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The slow-motion unraveling of New Mexico’s Medicaid crackdown (With Sound Bites From Me).

There’s no getting around it. Four years after Gov. Susana Martinez’s administration charged 15 behavioral health organizations with potentially defrauding the state’s Medicaid program, its case has experienced a slow-motion unraveling.

No Medicaid fraud was ever found. And those eye-popping estimates that added up to $36 million the organizations had overbilled Medicaid?

In the summer of 2017, the Human Services Department (HSD) is seeking drastically lower reimbursements for overbilling the public health insurance program for low-income residents, a review of public records and state court documents has found.

Now exonerated by the state Attorney General’s Office, many organizations are challenging even those much-lower estimates in administrative hearings or in state court.

Consider Teambuilders Counseling Services, one of the accused behavioral health providers.

Last fall it received a new estimate from the New Mexico Human Services Department. Previous numbers had varied from as high as $9.6 million to as low as $2 million. But the new figure deviated sharply from earlier calculations when Chester Boyett, an administrative law judge in the state agency’s Fair Hearings Bureau, ruled Teambuilders owed only $896.35.

Boyett argued his agency had built its $2 million estimate of Medicaid overbilling on faulty analysis, according to his 12-page decision.

Nancy Smith-Leslie, the department’s director of the Medical Assistance Division, ignored Boyett’s recommendation. In a Jan. 6 letter she said the agency’s analysis was sound, even though she seemed to confirm Boyett’s critique in a Nov. 2 memo in which she had noted the inaccuracy of the extrapolated amount. In that memo Teambuilders and its attorney had not “sufficiently disputed” the method of extrapolation, however, she wrote.

In her Jan. 6 letter, Smith-Leslie sought to clear up matters. She amended her previous statement, saying the extrapolation referred to in her Nov. 2 memo indeed was correct.

Teambuilders and its attorney, Knicole Emanuel, appealed HSD’s ruling over whether Teambuilders overbilled Medicaid and by how much to state court, where three other former behavioral health organizations are fighting HSD’s extrapolated overpayments.

Boyett’s finding that Teambuilders owed hundreds rather than millions of dollars — even if it was ignored — represents a compelling data point given where things stand with other providers.

The state in May reduced to $484.71 what it said Southwest Counseling Center owed after accusing it of overbilling Medicaid by as much as $2.8 million as recently as January.

And last September HSD closed the books  on another organization — Las Cruces-based Families and Youth Inc. — without demanding any reimbursements for overbilling and releasing $1.4 million in Medicaid dollars the state had suspended. The action represented a reversal after a state-ordered 2013 audit that found $856,745 in potential Medicaid overbilling by FYI.

In fact, a review of state and court documents by New Mexico In Depth reveals a pattern regarding the state agency’s overbilling estimates: In many cases, they are moving targets, usually on a downward trajectory.

Like Southwest’s, some have dropped spectacularly. Setting aside Boyett’s figure of $896, even the $2 million HSD claims Teambuilders owes is far smaller than a high of $12 million.

Hogares Inc., another organization accused of fraud, watched last year as the state revised its overbilling estimates five times over six months, starting at $9.5 million in January and ending with $3.1 million in June, according to state court documents.

Meanwhile, Easter Seals El Mirador, initially accused of $850,000 in potential Medicaid overbilling, now stands accused of $127,000.

Emanuel and Bryan Davis, another attorney representing many of the formerly accused organizations, said the constantly changing estimates are due to HSD.

The state agency is examining a sampling of each organization’s Medicaid claims and asking the organizations for documentation to prove the government program was properly billed, they said.

“In most cases (the overbilling estimates) are dropping precipitously” as organizations submit the documents requested by HSD, Davis said.

To cite one example, HSD’s latest overbilling estimate for Counseling Associates, Inc. is $96,000, said Davis, who represents the organization. That compares to $3 million in potential overbilling a 2013 state-ordered audit found.

It is a perplexing situation, given that the Human Services Department found “‘credible allegations of fraud” against the 15 organizations using that 2013 audit, which was performed by Massachusetts-based Public Consulting Group Inc.

“They threw PCG’s audit in the trash,” Davis said of HSD, noting the cost. HSD agreed to pay PCG up to $3 million for the study in February 2013.

The current situation caused Davis to wonder “why PCG didn’t have these documents in the first place,” he said.

Emanuel offered a pointed answer.

“HSD did not allow PCG to gather all the documents,” she said.

A spokesperson for HSD did not respond multiple requests for comment for this story.

Repercussions of the Medicaid crackdown

The fight over Medicaid overbilling isn’t the only legacy left from the Medicaid crackdown, which happened the last week of June 2013.

The Martinez administration’s decision affected lives. Many lives if you listen to behavioral health advocates and officials in the 15 organizations.

Charging the organizations with fraud and then suspending Medicaid payments to many of them disrupted mental health and addiction services for tens of thousands of New Mexicans. It created chaos for employees. And four years on it has left a number of business failures in its wake, with many of the accused organizations unable to survive long-term without Medicaid dollars.

Teambuilders, which once operated 52 locations in 17 New Mexico counties, is no longer in business, according to Emanuel. Neither is Las Cruces-based Southwest Counseling Center. Or Hogares.

