative measure, Mr. Morris recommended that, if there is concern that a proposed arrangement may present fraud and abuse issues under the anti-kickback statute, the provider should seek an advisory opinion from the OIG. The OIG representative stated that the office is a "big believer" in advisory opinions to give providers some assurance that a proposed arrangement presents an acceptable level of risk.

Another panel at the ABA Summit discussed LTCHs. Tzvi Hefter, Director, Division of Acute Care, Hospital and Ambulatory Policy Group, Center for Medicare Management, CMS, spoke briefly about how CMS looks at the ways in which its policies affect the movement of patients from general acute care hospitals to LTCHs. He also discussed the agency’s con-cerns about the hospital-within-a-hospital ("HIH") model being used by some LTCHs, and the fact that the Bush administration is more concerned about HIHs than was the Clinton administration. It is not the intent of the HIH rules to allow one hospital company to own both the "host" hospital and the HIH, he said, but having a management company operate the HIH is less of a concern. He stated that this issue of dual ownership will be addressed in an upcoming rule-making, most likely some time in the spring of 2004.

A second area of concern for CMS is LTCH compliance with the performance of basic hospital functions requirement in the HIH regulations. This requirement is found at 42 C.F.R. § 412.22(e)(5) and requires that an HIH meet one of three criteria. LTCH HIHs typically choose to comply with the second requirement— that the LTCH’s purchase of services from the host hospital will not exceed 15 percent of the LTCH’s inpatient operating expenses. CMS may be taking a closer look in the future at HIH compliance with this regulatory requirement.

Finally, Mr. Hefter stated that CMS is interested in rehabilitation hospitals being reimbursed by Medicare as LTCHs and whether it makes sense to pay those hospitals more than other rehabilitation hospitals. However, he did not say when or how any action would be taken by CMS on this issue.

Sally Kaplan, Esq., representative from the Medicare Payment Advisory Commission ("MedPAC"), presented some of the statistical data and findings that MedPAC has recently developed on LTCHs. MedPAC is an independent federal body established by the Balanced Budget Act of 1997 (P.L. 105-33) to advise the U.S. Congress on issues affecting the Medicare program, including payments to providers and health plans, access to care, and quality of care.

Ms. Kaplan noted that LTCHs are now the fastest growing area of the Medicare program. On average, MedPAC has found that 70 percent of an LTCH’s revenue is from Medicare reimbursement, 80 percent of LTCH patients are transferred from short-term care hospitals, and less than 1 percent of all Medicare beneficiaries use LTCHs, making LTCHs the least-used Medicare patient care setting. Medicare spending on LTCHs has increased 22 percent annually on average between 1993 and 2003, increasing from $398 million in 1993 to an estimated $2.7 billion in 2003. In addition, the mortality rate for LTCHs is 15-20 percent higher than general acute care hospitals.

On average, freestanding LTCHs received 42 percent of patient referrals from their primary referrals sources, whereas LTCH HIHs received 61 percent of patient referrals from their primary referral sources. MedPAC also found that patients who used LTCHs had a longer acute hospital average length of stay than other hospital patients and were three-to-five times less likely to use a skilled nursing facility ("SNF") after discharge from the LTCH. MedPAC concluded that LTCHs do not appear to be a substitute for general acute care hospitals or SNFs. MedPAC will continue to examine LTCHs, including the factors that predict LTCH use, by preparing a multi- varied analysis to compare patient outcomes for, and similarities between, LTCHs and non-LTCHs.

Robert Ortenzio, CEO of Select Medical Corporation, discussed the provider’s perspective on the benefits of LTCHs. In response to CMS’s concerns about LTCH HIHs, Mr. Ortenzio stated that the HIH model is highly efficient because freestanding LTCHs are very expensive to build and Medicare dollars are better used for patient services than for bricks and mortar. He added that LTCHs serve a function within the patient care continuum because of the complex care they provide to patients with relatively long hospital stays, something that short-term care hospital intensive care units are ill-equipped to provide for any length of time. In conclusion, he added that some of the LTCH arrangements CMS is concerned about could be addressed through a more narrow definition of an LTCH in the Medicare regulations to further differentiate LTCHs from short-term care hospitals and SNFs.

Mr. Ortenzio believes that some of the geographic differences between LTCHs will become less significant as the industry matures and certificate of need states begin to allow LTCHs. Further, he stated that LTCH operating margins are far less on average than short-term care hospitals, and Medicare pays LTCHs dramatically less than commercial insurance payors. According to Mr. Ortenzio, LTCHs comprise a young industry that is experiencing real growth for the first time. 

This article is presented for informational purposes only and is not intended to constitute legal advice.