CMS Proposes Regulations Regarding Medicaid Payment Rates – Potential Game Changer for Hospitals, Nursing Homes and Other Medicaid Providers

(May 24, 2011) - On May 6, CMS proposed to amend its rules governing the adequacy of provider payment rates under Medicaid.  This proposed rule, may be the most important regulatory action to protect providers and beneficiaries from draconian rate reductions since the repeal of the Federal standard known as the Boren amendment, in 1997.

Currently, Federal rules require states to provide only minimal notice to providers and the public, and to develop and maintain only minimal information before making any significant changes to their Medicaid payment methodologies.  The proposed rules, if adopted, would appear to require states to monitor the adequacy of current Medicaid payment rates, provide significantly more information to CMS about any proposed payment rate decreases, and to signify a far more active role for CMS in addressing the adequacy of Medicaid payment rates than it has taken since the enactment and repeal of  the Boren amendment.

Specifically, prior to 1990, Federal law required states to pay hospital, nursing home, and several other provider categories at their “reasonable costs” or for nursing home, at rates that were reasonable cost related.  For all other provider types, states were required to pay at rates that were consistent with efficiency, economy, and quality of care, and sufficient to enlist enough providers so that care and services are available to Medicaid beneficiaries at least to the extent that such care and services were available to the general public.  During this period, at least with respect to hospitals and nursing homes, CMS and its predecessor component agencies took an active role in approving changes to state payment methodologies under Medicaid.

In 1990, Congress enacted the Boren amendment.  The Boren amendment required states to pay hospitals and nursing homes at rates that were reasonable and adequate to cover the costs that must be incurred by efficiently and economically operated providers.  During the period in which the Boren amendment was in effect, the United States Department of Health and Human Services (‘HHS”) and its principal operating component that ran the Medicaid program at the Federal level, construed their role to be extraordinarily minimal, and in essence, to simply ensure that states made certain advance findings before changing their Medicaid payment rates.  Except in the most extreme cases, the Federal government did not perceive its role as looking behind these findings to determine their substantive adequacy, and Medicaid payment rates for these classes of providers were predominantly the product of negotiation between the states and providers.

When states attempted to change their payment methodologies to pay at rates that provider groups considered inadequate, providers would generally challenge those methodologies by bringing actions in Federal and State courts, and would frequently succeed either in those actions, or by using the Boren amendment standard to negotiate an acceptable alternative.  One of Liles Parker’s attorneys was involved extensively in representing providers and their trade associations in a number of those actions.

As part of the Balanced Budget Act of 1997, Congress repealed the Boren Amendment, and replaced it with a limited standard for providing public notice.  Thus, the only provision that governed most provider payment levels was the “equal access” standard at section 1902 (a)(30)(A).  This provision requires states to assure that payments are consistent with efficiency, economy, and quality of care, and sufficient to enlist enough providers so that care and services are available to the general population.

Since 1997, HHS has continued its “hands off” role in its involvement with state payment methodologies.  Also, there has been a significant amount of litigation over whether the equal access provision provides a Federal cause of action for providers to challenge states in the manner in which they set their Medicaid payment levels.  For the most part, providers have been left at the mercy of state regulators and legislatures.

More recently, as a result of the economic downturn, states have contemplated far more draconian rate reductions.  Also, in 2009, Congress created the Medicaid and CHIP Payment and Access Commission (“MACPAC”) to study and make recommendations on beneficiary access under the Medicaid and CHIP programs.  Finally, under the Accountable Care Act, beginning in 2014, a significant number of new beneficiaries will fall under the ambit of the Medicaid program.

In the May 9 proposed rule, CMS is proposing to require states to collect and publish far more information in determining whether their payment rates are consistent with efficiency, economy, and quality of care and sufficient to enlist enough providers so that care and services are available under Medicaid to the extent that they are available to the general public.  Additionally, CMS appears to be proposing to take a far more active role than it has since 1990 in approving or disapproving state plan amendments that would decrease payment rates for providers.

The proposed rule, if adopted, would appear to offer potentially the first effective vehicle in years to provide hospitals, nursing homes, and other providers with any leverage at the Federal level to address grossly inadequate payment rates and draconian rate reductions under the Medicaid program.  It may also provide a vehicle under which providers can access the Federal courts.  As such, the proposed rule could be one of the most significant rule making actions in years for providers that serve a large portion of Medicaid beneficiaries as well as for their trade associations.

For these reasons, providers and their trade associations should consider seriously submitting comments to the proposed rule.  To be considered, comments must be considered by no later than July 5, 2011.

Liles Parker attorneys have extensive experience with Medicaid payment issues, and at least one of our attorneys, Michael Cook, has more than 30 years experience in negotiating and litigating the adequacy of Medicaid provider rates.  Anyone seeking additional information on this issue should contact Michael Cook at (202) 298-8750 or mcook@lilesparker.com.

