D&O Coverage: Understanding the Role of Outside Directors

(March 29, 2010): A Federal court recently preliminarily approved a $55.95 million settlement involving securities claims against outside directors in a case against Peregrine Systems, Inc.  This is one of the largest ever recorded settlements involving outside directors.  Pursuant to the settlement, several former Peregrine directors agreed to settle claims for $55.95 million. It has been reported that the Peregrine’s insurers contributed to the settlement, and the outside directors are pursuing coverage from the excess insurers.  However, the payment terms of the settlement indicate that a large part of the settlement will be paid from the outside directors’ personal assets.  So how do you respond when your outside directors ask you about your company’s D&O insurance?

I.     An Overview of the Peregrine Systems Litigation:

In 2002, plaintiffs filed securities class action lawsuits against Peregrine, certain Peregrine officers and directors, and various other defendants. The outside directors settled these claims for $55.95 million. Like prior settlements involving personal contributions from outside directors, the case featured elements including a bankrupt company, insider trading allegations, a huge accounting restatement and officers guilty of criminal charges.

II.     Why Peregrine’s  D&O Coverage Proved Inadequate to Fully Cover Losses of the Outside Directors:

Court records reveal that Peregrine Systems Inc. maintained $20 million of D&O insurance: $10 million primary, and two $5 million excess policies. The total $20 million limits, in the face of massive litigation, proved insufficient to meet all of the defense and settlement costs.  Court records also show that Peregrine’s primary policy did not contain application “severability” or other non-rescission wording to protect innocent directors. Therefore, the D&O insurers sought to rescind coverage as to all named insureds under the policies, rather than just the officer defendants who pleaded guilty to crimes.

III.     How to Avoid Personal Contribution by Outside Directors In The Event of Claims:

One thing that can be done to prevent personal contribution by outside directors in the event of claims is to insert “severability” provisions to carve back coverage for outside directors if that officer’s conduct triggers allegations of fraud, criminal conduct, or the exclusion of illegal profits. These exclusions should include a “final adjudication” requirement, ensuring they are not triggered until after a court determines that insured persons engaged in the excluded conduct.  In addition, companies should make sure that “priority of payment” provisions are included to ensure that Side A director losses are paid before the policy pays for covered losses of the company, either through its indemnity obligation under Side B or for covered Side C claims directly against the company.  Furthermore, companies should provide adequate and “non-rescindable” Side-A only excess “difference in conditions” (DIC) coverage to insure directors have sufficient insurance in the event indemnification is unavailable from the company, the underlying limits are eroded by company claims, or the underlying insurers deny coverage to the directors. Include in the Side A policies automatic “reinstatement of limits” for outside directors only.  Finally, consider purchasing independent director liability (IDL) policies that can apply to a single nonofficer director, or group of such directors.

David Parker has extensive experience representing corporations, their officers and / or directors in connection with corporate-related litigation.  Should you have questions about these issues, call Mr. Parker for a complimentary consultation at: 1 (800) 475-1906.

Senator Dodd: Dabbling in Major Corporate Governance Reform

(March 29, 2010): Chairman of the Senate Banking Committee, Senator Chris Dodd (D-Conn.) is flaunting  his “regulatory reform” bill, the Restoring American Financial Stability Act of 2010, as a bi-partisan effort with Senate Republicans  and Committee Ranking Members.

Senator Dodd stated on March 11, 2010: “I have been fortunate to have a strong partner in Senator Corker, and my new proposal will reflect his input and the good work done by many of our colleagues as well.” Senator Dodd’s draft financial reform bill, over 1,000 pages long, is primarily aimed at regulating financial institutions and their products.  Under the bill, the Federal Reserve would gain new powers over non-bank financial firms and keep much of its authority over banks.  However, it also includes several corporate governance and executive compensation provisions that would apply to all public companies.