At the same time a gap in care has opened up after three of five Arizona companies the Martinez administration brought in to care for the vulnerable populations have departed the state, leaving New Mexico to pick up the pieces.

“It’s a mess. It’s disgusting,” said James Kerlin, executive director of The Counseling Center of Alamogordo, which no longer sees clients. Like Teambuilders, Hogares, Southwest Counseling and others, it was unable to stay in business without the flow of Medicaid dollars the state suspended. “I want the public to know where we’re at and what’s been done to us. I’m going to start making a lot of noise. This is ridiculous.”

Kerlin’s organization was the first of the 15 organizations exonerated by then Attorney General Gary King in early 2014. And it offered the earliest glimpse of the weaknesses in the Martinez administration’s case against the behavioral health providers.

First signs of weakness in the state’s case

HSD hired PCG to audit all 15 organizations and it found $655,000 in potential Medicaid overbilling by the Counseling Center.

PCG reached that conclusion after finding $1,873 in questionable Medicaid claims and then extrapolating from those claims that the center could have overbilled Medicaid by more than $600,000 based on the size of its Medicaid business over several years.

But during its fraud investigation the AG’s office flagged fewer Counseling Center claims than PCG and found a much lower cost of potential overbillings. It resolved some of the issues by reviewing records and interviewing staff.

In many cases, auditors give staff of audited organizations an opportunity to refute findings or address misunderstandings before finalizing their findings. For example, most state and local governmental agencies are audited annually in New Mexico. Staff within those agencies are afforded the chance to see and respond to audit findings within a certain amount of time before audits are made public.

Kerlin did not get that opportunity during the PCG audit.

PCG later confirmed to NMID that it is the firm’s standard procedure to give companies a chance to respond before issuing official audit findings. A PCG spokesperson would not tell NMID why that didn’t happen in New Mexico.

By the time HSD held a hearing for the Counseling Center, the state agency had lowered its Medicaid overbillings estimate to $379,135. And Kerlin finally was able to hear the accusations against his organization.

Counseling Center submitted evidence to rebut the state agency’s claims, but the hearing officer sided with HSD. The Counseling Center appealed to state court.

In late 2015, State District Court Judge Francis Mathew ruled in favor of Kerlin’s organization, calling HSD’s hearing decision “arbitrary, capricious or otherwise not in accordance with law.”

In addition, the judge found the administrative law judge had shifted the burden of proof from HSD to the Counseling Center and then set too high a standard for the organization. Citing portions of the administrative law judge’s ruling, Mathew noted  the Counseling Center had “offered certain amount of credible evidence in opposition” to HSD’s findings but not as much as the hearing officer required: a “100 percent audit” of records, which the state district judge found “unreasonable.”

HSD appealed the judge’s decision to the state Court of Appeals.

Examples of rejected claims 

The overly stringent standards for documentation — and even a basic lack of understanding by HSD staff of Medicaid billing requirements — can be found in cases involving other organizations that are contesting the department’s charges of overbilling, a review of court documents found.

In a motion appealing the administrative law judge’s ruling that it owed the state $127,240, Easter Seals disputed seven claims, including one HSD had rejected because there was no medication consent form in place, even though the patient and parent had signed a general informed consent form and the patient’s parent was present when the medication was prescribed.

According to the court document, “There was no dispute that the service was medically necessary and was provided to J.A. There is no question as to quality of care provided to the recipient of services.”

Another claim was rejected because there was no doctor’s signature on a psychosocial assessment, however the state could provide no legal requirement for the signature, according to Easter Seals’ appeal. “A signature might be best practice, or advisable, but it is not a requirement,” the filing argued.

Also in the appeal, Easter Seals noted that the Human Service Department’s coding witness not only could not cite rules disallowing two services to be delivered during the same time period, but also appeared to be using a coding manual from Medicare, the insurance for seniors, and not Medicaid. And furthermore, she did not even realize there was a manual for Medicaid.

HSD ignored evidence in 2013 that refuted overbilling claims 

Even those organizations that have avoided administrative hearings and court battles have stories to tell about HSD and its actions.

Consider Presbyterian Medical Services, which signed an agreement with the Human Services Department in 2013 to pay $4 million after PCG found nearly $4.5 million in potential Medicaid overbillings.

It wasn’t an easy decision, its CEO said this week, and it shouldn’t be construed as agreement with the state’s conclusions.

“We agree to disagree” is how Steven Hansen put it.

Until Presbyterian began negotiating an agreement, in fact, it had not seen the findings of the PCG audit.

During the negotiations PMS officials found documents they thought could refute PCG’s audit findings, Hansen and other PMS officials told state lawmakers in October 2014.

Presbyterian tried to give the files to PCG and the Human Services Department as proof that they had properly billed Medicaid for payment. The consulting firm said it would review the documentation if directed to by HSD, but PCG later told Presbyterian Medical Services the state agency “did not want to accept those records.”

“We believe there is a strong argument that nothing was owed back to HSD,” Presbyterian’s general counsel told lawmakers in 2014.

At that point, Presbyterian had to make a choice: Settle with the state or fight and possibly run out of money.

