Volume 47, No. 3 March 1991

MEDICARE: ASSURED DETERRENCE

Estimating that 8 to 12% of Medicare payments are made on the basis of fraudulent billing, the government has concluded that the threat of criminal penalties is an insufficient deterrent. In the realm of criminal law, the government's hands are bound by the US Constitution, which gives the accused such rights as protection from double jeopardy and a trial by jury under an evidentiary standard of proof ``beyond a reasonable doubt.'' Also, the prosecution of Medicare fraud and abuse cases must compete with drug crimes and crimes of violence for scarce funds.

The solution to the problem is to change the enforcement mechanism to administrative action for the recovery of civil monetary penalties and damages. Because the focus is no longer on the punishment of wrongdoers but rather on the ``preservation of program integrity,'' a federal court trial is no longer required. Hearings can be before an administrative law judge (ALJ) under a standard of the ``preponderance of evidence.'' The government need not prove an intent to defraud, and a standard of strict liability may be imposed. Action can be brought by the Department of Health and Human Services (HHS), so there is no need to compete for scarce US Attorney resources.

Adding to the effectiveness of deterrence is the severity of the penalties, which include both exclusions from the Medicare or Medicaid program and civil monetary penalties.

Mandatory exclusions for a minimum of 5 years are imposed in the event of conviction for a criminal offense related to participation in Medicare or any state health program. It is important to realize that the definition of a ``conviction'' may differ from the one applying under state law. If a physician makes any admission of wrongdoing, the conviction may be suspended or removed from the state record, but still stand as a ``conviction'' for the purposes of HHS.

``We see this time and time again,'' said attorney Thomas Daly, assistant editor of the Civil Monetary Penalties Reporter, at a seminar sponsored by Part B News in San Diego, Jan 21.

Permissive exclusions can be imposed at the discretion of the Office of Inspector General (OIG), which acts, at least initially, as both detective and judge. There are a variety of grounds for exclusion, including failure to grant immediate access to records or information. A notice of exclusion is effective immediately, even before a hearing. Like an IRS notice, it places on the physician the burden of showing why he should not be excluded.

Over the past eight years, civil monetary penalties have been extended by Congress to include more than 70 different types of Medicare transgressions, making this the most rapidly expanding area in the entire Medicare enforcement system. Examples include a $2,000 per item (not per claim) penalty on requests for payment that violate an assignment agreement; violation of the assignment requirement for diagnostic clinical laboratory tests; exceeding charge limitations on nonpar- ticipating physicians; and failure to refund payments for ``medically unnecessary'' services.

Civil monetary penalties can be levied even where the provider cannot be shown to have actual knowledge of the transgression, as when an employee submitted the claim.

Physicians do have some due-process rights, though these are limited since the penalties are ``remedial,'' not ``criminal.'' The penalty is not effective until after the person has received notice and the opportunity to be heard before an ALJ. But if the hearing is not requested within 30 days, the right is waived. After the Secretary makes a final decision, a physician may appeal to a federal Court of Appeals, which will determine whether the ALJ imposed a penalty in accordance with the law; the facts of the case will not be reexamined. The statute of limitations runs for six years after the claim was submitted.

The penalties, which could run into millions of dollars, were called ``draconian'' by Mr. Daly.

``This is not an accident,'' Mr. Daly said. `The law was deliberately created by Congress to build up huge penalties way out of proportion to billings.''

Furthermore, ``the regulatory framework is not well defined,'' leading to a ``very dangerous situation.''

Besides intensified review of claims for evidence of fraud and abuse, physicians face new types of ``quality of care'' review by PROs (see also AAPS News Feb, June 1989). The use of practice guidelines for this purpose will mark ``the most revolutionary development since Medicare,'' according to Alice Gosfield, an attorney speaking at the same seminar.

Physicians have the right to counsel at quality review. Ms. Gosfield described her duties as counsel: ``begging and groveling.'' She likened defending against a sanction to ``preparing an entire malpractice case in 30 days.''

Another item being examined by the PROs is the attestation statement. If the attestation (now signed by physicians annually instead of on every case) is improper (e.g. if it has been edited), the PRO can retroactively deny all care associated with that physician for the entire previous year.