The corporate governance provisions would require the following:

• The SEC would need to adopt rules requiring companies that are subject to the SEC’s proxy rules to include shareholder nominees for the board in the company’s proxy statement on terms determined by the SEC.
• Companies listed on securities exchanges would be required to adopt a majority voting standard in uncontested elections. Any directors that do not receive a majority vote would be required to resign. The board must accept the resignation or vote unanimously to reject it and disclose the reasons for the rejection.
• Companies listed on securities exchanges would be prohibited from having a staggered board unless approved by shareholders.
• Companies would be required to disclose in their annual proxy statements the reasons they have chosen to either have a single CEO and chairman or have separated the CEO and chairman positions.

The executive compensation provisions would require the following:

• Companies subject to the SEC’s proxy rules would be required to have an annual advisory vote on executive compensation and golden parachutes.
• Companies would be required to include proxy disclosure of the relationship between executive compensation and financial performance, and a pictorial comparison of the amount of executive compensation and the company’s financial performance over the preceding five years.
• Compensation committee members of companies listed on securities exchanges would need to satisfy independence standards established by the national securities exchanges. In addition, the SEC would be required to adopt rules ensuring that any compensation consultant, legal counsel, or other advisor to the compensation committee was “independent” (as defined by the SEC).
• Companies would need to develop and implement a clawback policy that would require recovery of all incentive-based compensation from all executive officers (both current and former) in the event of a financial restatement, for the three-year period preceding the restatement in excess of what they would have been paid under the restatement.
• Companies would be required to disclose whether their employees are permitted to engage in hedging activities that are designed to hedge or offset market declines affecting compensatory equity awards.

This bill, if passed, would significantly alter the landscape for executive and corporate compensation.

A number of Liles Parker have extensive experience representing corporate clients in compliance matters.  For more information on this or other corporate issue, please give attorney David Parker at 1 (800) 475-1906.

Leonard Schneider to Join Firm as Partner

(March 27, 2010): Liles Parker is pleased to announce that Leonard Schneider, Esq. will soon be joining our firm as Partner.  Mr. Schneider will be a  Partner at Liles Parker and manage our new Houston office, providing our firm a greater ability to handle a wide variety of corporate, health care and administrative matters.

Mr. Schneider is an experienced administrative attorney and is well-versed in litigation matters as well.  Serving as the Assistant District Attorney in Galveston, Texas, he tried a number of felony criminal  cases, gaining valuable real-world trial experience along the way.  Mr. Schneider has also acted as City Attorney for a number of towns and cities around Texas, providing legal guidance on a number of administrative and contractual issues. In this arena, Mr. Schneider drafts and reviews contracts, monitors guidance and statements issues by city authorities, evaluates bidding and purchasing processes on construction projects and assists municipalities with the purchase of real estate. Additionally, Mr. Schneider represents cities in connection with law suits brought against them or suits they are pursuing. In this way, he is able to keep his litigation skills well-honed while developing his legal expertise in a number of other fields.

Notably, Mr. Schneider is also knowledgeable of health care administrative law practices and requirements.   He exercises an up-to-date understanding of the rules and regulations governing Federal health care programs.

Liles Parker is extremely happy to welcome Mr. Schneider to the firm. Given his broad range of corporate, criminal and administrative legal experience, we anticipate he will provide valuable insight to all of our clients while ensuring our continued commitment to quality legal services. Should you have any questions or would like to speak with Mr. Schneider about his legal services, please call our new Houston office at (713) 432-7474, or send an email to Mr. Schneider’s new address: lschneider@lilesparker.com. We wish Mr. Schneider the best of luck and look forward to working with him to continue to provide our clients exceptional legal representation.

Leonard Schneider, J.D., is a partner at Liles Parker.  While he primarily works out of the Houston office, he serves as chief litigation counsel on commercial litigation cases around the country being handled by the Firm.  Please feel free to call Mr. Schneider for a free consultation.  He can reached at: 1 (800) 475-1906.

 

A Look at the Opposition – For AdvanceMed, it’s Not Personal, it’s Just Business — Big Business . . .

