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Health Law Alert
Spring/Summer 2004
From the Chair
If we have learned nothing else from the federal government, we now have a working definition of the word shortly. That word appeared in the Federal Register on January 4, 2001, as part of the Phase I, Stark II final regulations, when CMS promised that the Phase II regulations would be out "shortly." Three years, two months, and twenty-two days later, the Phase II "interim final" regulations were published.
Timing is everything and it just didn't work for us this time with the Phase II regulations, which were published after this issue of our Health Law Alert was set for publication. On the other hand, the regulations were issued only five days before the Annual American Health Lawyers Association Medicare & Medicaid Payment Institute, at which Craig Holden of our office was scheduled to speak with Vicki Robinson of the Office of Counsel to the Office of Inspector General and Joan Dailey of the Office of General Counsel, CMS Division, regarding the Phase II regulations. Through the efforts of many attorneys in this office, a comprehensive outline and Power Point presentation [PDF] were developed in time for the program. Of course, the regulations, while helpful in many areas, do not answer all of the questions you have asked us since the effective date of Stark II in January 1995. We will continue to do our best to provide guidance as to the application of this "bright line rule" to the issues each of you face on a daily basis.
Click to continue...Is the Medicare Advantage Program a Disadvantage for Providers?
The much-anticipated and hotly debated Medicare reform legislation undoubtedly will have profound effects on Medicare participating hospitals and other providers. See Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Pub. L. No. 108-173). Although there has been widespread and instant analysis of many of the near-term reimbursement changes contained in the legislation, its most significant effect on providers may well be due to the reinvigorated Medicare risk program called Medicare Advantage (MA). In a nutshell, to the extent that increased funding for this program and other statutory and regulatory changes are successful in increasing beneficiary enrollment, providers could be forced to negotiate with HMOs that have newly increased bargaining power, and, as a result, may be forced to accept reduced reimbursement or adopt other competitive strategies.
Click to continue...OIG Advisory Opinions
The library of advisory opinions that the OIG has issued since the inception of the advisory opinion program serves as a valuable resource for achieving an understanding of the OIG's application of federal health care fraud and abuse laws, at least with respect to certain specific fact patterns. Parties seeking assurance that their own operations and business transactions are in compliance with applicable law may struggle with the decision of whether to submit their own advisory opinion request. The process of securing an advisory opinion can be daunting, and the outcome uncertain. To gain some understanding of what to expect if they choose to pursue an advisory opinion, prospective requestors may review the answers to "Frequently Asked Questions (FAQs) About the Advisory Opinion Process" that the OIG posted in October 2003. The FAQs offer general guidance about the advisory opinion process and include links to pertinent laws and regulations. They address issues such as appropriate subject matters for advisory opinions, requirements for submitting requests for advisory opinions, advisory opinion costs, and the processing of advisory opinion requests. The FAQs are available on the OIG's website at:
oig.hhs.gov/fraud/advisoryopinions/aofaq.html.
OIG Focus: HHS Vulnerabilities
The OIG publishes a Work Plan on annual basis to provide a broad description of issues and concerns it plans to review during its upcoming fiscal year. The issues identified in the OIG's Work Plan for fiscal year 2004 (2004 Work Plan) represent areas that the OIG perceives are critical to the OIG's mission. The OIG's stated objective is to focus on projects that identify vulnerabilities in HHS programs. Overall, the Work Plan seeks to promote the economy, efficiency, and effectiveness of those programs. In addition to studying various issues, the OIG identified pharmaceutical fraud and quality-of-care issues for beneficiaries residing in care facilities as two major areas for investigations. The Work Plan also reports that the OIG hopes to publish revised guidance pertaining to the hospital industry and issue several new safe harbors to assist the provider community with compliance.
Click to continue...Outpatient Therapy Physician Visits
By: Donna J. Senft
Medicare requires, as a condition of coverage, medical oversight for physical therapy, occupational therapy, and speech language pathology services. In a January 9, 2004 transmittal, CMS established a more liberal "physician visit" requirement for outpatient therapy services. Medicare Benefit Policy Manual, Pub. 100-02, Transmittal 5. Although the guidance had an effective date of February 11, 2004, CMS gave contractors until March 15 to implement the revised policy. Additionally, CMS clarified that nonphysician practitioners, (i.e., physician assistants, nurse practitioners, and clinical nurse specialists), may provide this medical oversight, including making a referral to therapy, providing the initial certification and any recertifications, and establishing or reviewing the therapy treatment plan.