Presbyterian settled, paying the $4 million.

The decision has worked out for the organization.

“We’re doing more business than we did before” the 2013 crackdown, Hansen said.

That’s because as the Arizona providers the Martinez administration brought in have left New Mexico, Presbyterian Medical Services has taken over mental health and addiction services.

Presbyterian has added Carlsbad, Alamogordo, Deming, Espańola, Grants, Artesia, Santa Fe and Rio Rancho to the places it provides behavioral health services, Hansen said, adding it’s “bits and pieces” of areas formerly serviced by three of the five Arizona companies.

“We feel like it’s going in a good direction for us,” Hansen said. “That’s hard for us to say because there were so many great organizations that are no longer in the state. But we’ve had to move on.”

Audits “Breaking Bad” in New Mexico: Part II

By: Edward M. Roche, the founder of Barraclough NY LLC, a litigation support firm that helps healthcare providers fight against statistical extrapolations.

In the first article in this series, we covered how a new governor of New Mexico recently came into power and shortly thereafter, all 15 of the state’s nonprofit providers for behavioral health services were accused of fraud and replaced with companies owned by UnitedHealthcare.

When a new team is brought in to take over a crisis situation, one might expect that things would improve. The replacement companies might be presumed to transfer to New Mexico newer and more efficient methods of working, and patient services would become better and more efficient. Out with the old, in with the new. The problem in New Mexico is that this didn’t happen – not at all.

The corporate structure in New Mexico is byzantine. UnitedHealth Group, Inc. is a Minnesota corporation that works through subsidiaries, operating companies and joint ventures to provide managed healthcare throughout the United States. In New Mexico, UnitedHealth worked through Optum Behavioral Health Solutions and United Behavioral Health, Inc. OptumHealth New Mexico is a joint venture between UnitedHealthcare Insurance Company and United Behavioral Health, according to the professional services contract signed with the State of New Mexico.

And that’s not all. OptumHealth is not the company providing the services. According to the contract, It was set up to act as a bridge between actual providers of health services and a legal entity called the State of New Mexico Interagency Behavioral Health Purchasing Collaborative. This Collaborative combines together 16 agencies within the state government.

OptumHealth works by using subcontractors to actually deliver healthcare under both Medicaid and Medicare. Its job is to make sure that all claims from the subcontractors are compliant with state and federal law. It takes payment for the claims submitted and then pays out to the subcontractors. But for this service, OptumHealth takes a 28-percent commission, according to court papers.

This is a nice margin. A complaint filed by whistleblower Karen Clark, an internal auditor with OptimumHealth, indicated that from October 2011 until April 2012, OptumHealth paid out about $88.25 million in Medicaid funds and got a commission of $24.7 million. The payments went out to nine subcontractors. Clark claimed that from Oct. 1, 2011 until April 22, 2013, the overall payouts were about $529.5 million, and the 28-percent commission was about $148.3 million.

In spite of the liberal flow of taxpayer money, things did not go well. Clark’s whistleblower suit, filed in the U.S. District Court for the District of New Mexico, claimed that OptumHealth knew of massive fraud but refused to investigate. Clark says she was eventually fired after she uncovered the malfeasance. It appears that even after learning of problems, OptumHealth kept billing away, eager to continue collecting that 28-percent commission.

Clark’s complaint details a number of problems in New Mexico’s behavioral health sector. It is a list of horrors: there were falsified records, services provided by unlicensed providers, use of improper billing codes, claims for services that never were provided, and many other problems. Allegedly, many client files contained no treatment plans or treatment notes, or even records of what treatments had been provided and s services billed for times when offices were closed. The suit also claims that some services were provided by probationers instead of licensed providers, and a number of bills were submitted for a person who was outside the United States at the time.

The complaint further alleges that one provider received $300,000 in payments, but had submitted only $200,000 worth of claims. When Clark discovered this she allegedly was told by her supervisor at OptumHealth that it was “too small to be concerned about”. It also is alleged that a) insight-oriented psychotherapy was billed when actually the client was being taught how to brush their teeth; b) the same services were billed to the same patient several times per month, and files were falsified to satisfy Medicaid rules; c) interactive therapy sessions were billed for patients who were non-verbal and unable to participate; d) individual therapy was claimed when group therapy was given; e) apart from Medicaid, other sources allegedly were billed for exactly the same services; and f) developmentally disabled patients were used to bill for group therapy from which they had no capacity to benefit. Clark also stated that investigations of one provider for false billing were suspended because they were “a big player in the state”.

Other alleged abuse included a provider that submitted claims for 15-20 hours per day of group therapy for 20 to 40 children at a time, and for numerous psychotherapy services never provided. The complaint also describes one individual provider that supposedly worked three days per week, routinely billing Medicaid for twelve 30-minute individual psychotherapy sessions; 12 family psychotherapy sessions; 23 children in group therapy; and 32 children in group interactive psychotherapy each day.

A number of other abuses are detailed in the complaint: a) some providers had secretaries prescribing medication; b) one provider claimed that it saw 30 patients each 90 minutes per day for psychotherapeutic treatment; c) some individuals allegedly submitted claims for 30 hours per day of treatment; and d) some facilities had no credentialed psychotherapist at any of its facilities. Remember that all of these subcontractors are providing behavioral (psychiatric and psychological) services. Clark found that others submitted bills claiming the services were performed by a medical doctor, but there were none at their facility.