(March 26, 2010): Overview:  Over the next few days, we will be publishing a brief overview of specific Zone Program Integrity Contractors (ZPICs) – the companies who have been hired by CMS to conduct the medical reviews of Part A and Part B health care providers around the country.  As we have previously discussed, over the last year, ZPICs have been taking over where Program Safeguard Contractors (PSCs) left off.  While our firm is still handling a number of cases that were initiated by PSCs, all of our recent cases have involved ZPICs.

As PSCs and ZPICs have been so quick to point out, they are not paid a percentage of the Medicare overpayments identified like their fellow medical reviewers – Recovery Audit Contractors (RACs).  Nevertheless, as you will soon see, they are handsomely paid for their efforts, albeit in a different fashion than are RACs.

It is essential to keep in mind that both RACs and ZPICs are designed to “find and prevent waste, fraud and abuse in Medicare.” Further, like their RAC cousins, ZPICs look at billing trends and patterns, focusing on providers whose billings for Medicare services are higher than the majority of providers in the community (e.g. their peers).

I.     Where is AdvanceMed Currently Operating?

Initially, AdvanceMed Corporation was awarded a $107,957,737.00 five-year contract to handle the ZPIC duties for Zone 5.   Zone 5 covers the states of Alabama, Arkansas, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia.  Yes, you read this correctly, AdvanceMed is being paid over $100 million.

As the ZPIC for Zone 5, AdvanceMed assumed the Benefit Integrity functions for Medicare Parts A, B, Durable Medical Equipment, and Home Health and Hospice, as well as establishing a Medicare / Medicaid (Medi-Medi) data matching program for each state within the Zone.

The AdvanceMed Zone 5 ZPIC contract performs the following functions for CMS as a ZPIC:

• Medicare fraud investigation and prevention, including referrals to law enforcement;
• Medicare data analysis (discovery, detection, investigation, and overpayment projection);
• Medical Review to support fraud case development, including coverage and coding determinations;
• Reviewing audit, settlement, and reimbursement of cost reports, and conducting specified audits;
• IT Systems for case and decision tracking and data warehousing;
• Interface with the Medicare contractors, the medical community (outreach & education), and law enforcement; and
• Medicare/Medicaid data matching program safeguards work for each state in Zone 5.

II.      AdvanceMed’s Extrapolations of Alleged Damages:

Over the years, we have gone up against AdvanceMed numerous times, challenging their interpretation of LMRPs / LCDs and assessing the methods they utilized to engage in a statistical extrapolation of the alleged damages in our client’s cases.  To give the company its due – their statistical experts are smart, aggressive and do not hesitate to respond when their methods have been challenged.  We like that – it keeps us sharp.

With the help of some of the best statisticians in the country (including, but not limited to the late Will Yancey, Ph.D.), in  a number of cases, we have been able to show that their extrapolation of damages (and that of other PSCs and ZPICs) has not complied with applicable requirements, and is therefore invalid.  To be fair, every extrapolation is different, both in terms of facts, the methodology employed, and in the associated calculations conducted.  As attorneys, we work with our experts to break down and assess AdvanceMed’s (and other ZPICs) calculations.  Perhaps they handled it appropriately – or maybe they didn’t.  There really isn’t any way to know if it was handled properly without a complete copy of their file (including associated work papers and calculations) so that we can fully assess their actions.

Over the last year, we have seen a marked increase in contractor (e.g. PSC and ZPIC) participation (as “participants” not as “parties”)  in ALJ hearings.  Their experts have consistently been professional, concise and ready to answer any questions posed by the ALJ.  Our recommendation – both counsel and their defense expert better be prepared.  It’s never to early to start thinking about how to best contest the extrapolation that has been conducted.  As a final point, we are aware of a number of instances where a  provider (or their representative) has chosen to ignore the extrapolation as a contestable issue.  In other words, they just accept the extrapolation as a foregone conclusion and focus solely on the claims.  We respectfully disagree with that approach.  If we identify deficiencies with the extrapolation, we aggressively challenge its application.