Click to continue...CMS Web-based Manuals
By: Carel T. Hedlund
For 35 years or more, Medicare providers and suppliers have relied on the paper Manuals and Program Memoranda issued by CMS to identify Medicare policies and procedures with which they must comply. That is changing, and will cause great confusion for some time.
Effective October 1, 2003, CMS began its transition from a paper-based manual system to a Web-based system. CMS anticipated that the transition for Medicare Manuals would be completed by January 2004, but that has not been accomplished. The transition for the Medicaid Manuals is supposed to be completed by the spring of 2004, but will likely miss that deadline as well. Until such time as the phase-in process is completed, both sets of manuals will need to be checked for current policy and procedures. The online CMS manual system is available at www.cms.hhs.gov/manuals.
Click to continue...Focus on DME Fraud
By: Julie E. Kass
On September 9, 2003, CMS announced a new 10-point initiative, dubbed Operation Wheeler Dealer, that seeks to curb alleged abuse in the sale of power wheelchairs. The OIG said at the same time that it is investigating a large number of DME fraud cases relating to inflated billings, charges for equipment and supplies not delivered, and the falsification of documents to qualify beneficiaries for wheelchairs and other equipment that they often did not need. The actions of CMS and the OIG were prompted by a 450 percent increase in Medicare spending for power wheelchairs over the last four years. CMS reported that in Harris County (Houston), Texas, Medicare paid for more than 31,000 power wheelchairs in 2002, compared to just over 3,000 power wheelchairs in 2001.
In addition, Senator Charles Grassley, chairman of the Committee on Finance, sent letters to the OIG and the FTC requesting investigation of DME suppliers for Medicare fraud and false advertising. CMS, the OIG, and Senator Grassley have all accused the DME suppliers of enticing beneficiaries to seek power wheelchairs through their advertising.
Click to continue...Contracting for Non-hospice Services
Hospices are health care providers that are "primarily engaged" in providing services to terminally ill individuals, i.e., Medicare beneficiaries with a prognosis of a life expectancy of six months or less if the individual's illness runs its expected course. 42 U.S.C. § 1395x(dd). Hospices are not precluded, however, from providing services to other individuals, including those who are not terminally ill or who have a prognosis of a life expectancy greater than six months, so long as the entity is not primarily engaged in those services.
CMS has issued guidance for hospices that sell services to other health care entities for the care of beneficiaries who are not hospice patients. Transmittal A-02-102 (Oct. 25, 2002). The program memorandum includes examples of scenarios in which a hospice would be permitted to enter into contracts with other entities for non-hospice services. One such example concerns a terminally ill beneficiary who is enrolled in a PACE program. If the beneficiary would benefit from the pain management expertise of a hospice, the PACE program may purchase that expertise from a hospice. PACE programs bill an all-inclusive rate for a range of services, however. Therefore, even though the beneficiary might be eligible for the hospice benefit, because the beneficiary remains enrolled in a PACE program, the hospice bills the PACE program and no additional payment is available to the PACE program.
Click to continue...Meeting Resident Needs: Trained Feeding Assistants
By: Donna J. Senft
Previously, federal regulations did not support the hiring of a single-task unlicensed worker to assist residents in performing activities of daily living, but instead required the use of nursing aides who have completed the requisite 75 hours of training and are certified to perform multiple tasks. Although federal statutory provisions delineate specific criteria for the training and certification of nursing aides utilized in long term care facilities, these provisions do not expressly define "nursing" or "nursing-related" tasks.