When asked whether she would like to work under such a system, Ms. Gosfield replied: ``No. But then I don't get Medicare dollars either.''

Recent Medicare legislation leads one to ask just what it is that potential megadollar penalties are supposed to deter.

Is the threat to destroy physicians' careers and financial stability meant to deter the care of Medicare beneficiaries?

Q & A on Medicare

Some questions asked of or by the legal experts at the recent Medicare seminar sponsored by Part B News (see p. 1):

Q: What does a signature mean on a Medicare form or chart?

A: If you signed it, you bought it.

Q: How can I get an idea of what my fees will be under the RVS?

A: The formula is MFS={[PW x PW_i] + [OH x OH_i] + [M x M_i]}CF, where PW = physician work component of the RBRV, PW_i = physician work index, OH = overhead component of the RBVS, OH_i = overhead index, M = malpractice component, M_i = malpractice index, and CF = monetary conversion factor. You can buy software to work out your fees for prices ranging from $500 to $17,000, or you can hire a consultant if you want to pay more.

Q: Why bother? I calculated my MAACs, but have to go by the ones the carrier sent me, even though I think they did them wrong.

A: Well, you just might want to get some idea in advance. Maybe it will help you decide whether to participate.

Q: In the Federal Register, $1 is used ``for example'' as a conversion factor. The resulting fees look awfully low. Will that be the actual figure?

A: Everything in the Federal Register is subject to change. But in this instance, don't count on the change being an increase.

Q: How do you know that the new payment system will not decrease access instead of increasing volume?

A: ``We're jumping into this not knowing what kind of effects it will have,'' stated a member of the Physician Payment Review Commission.

Q: What will be the effect of the ``safe harbor'' provisions of the Medicare and Medicaid Patient and Program Protection Act of 1987 (P.L. 100-93, 2 and 4)? [The Act provides criminal penalties of $25,000 fines and/or five years imprisonment for receiving remuneration, directly or indirectly, in return for referring patients for services under Medicare or Medicaid.]

A: The Act is so broad and ambiguous that it could be construed to cover many activities that were always considered legal before (rental agreements, personal service contracts, sale of a practice, discounts and group purchases, investments in health care facilities, etc). In fact, Rep. Stark would like to make it illegal for doctors to own anything from which they might profit. Unfortunately, the effect of defining ``safe harbors'' might be to imply the illegality of every sort of arrangement that is not specifically protected.

Q: How can I find out whether or not an arrangement is illegal?

A: The only way is to go to court. The Dept. of Justice does not permit HHS to issue declaratory rulings stating that a particular arrangement is permitted.

Q: What if I routinely waive the deductible and coinsurance?

A: This could be considered remuneration to the patient for consulting you. The proposed ``safe harbor'' for such waivers applies to hospitals only.

Q: The civil monetary penalties are so severe that they could drive most doctors to the bankruptcy court. Are such debts dissolved by bankruptcy?

A: I think so. I know that they are secondary to an IRS lien.

Q: How can I disenroll from Medicare?

A: Medicare says you can't, because the ``protections'' of the program adhere to the beneficiary.

Q: What do the IRS, the PRO, and the PLO have in common?

A: They are all terrorist organizations.

From Capitol Hill

Medicare Solvent Until 2008. Laws passed in 1990 are expected to keep Medicare's Hospital Insurance Trust Fund solvent five years longer than had been expected-unless the recession is too severe. The cap on wages subject to the Medicare payroll tax was raised from $51,000 to $125,000, which is expected to yield $6 to $7 billion per year.

PROs May Be Overhauled. HCFA has proposed to eliminate preprocedure, readmission, and intervening care review of Medicare cases, decreasing the PROs' workload to 10% of hospital cases (it is now 14 to 16%), and slashing the PROs' $800-million, 3-year contracts by 10 to 25%. The PROs complain that the reduced review levels will offer fewer opportunities for denials.

Longer Medicare Payment Delays Are Expected. Because the Office of Management and Budget refuses to release enough funds for claims processing, physicians who file paper claims may have to wait more than two months for payment. Some physicians may have to borrow money to keep their offices open, especially if they participate and are unable to alleviate their cash flow problem by billing patients directly.

