Health Law Pointers - Volume XI, No. 3

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Health Care Fraud

                        Issues relating to health care fraud have captured the attention of our media, and the imagination of our screenwriters.  No wonder!  The numbers are staggering!  The government estimates that 2.26 trillion dollars were spent in 2007 on health care, with over 4 billion health insurance claims processed.  If we conservatively adopt a 3% fraud percentage, the dollar value of all fraud is 687 billion each year!  That is said to be more than the gross domestic product of 120 different countries.

            The scope of the problem has intensified efforts to combat fraud.  As a member of a professional practice, you should be aware that health care fraud enforcers (government agencies, insurance carriers and their agents) characterize the following billing practices as examples of provider fraud:

            1.         Billing for professional services that are never performed.

            2.         Misrepresenting the nature of the services or procedures actually performed to                           attain a greater reimbursement (upcoding).

            3.         Misrepresenting non-covered treatments as medically necessary.

            4.         Providing medically unnecessary care (over-utilization).

            5.         Inflating a patient’s diagnosis.

            6.         Billing different phases of an integrated procedure (unbundling).

            7.         Use of unlicensed staff.

            8.         Waiver of co-pays or deductibles without regard to the patient’s ability to pay.

            9.         Altering medical charts.

            10.       Misrepresentation of dates, description of services on medical charts.

            These same agencies and carriers encourage patients to examine their bills carefully, and to report all suspected instances of fraud, errors or concerns.  Several agencies and reimbursement programs offer rewards if provider suspicious activity turns out to be “fraud”.

            The current enforcement environment makes it more important than ever to monitor your billing practices, and take steps to assure complete compliance with the rules.

HMO Audits

We are frequently asked if HMOs and other health insurance companies are limited in their ability to conduct a post payment (retrospective) audit.

            Third party payers continue to engage in post-payment audits of medical records.  As most audits today are performed using statistical extrapolations from a limited number of the practice’s charts, the demand letter typically will seek repayment of a substantial “overpayment” taken from the audited sample.  Many of these inquiries are aggressive, auditing past, paid billings submitted several years before.

            Notwithstanding State Insurance law provisions that arguably prohibit overpayment recovery efforts more than 24 months after payment is received by a health care provider, a major exception under the law undermines this general rule, if there is a “reasonable belief” of fraud, other intentional misconduct or abusive billing.  Thus, HMOs and health insurance companies regularly review records up to 6 years old when conducting a routine post payment audit, on the theory that the audit is subject to a 6 year cause of action.  Further, under Regulation 95, found at 11 NYCRR 86.5, these organizations are duty bound to report to the State Insurance Department Fraud Bureau any instance where there appears to be a fraudulent or suspect insurance transaction or purported insurance transactions.

One Alternative To
Employee Disciplinary Action (Termination)

            Established violations of an employee handbook ordinarily give rise to disciplinary action, but if a valued employee commits an act that arguably justifies termination of employment, must termination automatically ensue?  The answer may depend on some of the following considerations:

            1.         Is the person a long-time and valued employee of the practice?

            2.         Has past service been without incident?  Is this incident an aberration?

            3.         Is the employment “at will” - in which case the person may be terminated as an employee, with or without cause, at any time - or is termination governed by the provisions of an employment contract?

            4.         Is the employee remorseful?  Has an apology been tendered?

            5.         What assurances can be offered by the employee that this conduct will not recur?

            If a decision is made to subject the employee to lesser disciplinary action, other than termination of employment, the arrangements for continued employment, if any, should be documented in a writing acknowledged and countersigned by the employee.  The writing should also make clear why the decision was made not to terminate employment and emphasize that any further violations of the employee handbook, or inappropriate conduct, will result in immediate discharge from employment, with or without cause.


            For those practices participating in the State Medicaid program that receive $500,000 or more in reimbursement annually from the program, Chapter 442 of the Laws of 2006 (which established the New York State Office of the Medicaid Inspector General) will require you to develop, adopt and implement an effective compliance program that is certified by OMIG by the December 31, 2009 deadline.

            More information on the mandatory provider compliance program may be found at the OMIG website:




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