And in one of the most stunning abuses imaginable, one provider allegedly diagnosed all of their patients as having autism. Clark believes this was done because it allowed billing under both medical and mental health billing codes.

These are only a few of the apparent problems we see in New Mexico’s behavioral services.

You would think that once all of this had been brought to light, then public authorities such as the state’s Attorney General’s office would be eager to investigate and begin to root out the abusers. But that isn’t what happened.

James Hallinan, a spokesman for that office, stated that “based on its investigation, the Office of the Attorney General determined it would be in the best interest of the State to decline to intervene in the case.”

While it was making this decision, Clark’s allegations remained under court seal. But now they can be shown.

Note:

(*) Hallinan, James, spokesman for Attorney General’s office, quoted by Peters, J. and Lyman, A. Lawsuit: $14 million in new Medicaid fraud ignored in botched behavioral health audits, January 8, 2016, NM Political Report, URL: http://nmpoliticalreport.com/26519/lawsuit-optumhealth-botched-audits-of-nm-providers/ accessed March 22, 2016.

This article is based on US ex rel. Karen Clark and State of New Mexico ex rel. Karen Clark and Karen Clark, individually vs. UnitedHealth Group, Inc., United Healthcare Insurance Company, United Behavioral Health, Inc., and OptumHealth New Mexico, Complaint for Damages and Penalties, United States District Court for the District of New Mexico, No. 13-CV-372, April 22, 2013 held under court seal until a few weeks ago.

Audits “Breaking Bad” in New Mexico

By: Ed Roche, founder of Barraclough NY LLC, a litigation support firm that helps healthcare providers fight against statistical extrapolations

It was published in RACMonitor.

Healthcare providers sometimes can get caught up in a political storm. When this happens, audits can be used as a weapon to help preferred providers muscle into a market. This appears to have happened recently in New Mexico.

Let’s go back in time.

On Sept. 14, 2010, Susana Martinez was in Washington, D.C. She was looking for campaign contributions to run for the governorship of New Mexico. She visited the office of the government lobbying division of UnitedHealth Group and picked up a check for $25,000.

The next day, Martinez published an editorial claiming that Bill Richardson’s administration in New Mexico was tolerating much “waste, fraud and abuse” in its Medicaid program. Eventually, she was elected as the 31st governor of New Mexico and took office Jan. 1, 2011.

According to an email trail, by the fall of 2012, Martinez’s administration was busy exchanging emails with members of the boards of directors of several healthcare companies in Arizona. During this same period, the Arizonans made a number of contributions to a political action committee (PAC) set up to support Martinez. At the same time, officers from New Mexico’s Human Services Department (HSD) made a number of unannounced visits to Arizona.

The lobbying continued in earnest. Hosted in part by UnitedHealth money, the head of HSD visited Utah’s premier ski resort, and the bill was paid for by an organization financed in part by UnitedHealth. The governor’s chief of staff was treated to dinner at an expensive steakhouse in Las Vegas. There is suspicion of other contacts, but these have not been identified. All of these meetings were confidential.

The governor continued to publicly criticize health services in New Mexico. She focused on 15 mental health providers who had been in business for 40 years. They were serving 87 percent of the mental health population in New Mexico and had developed an extensive delivery system that reached all corners of the state.

Martinez honed in on one mental health provider because the CEO used a private aircraft. He was accused of using Medicaid funds to finance a lavish lifestyle. None of this was true. It turned out that the owner had operations all over the state and used the plane for commuting, but it made for good sound bites to feed the press.

The state decided to raise the pressure against the providers. Public Consulting Group (PCG), a Boston-based contractor, was called in to perform an audit of mental health services. In addition to taking samples and performing analyses of claims, PCG was asked to look for “credible allegations of fraud.”

In legal terms, the phrase “credible allegations of fraud” carries much weight. Under the Patient Protection and Affordable Care Act, it can be used to justify punitive actions against a provider. It is surprising that only “allegations” are necessary, not demonstrated proof. The reality is that in practical terms, a provider can be shut down based on allegations alone.

In a letter regarding its work, PCG stated that “there are no credible allegations of fraud.” Evidently, that was the wrong answer. PCG was kicked out of New Mexico and not allowed to complete its audit. HSD took over.

The PCG letter had been supplied to HSD in a Microsoft Word format. In a stunning act, HSD removed the statement concluding that there were “no credible allegations of fraud.” HSD continued to use the PCG letter, but only in this altered form.

HSD continued to insist publicly that there were credible allegations of fraud. Since PCG had been kicked out before completing the audit, a HSD staff attorney took the liberty of performing several statistical extrapolations that generated a repayment demand of more than $36 million. During testimony, the attorney admitted that the extent of his experience with statistics was an introductory course he had taken years earlier in college.

Two years later, statistical experts from Barraclough NY LLC who are elected fellows of the American Statistical Association examined HSD’s work and concluded that it was faulty and unreliable. They concluded there was zero credibility in the extrapolations.