Click to continue...AstraZeneca Pharmaceuticals Settles
By: S. Craig Holden
In June 2003, AstraZeneca Pharmaceuticals, L.P. (AstraZeneca) agreed to pay $355 million to resolve criminal and civil charges arising from its pricing and marketing practices relating to the prostate cancer drug Zoladex. Plea Agreement, United States v. AstraZeneca Pharmaceuticals, LP, No. 1:03cr55-0 (D. Del. June 20, 2003); Settlement Agreement, United States ex rel. Durand v. Zeneca, Inc., No. 1:03cv122 (D. Del. June 20, 2003). This drug's primary competitor is Lupron. Lupron is manufactured by Tap Pharmaceuticals which entered into a comparable settlement in the amount of $875 million in October 2001. (For a detailed discussion of the TAP Pharmaceuticals settlement, see Cathy Martin's article "TAP Pharmaceuticals Agrees To Pay $875 Million," which appeared in the Winter/Spring 2002 issue of the Health Law Alert.) The conduct of both companies, as alleged by the government, was essentially the same.
The criminal plea was based upon allegations of criminal violations of the Prescription Drug Marketing Act (PDMA). According to the government, AstraZeneca representatives provided numerous free samples of Zoladex to physicians with the knowledge and expectation that those physicians would provide them to federal health care program beneficiaries and submit claims for the drugs to those programs. The PDMA makes the resale of drug samples a criminal offense. The criminal fine paid was $64 million.
Click to continue...Interesting MMA Issues for NPs
Much of the focus arising from the adoption of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) has been on the new Medicare prescription drug benefit. Without question, this is an important new benefit that is of great interest to patients nurse practitioners serve. The MMA is also the latest omnibus reform of the federal Medicare and Medicaid law, however, and, as such, it includes a number of changes of specific interest to nurse practitioners.
Click to continue...Broader Corporate Sentencing Guidelines Coming
By: Leon Rodriguez*
The U.S. Sentencing Commission voted unanimously April 8 to establish a separate, "more rigorous" guideline to be applied in determining whether organizational defendants have an effective compliance program. The existence of an effective compliance program can qualify a corporate defendant for a considerable reduction in its fine and can significantly moderate the probation conditions imposed on the corporation at sentencing. Seeking to ensure that departures are granted only to organizations with genuinely effective compliance programs, the new stand-alone guideline clarifies certain definitions under the earlier compliance program commentary and also imposes important new requirements on defendants asserting the existence of an effective program.
Click to continue...Notes from the HIPAA Enforcement Road
The health care community took a collective gulp on April 14, 2003 when the HIPAA Privacy Standards became effective. What would these Standards mean from an operational perspective? What would happen if a provider failed to comply? How would the government decide who to go after? These and many other questions are starting to be answered as the government begins the process of enforcing the HIPAA Privacy Standards. Ober|Kaler has been advising clients as they navigate the HIPAA enforcement road.
Click to continue...New Confusion in GME/IME Off-Site Training Rules
By: Thomas W. Coons
Medicare payment to teaching hospitals for direct graduate medical education (GME) and indirect medical education (IME) is often critical to those hospitals' bottom line. Unfortunately, the payment rules in this area have become increasingly complicated, due in part to the changes mandated by the BBA and in part to efforts by CMS to ratchet down on what it perceives to be abuses. Hospitals now have to deal with a host of issues ranging from the interplay of two separate caps on the number of full-time equivalent (FTE) residents (the "historic" cap and the rolling, three-year average cap), to issues related to the extent to which the training is associated with research, and what is research. Among the most problematic of these issues, and an area that has been the focus of much of CMS's recent attention, has been the counting of residents who train in nonhospital locations. It is here that CMS's latest regulatory requirements have been focused.
Click to continue...IRFs Challenged by Revised 75 Percent Rule and Medical Necessity Guidelines
By: Carel T. Hedlund
A combination of changes in the "75 Percent Rule" and new draft Local Medical Review Policies/Local Coverage Determinations (LMRPs/LCDs) could result in significant operational and financial changes for inpatient rehabilitation facilities (IRFs).
Click to continue...Revised Coverage Determination Procedures
After almost five years of notices and proposed rules, CMS has established revised processes for making Medicare national coverage determinations and for appealing national and local coverage determinations. The process for making a national coverage determination (NCD) was published as a notice in the September 26, 2003, Federal Register, replacing the revised process established in an April 1999 Federal Register notice and eliminating the rulemaking process announced by CMS in May 2000. Procedures for appealing NCDs and local coverage determinations (LCDs) were established by a final rule published November 7, 2003, based on the new process created by section 522 of BIPA in 2000.