HHS Publishes Proposed Rules on Medicaid Recovery Audit Contractors Further Highlighting the Question, Is a Claim Every Final? Providers Need to Understand and Take an Active Role in this Process

(November 30, 2010):  The United States Department of Health and Human Services (“HHS”) recently published a Proposed Rule applying the Recovery Audit Contract (“RAC”) process to claims under the Medicaid program.  As background, the RAC process has been a part of the Medicare program since 2005, first as a demonstration project from 2005 – 2008, and then extended to the entire nation effective no later than January 1, 2010. 

 Under the Medicare RAC program, HHS retains private contractors for a post payment review process to identify over and under payments on a contingency fee basis.  There are two types of reviews – data mining, which involves simply reviewing data to identify improper payments, and complex reviews, which require reviews of medical records to determine the “legitimacy” of a payment.  To date, HHS has contracted with four RACs – one covering each of four national regions.  HHS pays the RAC a contingency fee based upon a percentage (currently ranging from 9 – 12.5 percent) of the amounts of overpayments that the Federal government recovers and underpayments that HHS repays providers based upon the RAC review.  Overpayment recoveries have far exceeded underpayments that the program has reimbursed providers.

 The process was highly controversial during the demonstration, and HHS implemented a number of changes for the national roll out.  Among others, HHS:  shortened the look back period; set limits on the number of records that the RACs could request at any one time; precluded RACs from retaining their contingency fee payments where the provider prevailed at any stage of the appeals process; required RACs to receive approval from HHS, and publish, the types of claims that they were reviewing; and required RACs to retain physicians as medical directors.  Despite theses changes, the process still requires providers to expend substantial amounts of increased administrative expenditures to accommodate these reviews. 

 Although several States have conducted RAC type audits under their Medicaid programs, most have not.  However, as part of the health reform legislation, Congress required all States to establish a Medicaid RAC program by December 31, 2010.[1] See §6411 of the Patient Protection and Affordable Care Act. 

 The proposed rules require that States submit a state plan amendment (“SPA”) by the December 31, 2010 deadline.  However, recognizing that responses to the proposed rule are not even due until January 10, 2010, the proposal also indicates that States are not required to implement the program until April 1, 2011.  The proposal also recognizes that some States may need to change their State laws to implement the RAC program, and thus states that HHS may grant exceptions in certain areas, albeit on a limited basis. 

 The proposed rules would grant substantial flexibility to states in how they establish their RAC programs.  However, the rules provide that the fees States pay Medicaid RACs for overpayments and underpayments combined may not exceed the amounts that the State collects from overpayments.  This means that both the States and RACS will be strongly incentivized for the RACs to find over, as opposed to under, payments.

 The rules require the State to establish an appeals process for providers to dispute overpayments identified by the RACS.  However, the preamble to the proposed rules would require states to return the Federal match for an overpayment that is identified even if the State does not recover that overpayment from the provider.  If this is construed to require the State to return the Federal share of overpayments that the RAC identifies even if the provider prevails on appeal, this would place a strong disincentive for the State to establish a vigorous and unbiased appeal process.  Similarly, it is unclear whether HHS would recover the Federal portion of identified overpayments even in those cases where the State otherwise would have settled a claim in this process. 

 Further, it is not clear whether HHS will attempt to recover the share of the entire identified overpayment, even if it is clear that the provider would have been entitled to a partial payment if the claim had been properly submitted, e.g. in States that pay hospital providers under a DRG system, hospital transfer cases, or cases where the RAC concludes that a hospital case that was billed as an inpatient admission should have been billed as observation.  Absent such authorization, the State would avoid payment for even the portion of treatment that its RAC concluded was legitimate and actually provided, albeit mistakenly claimed.      

 Under the proposed rules, it appears that States would have substantial flexibility in designing their programs.  Thus, it would behoove providers and their trade associations not only to submit comments on the proposed Federal rules (which are due on January 10, 2010), but also to become involved in the development of the State process.  Liles Parker attorneys have had success in the past in assisting providers in one State to change the process in an analogous circumstance, to, among other things:  shorten the period for which claims were reviewed; assist providers in convincing the State to implement a routine process to minimize the chance that record requests would be lost; limit the number of medical records that could be requested; limit reveries to the difference between amounts that were claimed and those that could have been claimed under the RAC’s analysis; the qualifications of RAC staff that review medical necessity claims; and establishing the specific criteria that would be used to review medical necessity issues. 

 Also, providers will want to discuss with their States a number of other issues such as the extent to which physician judgment will be relied upon in second guessing medical necessity and treatment decisions, the process that will be used to challenge RAC determinations, and the extent to which the State will increase Medicaid payments for the added administrative expense involved in staffing up for these reviews.  This is especially critical under the Medicaid program, where State payments often are far below the cost of providing the service as a result of deficient appropriations. 

 Finally, providers will need to develop their internal processes for ensuring that requests for records are properly tracked and timely processed, and for appealing appropriate cases. 

 Liles Parker attorneys have extensive experience in all of these areas and are prepared to assist providers and their trade associations in commenting on the proposed Federal rules, assisting in negotiations with States on the development of their RAC programs, and appealing overpayment determinations.  Providers wishing to discuss these issues should contact Michael Cook at (202) 298-8750.