But for the time being, the extrapolations and audits were powerful tools. On June 24, 2013, all of the aforementioned 15 nonprofits were called into a meeting with HSD. All were accused of massive fraud. They were informed that their Medicaid payments were to be impounded. The money needed to service 87 percent of New Mexico’s mental health population was being cut off.

The next day, UnitedHealth announced a $22 million investment in Santa Fe. We have not been able to track down the direct beneficiaries of these investments. However, we do know that the governor’s office immediately issued a press release on their behalf.

The 15 New Mexico providers were being driven out of business. This had been planned well in advance. Shortly thereafter, the government of New Mexico, through HSD, [approved] issued $18 million in no-bid contracts to five Arizona-based providers affiliated with UnitedHealth. These are the same companies that had been contributing to the governor’s PAC.

These five Arizona companies then took over all mental health services for New Mexico. Their first step was to begin cutting back services. To give one example: patients with two hours therapy per week were cut back to 10 fifteen-minute sessions per year.It was the beginning of a mental health crisis in New Mexico.

As of today, two of the Arizona providers have abandoned their work in New Mexico. A third is in the process of leaving. What is the result? Thousands of New Mexico mental health patients have been left with no services. Entire communities have been completely shut [cut] off. The most vulnerable communities have been hit the hardest.

Through litigation, the 15 original providers forced the New Mexico Attorney General to examine the situation. It took a long time. All of the providers now are out of business. The Attorney General reported a few weeks ago that there were never any credible allegations of fraud.

This should mean that the impounded money would be returned to the 15 providers. After all, the legal reason why it was impounded in the first place has been shown to be false. One would think that the situation could return to normal.

The original 15 should be able to continue their business, and hire back the more than 1,500 persons they had been forced to lay off. Once the impounded monies are returned to the providers, they will be able to pay their legal bills, which now add up to hundreds of thousands of dollars.

Unfortunately, that is not happening. HSD still is claiming that the $36 million extrapolation is due, and that actually, the providers owe the state money. The New Mexico government is not budging from its position. The litigation continues.

Meanwhile, New Mexico now is tied with Montana in having the highest suicide rate in the continental United States.

Alphabet Soup: RACs, MICs, MFCUs, CERTs, ZPICs, PERMs and Their Respective Look Back Periods

I have a dental client, who was subject to a post payment review by Public Consulting Group (PCG). During the audit, PCG reviewed claims that were 5 years old.  In communication with the state, I pointed out that PCG surpassed its allowable look back period of 3 years.  To which the Assistant Attorney General (AG) said, “This was not a RAC audit.”  I said, “Huh. Then what type of audit is it? MIC? ZPIC? CERT?” Because the audit has to be one of the known acronyms, otherwise, where is PCG’s authority to conduct the audit?

There has to be a federal and state regulation applicable to every audit.  If there is not, the audit is not allowable.

So, with the state claiming that this post payment review is not a RAC audit, I looked into what it could be.

In order to address health care fraud, waste, and abuse (FWA), Congress and CMS developed a variety of approaches over the past several years to audit Medicare and Medicaid claims. For all the different approaches, the feds created rules and different acronyms.  For example, a ZPIC audit varies from a CERT audit, which differs from a RAC audit, etc. The rules regulating the audit differ vastly and impact the provider’s audit results greatly. It can be as varied as hockey and football; both have the same purpose of scoring points, but the equipment, method of scoring, and ways to defend against an opponent scoring are as polar opposite as oil and water. It can be confusing and overwhelming to figure out which entity has which rule and which entity has exceeded its scope in an audit.

It can seem that we are caught swimming in a bowl of alphabet soup. We have RACs, ZPICs, MICs, CERTs, and PERMs!!

alphabet soup

What are these acronyms??

This blog will shed some light on the different types of agencies auditing your Medicare and Medicaid claims and what restrictions are imposed on such agencies, as well as provide you with useful tips while undergoing an audit and defending the results.

First, what do the acronyms stand for?

  • Medicare Recovery Audit Contractors (RACs)
  • Medicaid RACs
  • Medicaid Integrity Contractors (MICs)
  • Zone Program Integrity Contractors (ZPICs)
  • State Medicaid Fraud Control Units (MFCUs)
  • Comprehensive Error Rate Testing (CERT)
  • Payment Error Rate Measurement (PERM)

Second, what are the allowable scope, players, and look back periods for each type of audit? I have comprised the following chart for a quick “cheat sheet” when it comes to the various types of audits. When an auditor knocks on your door, ask them, “What type of audit is this?” This can be invaluable information when it comes to defending the alleged overpayment.

SCOPE, AUDITOR, AND LOOK-BACK PERIOD
Name Scope Auditor Look-back period
Medicare RACs

Focus:

Medicare zaqoverpayments and underpayments

Medicare RACs are nationwide. The companies bid for federal contracts. They use post payment reviews to seek over and under payments and are paid on a contingency basis. Region A:  Performant Recovery

Region B:  CGI Federal, Inc.

Region C:  Connolly, Inc.

Region D:  HealthDataInsights, Inc.