Click to continue...Medicare Signature Requirements
On November 28, 2003, CMS issued clarifying guidance with respect to the signature requirements found in its Program Integrity Manual. See Transmittal 59. Section 4.1.1B of the Program Integrity Manual requires that the claim reflect the "legible identity" of the practitioner. The signature may be handwritten, electronic, or a stamp. Claims are not to be denied on the basis of the form of signature.
State law still controls. If state law requires only certain forms of signature, those must be used.
Providers are responsible for the signatures entered. CMS cautions that stamps are not as secure a method of signature. The provider is responsible for the authenticity of the signature presented.
One federal restriction applies: Signature and date stamps may not be used on certificates of medically necessity (e.g., for durable medical equipment).
Click to continue...New EMTALA Rules Good News and Bad
On November 10, 2003 hospitals participating in the Medicare program saw an easing of the rules governing the implementation of the Emergency Medical Treatment and Labor Act (EMTALA). See 68 Fed. Reg. 53,221 (Sept. 9, 2003). The most significant changes concern those parts of the hospital subject to the EMTALA requirements. Also significant is the determination that EMTALA will not apply to inpatients; once an individual is admitted to the hospital for inpatient care, the hospital's EMTALA obligations cease. For the rest, the new rules are evolutionary rather than revolutionary, clarifications rather than marked departures from existing rules or guidance.
Click to continue...Prior Authorization Requirements and the EMTALA Final Rule: Progress?
By: Steven R. Smith
Hospitals are places where people receive care for serious ailments. Most hospitals in this country have emergency rooms or departments. The purpose of the ED is to determine, as rapidly as possible, whether a person has a condition that requires emergent treatment and to then provide that treatment. Hospitals are also businesses, which means that they must ultimately recover, through reimbursement for the care they provide, the cost of their operating expenses (and additional amounts to provide for capital expenses) if they are to remain in business and thus continue to provide the needed care to the populations they serve. Therefore, hospitals have a legitimate concern with the details of financial arrangements for payment for the care they provide to patients.
Click to continue...No FCA Intent When Acting on Muddled Billing Guidance
In a September 23, 2003 decision, the U.S. District Court for the Northern District of Texas granted summary judgment in favor of a DME supplier on the FCA portion of a civil action brought by the United States government and two qui tam relators. United States v. Medica-Rents Co., 285 F. Supp. 2d 742 (N.D. Tex. 2003). In 1998, the relators sued Medica-Rents Company (Medica-Rents), a DME supplier, under the FCA, claiming that Medica-Rents knowingly submitted claims for an anti-bedsore device using an inappropriate billing code in order to obtain reimbursement at an inflated rate. The government intervened in 2002. (The government had filed a separate complaint in June 2000 alleging claims against Medica-Rents based on unjust enrichment and payment by mistake. Upon the government's intervention, the two cases were consolidated. Although Medica-Rents' motion for summary judgment was granted as to the FCA claims, the claims under the two additional theories survived the motion, i.e., the court found that there were sufficient issues of material fact to permit the case to go to trial on the claims for unjust enrichment and payment by mistake.)
Click to continue...HIPAA "Health Care Fraud" Interpreted
By: Ray M. Shepard
Under HIPAA, it is a felony to knowingly and willfully execute or attempt to execute a scheme or artifice to defraud any health care benefit program or to obtain money or other property owned or controlled by a health care benefit program by means of false or fraudulent pretenses, representations, or promises. 18 U.S.C. § 1347. The Fifth Circuit explored the meaning of health care fraud within the context of that statute in United States v. Hickman, 331 F.3d 439 (5th Cir. 2003).
The defendant in the case, Joyce Hickman, was convicted on 32 separate counts of health care fraud arising from a series of fraudulent transactions billed from 1995 to 2001 and was sentenced to a term of imprisonment of 210 months. Through her umbrella company, Total Medical Management, Hickman billed Medicare, Medicaid, and private insurers over $29 million for durable medical equipment (DME) that was never ordered and for inpatient doctor visits and health care services that never occurred.