One problem is that claims volume has increased by 13%. This ``unanticipated'' jump results partly from the law requiring physicians to submit claims that might otherwise have been ``shoeboxed'' by patients. (AAPS warned of this effect in urging the repeal of the law. You might want to remind your Congressman.)

Insurance Updates

GM Cancels HMO Contracts. Because ``we were not pleased with their overall cost performance,'' General Motors cancelled contracts with six HMOs and froze enrollments in 19 others. GM's health care bill increased from $1000 per worker in 1986 to $1530 per worker last year (Phys Financial News 1/15/91).

Maryland Physicians May Not Bill HMO Patients. State Attorney General J. Joseph Curran, Jr., recently warned physicians that they may not bill patients when HMO payments are delayed, according to a state law effective July 1, 1989. A growing number of patients were reportedly receiving bills for services that their HMO had agreed to pay for.

Uninsured, but for How Long? Researchers at the Urban Institute recently concluded that ``efforts to increase health insurance coverage by employer mandates should proceed cautiously until we know how many people with long uninsured spells are employed.'' A study by the Institute showed that for half the uninsured, the uninsured spells end within four months, and only 15% are uninsured for longer than two years (Phys Financial News 1/15/91).

US Supreme Court Hears Arguments in Peer Review Antitrust Case

On Nov. 26, 1990, the US Supreme Court heard oral arguments in Summit Health, Ltd. v. Pinhas, an antitrust case arising out of hospital peer review proceedings. It is the first such antitrust suit that the Court has heard since its 1988 landmark decision in Patrick v. Burget, a case in which AAPS participated as amicus curiae together with the Semmelweis Society in support of the plaintiff physician.

According to the Bureau of National Affairs publication, the lawsuit arose as follows: In 1986, Dr. Simon J. Pinhas, an ophthalmologist who became a member of the Midway Hospital Center in 1981, requested the hospital to eliminate its requirement of an assistant surgeon in the performance of eye surgery because Medicare would no longer pay for the services of the assistant. According to Dr. Pinhas' Complaint, the continuation of the hospital's requirement would cost him approximately $60,000 per year. Instead of abolishing the assistant surgeon requirement, the hospital instead offered Dr. Pinhas a consulting contract for $60,000 per year. Dr. Pinhas refused to sign the contract.

The Complaint alleges that Dr. Pinhas' medical staff privileges were suspended because of his failure to sign the consulting contract. After an appeal through the hospital's ``fair hearing'' procedures, Dr. Pinhas was eventually reinstated but subject to probation. While appealing the suspension, Dr. Pinhas filed suit against the hospital, its parent company, its medical staff, the hospital's chief of staff, four competing ophthalmologists, hospital officers and employees, and the hospital's attorneys, alleging, among other things, violations of the Sherman Antitrust Act. (This Act prohibits contracts, combinations, or conspiracies in restraint of trade that affect interstate commerce.)

The US District Court dismissed the suit, including the antitrust claims, on the ground that the defendants were immune from antitrust liability because of the ``state action doctrine,'' which shields anticompetitive conduct if it is based on a clearly articulated policy of the state government and is actively supervised by the state government.

The US Court of Appeals for the Ninth Circuit reversed the District Court and reinstated Dr. Pinhas' antitrust claims. Relying on the Supreme Court's decision in Patrick v. Burget, the Ninth Circuit ruled that the defendants' conduct was not immunized by the ``state action doctrine,'' and also that Dr. Pinhas' Complaint adequately stated a connection between the anticompetitive activity (peer review) and interstate commerce (59 USLW 3415, BNA Dec 11, 1990). At the urging of the defendants, the US Supreme Court agreed to limit its consideration to the question of what connection between the alleged restraint of trade and interstate commerce is required in order to empower a federal court to hear the case under Section 1 of the Sherman Antitrust Act.