Three years after the date the claim was filed.
Medicaid RACs

Focus:

Medicaid overpayments and underpayments

Medicaid RACs operate nationwide on a state-by-state basis. States choose the companies to perform RAC functions, determine the areas to target without informing the public, and pay on a contingency fee basis. Each state contracts with a private company that operates as a Medicaid RAC.

In NC, we use PCG and HMS.

Three years after the date the claim was filed, unless the Medicaid RAC has approval from the state.
MICs

Focus:

Medicaid overpayments and education

MICs review all Medicaid providers to identify high-risk areas, overpayments, and areas for improvement. CMS divided the U.S. into five MIC jurisdictions.

New York (CMS Regions I & II) – Thomson Reuters (R) and IPRO (A) • Atlanta (CMS Regions III & IV) – Thomson Reuters (R) and Health Integrity (A) • Chicago (CMS Regions V & VII) – AdvanceMed (R) and Health Integrity (A) • Dallas (CMS Regions VI & VIII) – AdvanceMed (R) and HMS (A) • San Francisco (CMS Regions IX & X) – AdvanceMed (R) and HMS (A)

MICs are not paid on a contingency fee basis.

MICs  may review a claim as far back as permitted under the laws of the respective states (generally a five-year look-back period).
ZPICs

Focus:

Medicare fraud, waste, and abuse

ZPICs investigate potential Medicare FWA and refer these cases to other entities.

Not random.

CMS, which has divided the U.S. into seven ZPICs jurisdictions.

Only investigate potential fraud.

ZPICs are not paid on a contingency fee basis.

ZPICs have no specified look-back period.
MFCUs

Focus:

Medicaid fraud, waste, and abuse

MFCUs investigate and prosecute (or refer for prosecution) criminal and civil Medicaid fraud cases. Each state, except North Dakota, has an MFCU.

Contact info for NC’s:

Medicaid Fraud Control Unit of North Carolina
Office of the Attorney General
5505 Creedmoor Rd
Suite 300
Raleigh, NC   27612

Phone: (919) 881-2320

website

MFCUs have no stated look-back period.
CERT

Focus:

Medicare improper payment rate

CERT companies indicate the rate of improper payments in the Medicare program in an annual report. CMS runs the CERT program using two private contractors (which I am yet to track down, but I will). The look back period is the current fiscal year (October 1 to September 30).
PERM

Focus:

Medicaid improper payment rate

PERM companies research improper payments in Medicaid and the Children’s Health Insurance Program. They extrapolate a national error rate. CMS runs the PERM program using two private contractors(which I am yet to track down, but I will). The look back period is the current fiscal year (the complete measurement cycle is 22 to 28 months).

 As you can see, the soup is flooded with letters of the alphabet. But which letters are attached to which audit company determines which rules are followed.

It is imperative to know, when audited, exactly which acronym those auditors are

Which brings me back to my original story of my dental provider, who was audited by a “non-RAC” entity for claims 5 years old.

What entity could be performing this audit, since PCG was not acting as its capacity as a RAC auditor? Let’s review:

  • RAC: AG claims no.
  • MIC: This is a state audit, not federal. No.
  • MFCU: No prosecutor involved. No.
  • ZPIC: This is a state audit, not federal. No allegation of fraud. No.
  • CERT:This is a state audit, not federal. No.
  • PERM: This is a state audit, not federal. No.

Hmmmm….

If it walks like a duck, talks like a duck, and acts like a duck, it must be a duck, right?

Or, in this case, a RAC.

Are PCG’s Extrapolated Medicaid Audits in Violation of State Statute?

Public Consulting Group (PCG) is one of the contracted entities conducting Medicaid post-payment audits in North Carolina. I’ve heard rumors that NC Department of Health and Human Services (DHHS) is not renewing PCG’s contract, although I have found no evidence to corroborate this rumor.

Regardless, right now, PCG is here and the Medicaid post-payment audits continue. And PCG continues to extrapolate.  For more information as to the extrapolations, see my blog: How Does $100 Become $100,000? Check for Clusters!

But is PCG legally allowed to extrapolate? Oh, of course it is allowed to legally extrapolate!! The contract between DHHS and PCG allows PCG to extrapolate, right? But…what if….the extrapolations are not being conducted legally?

N.C. Gen. Stat. 108C-5 states, in pertinent part:

“(i) Prior to extrapolating the results of any audits, the Department shall demonstrate and inform the provider that (i) the provider failed to substantially comply with the requirements of State or federal law or regulation or (ii) the Department has credible allegation of fraud concerning the provider.

Prior to extrapolating, the Department must demonstrate and inform…

Prior to…

Of all the Tentative Notices of Overpayment (TNO) that I have seen, the actual TNO states the extrapolated amount and states that the audit is extrapolated because “(1) the provider  failed to substantially comply with the requirements of State or federal law or regulation or (ii) the Department has credible allegation of fraud concerning the provider.”  There is no more detail.  The TNO literally regurgitates the statutory language into the TNO.  Does that constitute “demonstrating”?  Better yet, if a provider receives the information that “(1) the provider  failed to substantially comply with the requirements of State or federal law or regulation or (ii) the Department has credible allegation of fraud concerning the provider” CONCURRENTLY with receipt of the extrapolated amount, does that notice meet the statutory criteria of PRIOR TO?