Click to continue...Criminal Fine Apportioned to Indigent Medical Care Programs
The United States Attorney's Office in Grand Rapids, Michigan announced in October 2003 that United Memorial Healthcare Association (UMH), Spectrum Health, and the United States had entered into a Matching Fund Agreement, pursuant to a January 2003 plea agreement between UMH and the government. Under the Matching Fund Agreement, UMH will be permitted to apportion part of its criminal fine into a fund for indigent health care programs.
UMH, a hospital in Montcalm County, Michigan, was indicted in 2001 and pled guilty in 2003 to a single count of wire fraud for its role in a fraudulent billing practice that involved a physician who operated a pain clinic at UMH. The prosecution of UMH marked the first prosecution of a hospital in the history of the DOJ's enforcement against health care fraud. The plea agreement required, inter alia, the payment of a fine of $1,050,000 by UMH. (For a more detailed discussion of the DOJ's case against UMH, see Leon Rodriguez's article, "Hospital Pleads Guilty After Ignoring Fraud," which appeared in the Fall/Winter 2003 issue of the Health Law Alert.)
Click to continue...Abbott Labs Resolves DME Fraud Charges
By: S. Craig Holden
In July 2003, Abbott Laboratories, Inc., entered into a $600 million combined criminal and civil resolution of allegations against its Ross Products division relating to the manner in which it marketed its enteral feeding products. According to the press release from the U.S. Attorney's Office for the Southern District of Illinois, Abbott was charged with counseling DME suppliers to submit "bundled" claims to the Medicare program for feeding pumps and tubing. The government asserted that the bundled claims resulted in two products being billed as a single product at a higher price than if billed separately. According to the government, Ross marketed pumps and tubing sets at no additional cost to DME providers in exchange for an agreement from the provider to purchase a minimum number of plastic tubing sets and/or food per month.
Click to continue...Good Works Do Not Reduce Fraud Sentence
When William Thurston, vice-president of Damon Clinical Testing Laboratories (Damon), was sentenced to three months' imprisonment for Medicare fraud, Thurston appealed the conviction and the government appealed the sentence. The First Circuit affirmed Thurston's conviction, vacated his three-month sentence, and remanded his case for the imposition of the statutory maximum sentence of five years. United States v. Thurston, Nos. 02-1966, 02-1967 (1st Cir. Aug. 4, 2003). Thurston was convicted for his role in a scheme to defraud Medicare by bundling the ferritin blood test into a panel of blood tests, leading physicians to believe that the additional test was free to Medicare, and then billing Medicare for the ferritin test. A 1998 single-count indictment charged Thurston and other former Damon executives with conspiring to defraud Medicare in violation of 18 U.S.C. § 371. The only other executive to be convicted was the former president, Joseph Isola, who pled no contest and was sentenced to three years' probation and a $100 special assessment. Under the Federal Sentencing Guidelines, Thurston's sentence should have been between 63 and 78 months, capped at 60 months by the statutory maximum imposed under 18 U.S.C. § 371. The district court judge granted a downward departure, however, reducing Thurston's sentence to three months based on (1) Thurston's "good works," and (2) the trial court's perception of disparity between Thurston's and Isola's sentences.
Click to continue...A View from the Inside
By: Steven R. Smith
It's Monday morning and you have just arrived at your office in the hospital. You check your calendar and confirm that you "only" have four appointments scheduled so you figure that it will be a productive day in tackling that lingering paperwork on your desk. Unfortunately, you are wrong. Before the morning is over you learn that:
- A patient tried to jump out of a window over the weekend (and you were not notified);
- One of the hospital administrators has sent a proposed contract to you for review that involves a physician leasing space for his private office in the hospital with a note for you to review the contract for legal sufficiency but not to worry about the business issues;
How to Structure Your Next Equipment Lease
Many health care systems are finding it increasingly difficult to access needed capital, whether because of declining margins, reduced investment income, decreased philanthropy, or potential mismatches between Medicare's fixed payments for capital when compared to an individual institution's position in its capital cycle. Because of these factors, equipment leasing is becoming an increasingly important source of capital for the health care industry. In light of this trend, health care clients need to understand the basics of these transactions, including the business objectives of the lessor and the provisions in typical lease transaction documents that require special attention and negotiation.
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