At oral argument before the Supreme Court, the hospital's attorney argued that the federal antitrust act was not intended to apply in purely local markets and that state laws could remedy such conduct (59 USLW 3415). Dr. Pinhas's attorney argued that a federal court's jurisdiction under the Sherman Act is just as extensive as the power of Congress to regulate economic activity pursuant to the Commerce Clause, Article 1, Section 8, Clause 3, of the federal Constitution (59 3416). Congress can regulate purely local activity if the activity, either alone or in combination with other activities, can potentially affect interstate commerce. Effectively, this includes virtually any economic activity. The US government, appearing as amicus curiae in support of Dr. Pinhas, concurs with this argument.

The Supreme Court is expected to render its opinion within the next three months.

New Bill Would Repeal Insurers' Antitrust Exemption

On the first day of the 102nd Congress, Rep. Jack Brooks (D- TX), with the support of consumer advocacy groups, filed legislation to limit the insurance industry's antitrust exemption, the McCarran-Ferguson Act.

``At a time of spiraling consumer costs heightened by fears of recession, there is absolutely no justification for one industry to be able to engage in price-fixing behavior that is proscribed throughout the rest of the economy,'' said Mr. Brooks, Chairman of the House Judiciary Committee. ``Without the healthy rigors of competitive forces, there are few built-in checks on runaway pricing.''

The Insurance Competitive Pricing Act of 1991, H.R. 9, has the same text as the bill that passed the House Judiciary Committee in 1990.

In the past, AAPS has testified in support of the repeal of McCarran-Ferguson (see AAPS News May and Aug, 1987).

Doctor Wins $6.4 Million from Lawyers

Dr. Howard Lifshutz of Ft. Lauderdale, FL, was excluded from Medicare by the OIG in 1987 after an investigation by the PRO (during which Dr. Lifshutz was allegedly sometimes rude to the investigators). As a result, he had to retire from a successful urology practice with an estimated annual income of $1 million. Dr. Lifshutz sued his attorneys for legal malpractice, arguing that they had failed to file a timely appeal and had missed large flaws in the PRO's case. A jury ordered the law firm to pay Dr. Lifshutz $6.4 million in damages and Dr. Lifshutz to pay $25,000 in disputed legal fees.

Dr. Lifshutz's new attorney won a set-aside of the Medicare exclusion, alleging that the PRO had resorted to ``doctoring'' telephone logs and misrepresenting the credentials of its physician experts to build their case. But the PRO apparently will not have to make restitution to the physician for the economic and professional damage.

The same PRO, Tampa-based Professional Foundation for Health Care, was previously hit with a $360,000 civil judgment by a state court jury for a violation of procedure. (The PRO had sent a letter to a patient, criticizing a physician without giving him the opportunity for rebuttal.) The judge reduced the penalty to $150,000 - 0.3% of the $48 million it is to receive under its three-year contract with the HCFA (Phys Financial News 1/15/91).

The PRO also awaits trial on federal charges that it billed for reviews that it didn't do (AM News 1/21/91).

When Medicare Payments Are Delayed...

When Medicare payments are delayed, it might just be because the carrier is behind (see p. 2). Or it could be because the claim was lost and needs to be resubmitted. If the claim was not really lost but is resubmitted because you were led to believe that it was lost (but didn't verify this by writing to the correct address), the process will be confounded and slowed up even more. (The carriers are already in a snarl from receiving inquiries about delays.)

Dr. Charles Harris, author of One Man's Medicine made these suggestions in Medical Tribune 11/15/90:

1. Find out three mailing addresses: the first to submit new forms, the second to determine the status of submitted forms, and the third to resubmit a form.

2. Keep a log of all forms submitted to Medicare.

3. Send them all by certified mail, return-receipt re- quested.

``If patients complain that doctors have not submitted the forms, and the doctor cannot prove that he or she has, inquiries and investigators will flood the doctor's offices, to be followed by plea-bargaining, finds and punishment. Bureaucratic probes never die,'' Dr. Harris writes.

Thoughts on Insurance

Insurance is part of the problem. [Due to extensive mandated benefits laws,] the healthy are made to pay for the sick, a tax in disguise....The premium is loaded with risks that are not [those of the policyholder]. This interference with the marketplace is so extensive that middle class Americans are buying less insurance....People with few assets are better off falling back on the public purse, in the unlikely event of catastrophic illness. The purchase of health insurance is, in fact, a misnomer for asset protection for the wealthy.