Question #1: Does regurgitating the statutory language meet the requirement that the State demonstrate the noncompliance?

Question #2: Does the Department sending the reason for the extrapolation concurrently with the extrapolation meet the statutory requirement to inform the provider prior to extrapolating?

Let’s start with Question #1…

Last night I was checking my daughter’s homework.  She had to read an article on Abraham Lincoln.  Then she had to answer reading comprehension questions about the article.  One question was something like, “What is this article primarily about?”  The article discussed the Civil War, Lincoln, the Gettysburg Address, Lincoln’s top hat, Lincoln’s assassination and Lincoln’s gravesite.  My daughter answered “B: Abraham Lincoln’s presidency.”  (Which was wrong). 

What if I told her she was wrong, but never explained why?  I believe the conversation would go something like this: “You’re wrong.”  “Why?” “Because you’re wrong.”  “But WHY am I wrong.”  “Because you are wrong.”

In the above scenario, I informed my daughter that she was wrong.  But I failed to demonstrate how or why she was wrong.

Similarly, N.C. Gen. Stat. requires that the Department  demonstrate and inform the provider that the provider failed to substantially comply with the requirements of State or federal law or regulation or that the Department has credible allegation of fraud concerning the provider.

Inform + Demonstrate = Statutory compliance

So, does PCG demonstrate and inform the providers that the provider failed to substantially comply with the requirements of State or federal law or regulation or that the Department has credible allegation of fraud concerning the provider, simply by restating the identical language in the TNO?

“Why?” “Because you’re wrong.”

Ok, how about Question #2…?

How important is something to occur prior to versus concurrently? I mean, at least it is done, right? Who cares whether the action is done prior to or concurrently? 

Think of skydiving.  I tell you to be sure to put on your parachute prior to jumping.  Instead you hold your parachute, leap out of the plane, and attempt to put on your parachute contemporaneously as jumping.  With the amount of air resistance you encounter after you jump, you are unable to get the parachute secured and you die.

Let’s look at a less grotesque example…Think about eating…I tell you to open your mouth prior to inserting the piece of chocolate cake into your mouth.  Instead you insert the piece of chocolate cake into your mouth while you concurrently open your mouth.  Sure, you get some cake into your mouth, but the majority of the chocolate cake is smeared all over your face.

Can PCG send you one letter saying you are non-compliant while concurrently informing you of the extrapolated amount? Or is that a bit like squashing chocolate cake into your face?

Are PCG’s Extrapolated Medicaid Audits in Violation of State Statute?

NC Medicaid Audits: Is There a Silver Lining? (Maybe Even Two!)

Normally I am “silver lining” type of person. You know…the whole, “The sun will come out tomorrow, bet your bottom dollar that tomorrow, there’ll be sun,” mentality…

But when it comes to North Carolina Medicaid audits conducted by Public Consulting Group (PCG) or HMS, I have failed to find the silver linings.  You, as a health care provider, receive a Tentative Notice of Overpayment (TNO) for $1 million and go through various stages of acceptance: surprise, horror, anger, befuddlement, and fear.  In order to defend yourself, you have to shell out tens of thousands of dollars for an attorney (hopefully one that understands Medicaid audits).  Then spend countless hours compiling all the documents for the attorney to review and use at the reconsideration review.  Then take off a day to attend the reconsideration review, losing even more clinical hours, only to disagree with the Department of Health and Human Services (DHHS) Hearing Officer’s decision.  Spend more money in legal fees to appeal the DHHS decision to the Office of Administrative Hearings (OAH).  Possibly hire an extrapolation expert at even more expense.  Only to prove, finally, that the PCG and/or HMS audit was erroneous and you owe nothing.  Or $100. Or $1000.

Where is the silver lining in that process?

That you owe nothing in the end? But you paid exhorbent amounts to the attorney.

Well, there could be a silver lining… (maybe even two)…

Recently, the IRS released a couple private letter rulings as to whether paid overpayments could be tax-deductible.

OK, what  the heck is a private letter ruling?

According to Wikipedia, private letter rulings “(PLRs), in the United States, are written decisions by the Internal Revenue Service (IRS) in response to taxpayer requests for guidance.  A private letter ruling binds only the IRS and the requesting taxpayer. Thus, a private ruling may not be cited or relied upon as precedent.”

The most important part of the above-referenced definition of a PLR is that the PLR is binding only on the IRS and the requesting taxpayer.  Obviously, this means that if the IRS wrote 2500 PLRs saying that paid overpayments in Medicaid audits are tax-deductible, those 2500 PLRs are not binding as to you (unless you were one of the 2500 taxpayers asking for a PLR).

Regardless, PLRs are demonstrative as to how the IRS determines [whatever is determines in the PLR].  Because, despite the fact that PLRs are not binding on all taxpayers, I would find it odd if the IRS issued 2500 PLRs stating that the paid overpayments are tax-deductible, then the IRS turn around and refuse to allow you to treat the overpayment as a tax deduction.  Although, I am sure stranger things have happened.