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[1] Congress also expanded the Medicare RAC program to parts C (Medicare Advantage) and D (Medicare Outpatient Prescription Drug program) of Medicare.  We will address these changes in a later issue. 

 

 

HHS-OIG Issues Report on Improper Claims for Nonemergency Transportation Services Provided to Medicaid Beneficiaries in Texas

(September 6, 2010):  HHS-OIG recently issued its report examining nonemergency medical transportation costs reimbursed by Medicaid.  Pursuant to 42 CFR § 431.53, Texas and other States are required to ensure that Medicaid patients have transportation to medical facilities and providers to obtain covered Medicaid services.  In Texas, the Texas Health and Human Services Commission has contracted with the Texas Department of Transportation to administer this nonemergency medical transportation program. The Department of Transportation has subcontracted with various private transportation providers to provide these services.

 Upon audit, HHS-OIG found that one transportation provider had allegedly provided nonemergency transportation services for which the Texas Health and Human Services Commission had improperly claimed reimbursement by Medicaid.

 As set out in HHS-OIG’s report, Nonemergency Medical Transportation Costs in the State of Texas, 35 of the 100 sampled nonemergency transportation claims sampled were found by the auditors to be unallowable or partially unallowable.  Reasons for denial included:

•  Nonemergency transportation was allegedly provided by drivers who did not have a criminal background check or who had a prohibited criminal history on file with the subcontractor.
• The Medicaid beneficiary allegedly cancelled the transportation request in advance of the trip or was a “no-show” at the origination address.
• The Medicaid beneficiary allegedly did not receive a Medicaid-covered health care service on the transportation date.
• The Medicaid claims were paid at a premium rate applicable for transportation between two counties when the transportation was actually provided within the same county.

 In light of these findings, we recommend that providers review their practices to ensure that these and other specific risk areas regularly encountered in the provision of nonemergency transportation services are incorporated in their Compliance Plan and assessed as part of the provider’s recurring compliance review activities.  In this heightened enforcement environment it is essential that ambulance and nonemergency transportation providers continue to take steps to ensure that all applicable statutory and regulatory provisions are met.

Liles Parker attorneys have represented both ambulance and non-emergency transportation providers reimbursed by Medicare and Medicaid.  Should your transportation company be audited, give us a call. For a free consultation call:  1 (800) 475-1906.

HHS-OIG Reports that Four Types of Errors Accounted For 95% of the Net Improper Medicaid Overpayments

(April 20, 2010): The Department of Health and Human Services, Office of Inspector General (HHS-OIG) recently released its report “HHS-Analysis of Improper Payments Identified During the Payment Error Rate Measurement Program Reviews in 2006 and 2007 (A-06-09-00079).” As set out in the report, four types of medical review errors accounted for 95% of the net improper Medicaid overpayments during 2006 and 2007.  A breakdown of the findings set out in the report is detailed below.  HHS-OIG examined a total of 1,356 medical review errors and 202 data processing errors.

I.      Medical Review Errors:

Of the medical review errors analyzed by HHS-OIG, the agency found that four types accounted for 78% of the errors and 95% of the net improper Medicaid overpayments. The four error types included:

Top Four Types of Medical Review Errors:

• Insufficient documentation (37.4%),
• No documentation (25%),
• Services that violated State policies  (12.9%), and
• Medically unnecessary services (2.4%).

The 1,356 medical review errors included 23 service categories, six of which accounted for 67 percent of the errors and 95 percent of the net improper Medicaid overpayments. The six service categories included:

Top Six Types of Service Categories Involved

• Nursing facilities,
• Inpatient hospitals,
• Home and Community-Based Services waivers,
• Intermediate care facilities for the mentally retarded,
• Prescribed drugs, and
• Physician.

II.     Data Processing Errors:

Of the 202 data processing errors HHS-OIG analyzed, four types accounted for 78 percent of the errors and 64 percent of the net improper Medicaid overpayments. The four error types included:

• Pricing errors,
• Non-covered services errors,
• Rate cell errors for managed care claims, and
• Errors in the logic edits of claim processing systems.

The 202 data processing errors represented 18 service categories, six of which accounted for nearly 73 percent of the errors and 79 percent of the net improper Medicaid overpayments. The six service categories included:

• Inpatient hospitals
• Nursing facilities,
• Capitated care,
• Prescribed drugs,
• Physicians, and
• Outpatient hospital.

III.     Estimated Financial Impact (Federal Only):

For 2006, CMS estimated that the Federal share of the improper payments paid was $6.6 billion.  This increased considerably, to $18.6 billion in 2007 (Federal share only).  HHS-OIG has recommended that CMS provide States with similar analytical data to help them address these improper payments.

Liles Parker Commentary:  With the passage of the recent Health Care Reform Bill, CMS has been authorized to expand the RAC program to Medicaid.  Now, more than ever before, it is essential that providers carefully analyze their operations, coding and billing practices in order to ensure that Medicaid billings meet applicable regulatory and statutory requirements.

Several of our attorneys have extensive experience working on Medicaid cases.  Should your practice or clinic find itself facing a Medicaid audit or investigation, give us a call for a complementary consultation.  We can reached at: 1 (800) 475-1906.