III.      AdvanceMed’s Medical Reviews:

Once a provider has been identified as an outlier (or identified as a possible problem through a variety of other mechanisms), a medical review of their claims is often conducted by a ZPIC, such as AdvanceMed.

A number of year ago, Kevin Gerold, CMS’ former Acting Deputy Director for Program Integrity was quoted as saying that the agency had revamped its approach to claims processing in an effort to better “grasp the experience of the patient encounter.” Mr. Gerold was further quoted as saying that CMS was going to “let medical reviewers assess a claim’s legitimacy based on the big picture of the patient encounter, not on a nit-picking slavery to perfect documentation.” Unfortunately, in our humble opinion, AdvanceMed’s medical reviews have conducted have been extremely technical — resulting in the denial of many claims based on minor omissions, technical deficiencies and / or the contractors’ own peculiar spin regarding the application of an LCD.

In responding to AdvanceMed’s reasons for denial, it is essential that you obtain each and every reference relied upon by the contractor when denying the claims at issue.  We have identified multiple instances where a Medicare contractor (not necessarily AdvanceMed) attempted to apply an LCD retroactively.  Moreover, it is important to examine the underlying statutory authority to determine whether the contractor’s interpretation of a coverage provision is consistent with the underlying law or regulation.  Finally, it isn’t enough to merely “poke holes” in AdvanceMed’s reasons for denial – we like to go one step further – show that the particular claims at issue do, in fact, qualify for coverage and payment.

IV.       Conclusion:

The bottom line is simple — if you are audited by AdvanceMed, your Medicare claims will be scrutized as never before.  While we often disagree with AdvanceMed’s findings, we have consistently found them to be professional in their dealings and consistent in their arguments.  Regardless of whether or not you ultimately choose to be represented by our law firm, we strongly recommend that you seek legal representation if your practice or clinic is audited by AdvanceMed.

Our attorneys have years of experience representing Medicare providers in connection with post-payment audits and other administrative actions taken by ZPICs, PSCs and other Medicare contractors.  Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other attorneys at 1 (800) 475-1906.

You’ve Got To Be Kidding. . . the Government Wants More “Bounty Hunters” Conducting Medicare Audits?

(March 25, 2010): Yesterday, the White House announced that President Obama  intends to back additional bipartisan plans to stamp out waste in government-run medical programs for the elderly and needy.  The White House said this new effort to root out improper payments in the Medicare and Medicaid programs could double taxpayer savings over the next three years to at least $2 billion.

“We cannot afford nor should we tolerate this waste of taxpayer dollars,” the White House said.   The government believes that approximately $54 billion was lost through improper Medicare and Medicaid payments in 2009. Medicare is the government-run program covering elderly Americans and Medicaid is for the country’s poorest.

President Obama is seeking to crack down on waste and fraud as his administration strives to secure an overhaul of the $2.5 trillion healthcare system to contain costs and expand coverage to tens of millions of more Americans.  The action endorses Republican-backed proposals on alleged health care wrongdoers.

Similar to the current RAC reimbursement scheme, the proposed new plan will offer private auditors a share of the money that they recoup in order to encourage them to work harder to uncover improper payments under Medicare and Medicaid.   President Obama is also expected to back bipartisan legislation to expand the ability of government agencies to undertake these so-called payment recapture audits by providing more funds.  No additional information on how this will impact CMS was given.

As many health care providers will readily attest, over the past year, it appears that there has been a marked increase in PSC and ZPIC audits, almost all of which are accompanied by demands for extrapolated damages.  Once again, this points to the importance of self-assessment and an effective compliance strategy.  Asked to comment on this new “risk” to health care providers, Robert W. Liles, Managing Partner at Liles Parker, Attorneys and Counselors at Law, responded:

”Our firm has represented a number of health care providers around the country.  We have aggressively fought to have improper claims denial overturned.  This new risk will increase the likelihood that providers who have not been subjected to RAC audits in the past may now find themselves being examined by RAC-like auditors in the future.  Coupled with existing PSC and ZPIC audits, sole practitioners, small practice groups and clinics will find their coding and billing practice under the spotlight.  Unfortunately, based on recent cases we have handled, it appears that PSCs and ZPICs are increasingly imposing their own views regarding what is required, well beyond the four corners of CMS-authorized provisions set out under LCDs and LMRPs covering the services at issue.  Fortunately, when faced with the facts, ALJs have applied a reasonable approach and most of the claims at issue have been found to be payable.  We recommend that health care providers carefully review their documentation practices to lessen the likelihood that ZPICs, PSCs, RACs and these new third-party reviewers can successfully argue that the claims don’t qualify for coverage.”

Liles Parker attorneys have extensive experience representing Medicare providers in the appeal of post-payment audits by ZPICs, PSCs and other Medicare contractors.  Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other attorneys at 1 (800) 475-1906.

Are ZPICs Tougher than RACs When Conducting a Medicare Audit?

(March 25, 2010):  The Recovery Audit Contractor (RAC) program is an integral part of the Center for Medicare and Medicaid Services’ (CMS’) “benefit integrity” efforts which seek to identify and recoup alleged overpayments paid to Medicare providers. While the RAC program is still being expanded in many of the country (to cover not only hospitals but also other providers and types of Medicare claims), health care providers should be aware that the Zone Program Integrity Contractors (ZPICs) are already active in many areas and are actively auditing physicians, home health agencies, hospices, DME companies, therapy clinics, chiropractors and other small to mid-sized health care providers.  Despite the “hype” surrounding RACs, at this time, ZPICs represent a significantly greater risk to non-hospital providers than do RACs.  The purpose of this article to examine a number of the differences between these Medicare contractor programs.

What are the chances of your practice being reported by a ZPIC or RAC to HHS-OIG or DOJ for possible fraud violations?

While both contractor programs are designed to “find and prevent waste, fraud and abuse in Medicare,” the fact is that to date, ZPICs have been much more likely than RACs to report possible incidents of “fraud” that are identified while conducting a medical review.  Frankly, it makes sense.  RACs make money by identifying alleged overpayments – not by making a fraud referral to law enforcement.  Notably, as a result of recent criticism by HHS-OIG, CMS will be requiring RACs to be much more diligent in the future about making referrals to law enforcement when it appears that a health care provider’s conduct represents fraud rather than merely an overpayment.  CMS has provided training to RACs on how to identify fraud in the near future.  Importantly, a RAC denial of claims which results in a provider repayment will not necessarily prevent HHS-OIG from investigating and making a referral to DOJ for possible prosecution, as appropriate, if there are allegations of fraud or abuse arising out of the alleged overpayment. 

Notably, recent letters by ZPICs in South Texas and in other parts of the country have been seeking copies of business related records (copies of contracts, agreements with Medical Directors, lease agreements and more), along with its request for claims-related medical documentation.  Importantly, the contractor is assessing the provider’s business relationships to help verify that referral and other business relationships do not violate the Federal Anti-Kickback Statute.  To reduce the possiblity of civil or criminal liability, it is essential that Medicare providers take affirmative steps to better ensure that their practices are compliant with applicable statutory and regulatory requirements.  2011 will be the “Year of Compliance.”  All providers, regardless of size, should take steps to implement an effective Compliance Program.  Should you not have an compliance program in place, give us a call — we can help. 

What is different about ZPICs and their predecessors, Program Safeguard Contractors (PSCs)?

Both ZPICs and Program Safeguard Contractors (PSCs) readily point out that they are not “bounty hunters.”   ZPICs are not paid contingency fees like RACs and are paid directly by CMS on a contractual basis.  Nevertheless, common sense tells us that if ZPICs aren’t successful at identifying alleged overpayments, the chances of a particular contractor getting their contract with CMS renewed are pretty slim.  Experience has shown that both ZPICs and PSCs don’t always appear to strictly adhere to medical review standards established by Medicare Administrative Contractors (MACs) and approved by CMS.  In our opinion, there appear to have been cases where these contractors applied their own unwritten standards, often denying claims based on conjecture and speculation rather than a strict application of the applicable LCD or LMRP. 