The use of ``insurance'' for routine health care is as pervasive as it is illogical....[Also], there is an expected balloon expense at the end of life. The purchase of insurance for a likely event is paradoxical...; saving would be better....

The idea of insurance is to pool risk voluntarily with a like community of subjects for unlikely but catastrophic events..., [an idea that emerged] in the days of sailing galleys.

Thomas Dorman, MD, San Luis Obispo, CA

New Members

AAPS welcomes Drs. Joseph Alvarez of Oakland, MD; Gustavo Arriola of Hialeah, FL; J. Paul Augereau of Tampa, FL; M. Larry Barman of Fresno, CA; A.L. Bender of Westwood, NJ; Art Benetti of Belmond, IA; Christi S. Bourne of Phoenix, AZ; Stephen E. Brown of Mesa, AZ; Lois J. Copeland of Hillsdale, NJ; Richard Boyles of Barnwell, SC; John Budzinski of Cheektowaga, NY; Ben F. Call of Pocatello, ID; Larry Cole of Yorktown, IN; E.P. Cruzat of Chicago, IL; Daniel Clyde Cummings of La Junta, CO; Charles V. DiRaimondo of Concord, CA; Ted Doles of Muncie, IN; David Eberlein of North Olmsted, OH; Meredith Evans of Middlesboro, KY; Dennis M. Everton of Scottsdale, AZ; Miguel A. Faria, Jr. of Macon, GA; Frank J. Ferraro of RiverVale, NJ; Edward B. Frankel of Anaheim, CA; Ralph Gay of Houston, TX; Stephen T. Hickey of Jax, FL; Donald B. Hoffman of Port St. Lucie, FL; Dan Houtman of Bartlesville, OK; John Kelly Hughes of Toledo, OH; Ghazi Jawad of Oak Park, IL; William W. Halcomb of Mesa, AZ; Verlin K. Janzen of Nebraska City, NE; Richard Karpf of Great Neck, NY; M.G. Kemp of Poteau, OH; Wilhelm A. Kraeling of Cincinnati, OH; Ted Y. Lai of Monterey Park, CA; John H. Lary, Jr. of Huntsville, AL; Larry LeFors of Yakima, WA; John E. Lindley of Meridian, MS; Anthony J. Linz of Sandusky, OH; David W. Litchford of Drossville, TN; David Litowsky of Houston, TX; Alfred P. Luppi of San Marino, CA; Ronald P. Mahonay of Houston, TX; Joseph S. McKell of Chillicothe, OH; Archie McPherson of Arlington, VA; Frank Middleton of Charleston, SC; Ralph D. Millsaps of Evansville, IN; H. Weston Moses of Springfield, IL; Sulabha Mujumdar of Middlesboro, KY; Eid B. Mustafa of Wichita Falls, TX; William A. Paris of Lake Providence, LA; Robert M. Reeves of Hemet, CA; Galen M. Reimer of Fallon, NV; William H. Roberts of Jackson, TN; Richard Rozencwaig of Miami Beach, FL; Basil M. RuDusky of Wilkes-Barre, PA; Cornelius C. Scott, III, of Downey, CA; M.V. Shetty of Cincinnati, OH; Richard A. Sperling of Hillsdale, NJ; Cynthia A. Stuart of Glendora, CA; Stephen Sutherland of Marion, OH; Raymond Swarts of Reno, NV; Terry L. Swezey of Vero Beach, FL; William Richmond Turpin of Austin, TX; Susan and Michael Ward of Orangevale, CA; James O. Williams, Jr. of Florence, SC; Lee Wood of Covina, CA; Joseph Woschitz of Anderson, IN; Judy Lee Wright of Bloomington, IL; and Edward Yosowitz of Houston, TX.

AAPS Calendar

Apr. 26, 1991. Medicolegal seminar, cosponsored by St. Louis Metropolitan Medical Society, St. Louis Airport Marriott, St. Louis, MO. Call 314-371-5225 to register, or send in the enclosed form.

Apr. 27, 1991. Board of Directors meeting, St. Louis, MO.

Oct. 17-19, 1991. Annual meeting, Griffin Gate Marriott, Lexington, KY.