In any event, over the last year, both ZPICs and PSCs have been increasingly placing health care providers on pre-payment review, conducting post-payment audits, recommending suspensions of payment.  Additionally, in many cases they have been extrapolating the alleged damages based on a sample of claims reviewed. Finally, as discussed above, identified instances of potential fraud are being referred by ZPICs and PSCs to HHS-OIG for possible investigation, referral for prosecution and / or administrative sanction.

What sources of coding / billing data are used by ZPICs?

ZPICS are required to use a variety of techniques, both proactive and reactive, to address any potentially fraudulent practices.  Proactive techniques will include the ZPIC IT Systems that will combine claims data (fiscal intermediary, regional home health intermediary, carrier, and durable medical equipment regional carrier data) and other source of information to create a platform for conducting complex data analyses. By combining data from various sources, ZPICs have been able to assemble a fairly comprehensive picture of a beneficiary’s claim history regardless of where the claim was processed. The primary source of this data is reportedly CMS’ National Claims History (NCH) database.

How do ZPICs conduct medical reviews?

ZPICs conduct medical reviews of charts to determine, among other things, whether the service submitted was actually provided, and whether the service was medically reasonably and necessary.  Based upon their findings, ZPICs may approve, downcode or deny a claim.  To date, we have never seen a ZPIC conclude that a claim should have been coded at a higher level, only a lower level.  Regrettably, ZPICs are not required to have a physician review a claim in order to deny coverage.  In most of the cases on which we have worked, the contractor’s medical reviewer has been a Registered Nurse.   While some Federal courts have found that a treating physician’s opinion should be given paramount weight, others have ruled that the opinion of a treating physician should not be given any special consideration.  Generally, ZPICs have completely disregarded the “Treating Physician Rule,” despite the fact that a patient’s treating physician was the only provider to have actually seen and assessed the patient at issue. 

How should you respond to a ZPIC audit?

In responding to a ZPIC audit, it is important to remember that although they may not technically be “bounty hunters,” in our opinion, they are in the business of finding fault.   Moreover, they are quite adept at identifying “technical” errors, many of which they will readily cite when denying your Medicare claims.  Unfortunately, it is not at all uncommon for a ZPIC to find that 75% — 100 % of the sample of claims reviewed did not qualify for coverage and payment by Medicare.  After extrapolating the damages to the universe of claims at issue, health care providers often find that they are facing alleged overpayments of between $150,000 and several million dollars.  In many cases, the assessment is far in excess of the provider’s ability to pay.  As such, the administrative appeal becomes a “bet the farm” matter for the health care provider.  If the assessment remains, the provider will have no choice but to declare bankruptcy. 

It is also important to remember that ZPIC enforcement actions are not limited to merely overpayment assessments.  In recent months, ZPICs have been increasingly conducting unexpected site visits of health care provider’s offices and facilities, often requesting immediate access to a limited number of claims and the medical records supporing the services billed to Medicare.  Typically, they then require that a provider send supporting documention covering a wider list of claims within 30 days of their visit.  In other cases, should a ZPIC identify serious problems when reviewing the medical records requested, they may recommend to CMS that the provider’s Medicare billing privileges be suspended.  From a practical standapoint, few providers are diversified (in terms of payor mix) to the point that they can easily do without Medicare reimbursement.  The practical effect of a Medicare suspension is therefore that provider cannot continue in business throughout the 180-day initial period of suspension typically imposed by CMS.   Finally, in a limited number of cases, after a ZPIC or PSC has visited an office, the provider will subsequently learn that the contractor has recommended that the provider’s Medicare number be revoked.  In a fairly recent case we are aware of (not involving a client of the Firm), the contractor claimed that the provider failed to cooperate, a clear violation of the provider’s “Conditions of Participation” with Medicare.  As a result, the contractor recommended (and CMS approved) the revocation of the provider’s Medicare number.    Short of exclusion from participation in the Medicare program, this is arguably the most serious and far-reaching administrative action that can be taken against a Medicare provider.     

In light of the seriousness of the situation, regardless of whether you are contacted by a RAC, a ZPIC or a PSC, you must take great care when responding to the contractor’s request for business records, claims information or medical records.  Administrative enforcement actions can be extraordinarily serious.  Therefore, is essential that you engage an experienced attorney and law firm to represent your interest. 

Robert W. Liles, J.D., M.S., M.B.A., is a health lawyer with Liles Parker PLLC.   Liles Parker has offices in Washington, DC, Houston, TX and San Antonio, TX.  Prior to entering private practice, Mr. Liles served as an Assistant U.S. Attorney.  He now represents health care providers around the country in connection with administrative, civil and criminal health law issues.  He has extensive experience defending providers in audits by ZPICs, PSCs and other Medicare / Medicaid contractors.   For a complimentary consultation, please call:  1 (800) 475-1906.

Overview of the Zone Program Integrity Contractor (ZPIC) Program

(March 19, 2010): Pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), CMS was required to use competitive measures to replace the current Medicare Fiscal Intermediaries (Part A) and Carriers (Part B) contractors with Medicare Administrative Contractors (MACs).  After setting up the new MAC regions, CMS created new entities, called Zone Program Integrity Contractors (ZPICs). Intended to consolidate existing program integrity efforts, over the last year ZPICs have been taking over PSC audit and enforcement activities around the country.

Watch Out Texans — there’s a New Sheriff in Town — the Number of ZPIC Audits Being Conducted in Texas are Increasing

(March 16, 2010): Health care providers around the country are finding themselves the target of various audits from jurisdictionally overlapping Medicare contractors.  Notably, any of these audits have the potential to destroy a provider’s practice or clinic.

States where PSCs (Program Safeguard Contractors) have transitioned to ZPICs (Zone Program Integrity Contractors) are under extreme pressure. One of those states is Texas. Providers in the Lone Star state are being inundated with requests for documentation from Health Integrity, the ZPIC for Zone 4, which covers Texas, Colorado, New Mexico and Oklahoma.

Unlike Recovery Audit Contractors (RACS), whose primarily focus is to identify overpayments, or Medicare Comprehensive Error Rate Testing (CERT) audits, reviews aimed at measuring improper payments, ZPIC audits are subjecting providers to both pre–payment and post-payment Medicare audits.  Perhaps most importantly, ZPICs are expected to report suspected fraud to law enforcement.

ZPIC audits in Texas cover claims for everything from psychology E/M services to DME items. The Zone 4 contractor has said the audits are based on what it calls “atypical billing practices.”

Some providers have found the audit response process so burdensome that they have been forced to suspend operations in order to fulfill the requests for documentation.

Generally, health care providers have 30 days from the date on the letter of notification to get the ZPIC the information it has requested. If documentation is insufficient or is not received, the ZPIC will deny the claims and issue and issue an overpayment letter demanding the repayment of funds.  Additionally, in most cases, ZPIC have been seeking extrapolated damages, applying the error rate identified to the universe of claims at issue during the time period audited.

While RACs and CERT auditors only conduct post-payment audits, PSCs and ZPICs are increasingly placing providers on pre-payment review, effectively delaying a provider’s cash flow up to six months (and in some cases even longer).  Although RACs have only been conducting  “automated” reviews to date, providers should expect the number of “complex” reviews to increase in 2010.

ZPICs, CERT reviews, PSCs, and RAC auditors are aggressively reviewing Medicare claims around the country. Should any of these contractors identify possible fraud, they will not hesitate to report’s the provider’s conduct to law enforcement.

Liles Parker attorneys and staff have considerable experience representing Medicare providers in connection with an audt by a ZPIC.  Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other attorneys at: 1 (800) 475-1906.