In the first PLR, which, BTW, is not fun to read.  Who uses all this legalese???  Taxpayer B asks whether (1) the money he paid to the insurance company could be deducted as a loss incurred in a trade or business; and (2) the money paid to a Government Entity E and Government Entity F in the tax years in which the installment payments are made under the settlement agreement can be deducted. (I made Taxpayer B a male because the PLR makes him a male.  I have no idea as to the gender of Taxpayer B).

In Year 1, the Insurance Company sued … Taxpayer B for insurance fraud, demanding both compensatory and punitive damages.   In the second year, the state of New Jersey indicted Taxpayer B… for insurance fraud.  Taxpayer B agreed to pay $X in restitution to Government Entity E and Government Entity F.

Taxpayer B has represented (a) that he previously included in his gross income in prior tax years the amounts he now seeks to deduct and (b) that he and all other defendants in [both] lawsuits are jointly and severally liable for the amounts due under the settlement agreement because the language of the settlement agreement imposes joint liability upon the defendants and New Jersey law imposes joint and several liability upon members of a limited liability company.

So…can Taxpayer B deduct the money paid to the insurance company and the government as a business loss????

Or, in other words, could you (a health care provider who accepts Medicaid) deduct any money paid to PCG or HMS arising our of a regulatory audit as a business loss?

According to the PLR: 

We conclude that Taxpayer B may deduct the payments he made to the Insurance Company and to Government Entity E and Government Entity F in the years the payments were made or will be made, provided that he received or will receive no contribution from any other party and included the amounts he paid or will pay in his gross income in prior tax years.

Yes!

The second PLR is basically identical to the first, except that Taxpayer A is at issue.  For the PLR, click here.

So what does this mean?  Why should North Carolina Medicaid providers care that 2 taxpayers were able to deduct the monies paid to the government/insurance companies as a business loss?

Because, these PLRs are demonstrative that, perhaps, the IRS would view regulatory audit paybacks to PCG or HMS as an allowable tax deduction as a business loss.

So, you receive a TNO in the amount of $1 million.  You spend $20,000 litigating the $1 million to $1000.  I know, it sucks, right?? (Not that the amount was decreased by $999,000, but that it cost $20,000 to reduce the amount $999,000).

The silver lining? Maybe you can deduct the $1000 paid as a business loss.

But what about the $20,000 attorneys’ fees???

Let me preface this with:

I am no tax expert.  I know Medicaid, not tax. If you want real tax advice, go to a real tax attorney.  But, I did find…Publication 529, which states the following:

Legal Expenses

You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax.

You can also deduct legal expenses that are:

  • Related to either doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business,
  • For tax advice related to a divorce if the bill specifies how much is for tax advice and it is determined in a reasonable way, or
  • To collect taxable alimony.

 A definitive answer?

No.

But…a possible two silver linings!  The sun will come out tomorrow, bet your bottom dollar that tomorrow, there’ll be sun!!!!

NC Medicaid Extrapolation Audits: How Does $100 Become $100,000? Check for Clusters!

Extrapolation.  If you are a Medicaid provider and have either received a Tentative Notice of Overpayment (TNO) or heard horror stories about TNOs, then the word, ‘extrapolation,’ most likely, will cause you to grimace.

So many providers come to me asking, “The audit amount was only for $1,500. How did that $1,500 become $850,000?” Or $1.5 million. Or $400,000? It does not seem to make sense.

But wouldn’t it be a beautiful thing if extrapolations worked in the opposite way? You put $1,500 in your bank account and the bank extrapolated the $1,500 to $850,000?  Or $1.5 million?  Or $400,000?  If opposite extrapolation existed, then maybe I would like extrapolation. Why? Because I would have a monetary incentive to like, accept, even agree with extrapolation.

Similarly, the Recovery Audit Contractors (RACs) have the monetary incentive to like, accept, even agree with extrapolation.  Approximately a 12.3%-contingency-fee incentive.

What exactly is an extrapolation?

Extrapolation is a statistical procedure in which the auditor takes findings from a small sample of Medicaid-paid claims and, using a mathematical formula, projects those results over a much larger “universe” of claims producing, in many cases, large dollar audit overpayments…sometimes even producing a overpayment amount over the amount the provider was actually paid.

Seem fair? No, at least, when these extrapolations are erroneously conducted.

But, sadly, I believe extrapolations are here to stay.  Even if I do not think Public Consulting Group (PCG) is here to stay in North Carolina, another RAC will take PCG’s place.

“Medical Practice Compliance Alert” agrees with me.  The July 8, 2013, issue of “Medical Practice Compliance Alert,” states “Like it or not, extrapolation audits are becoming the norm…”  See Volume 25, Issue 13 (by Lauren C. Williams).

Ms Williams also wrote that in one case she reviewed the overpayment was for only $10,000+, but the overpayment was extrapolated to $10 million.

Extrapolation is allowed by statute.  N.C. Gen. Stat. 108C-5 allows the RAC to extrapolate. But limits the audit period to 36 months from the date of payment of a provider’s claim.

“Except as required by federal agency, law, or regulation, or instances of credible allegation of fraud, the provider shall be subject to audits which result in the extrapolation of results for a time period of up to 36 months from date of payment of a provider’s claim.”

The North Carolina Administrative Code (NCAC) specifically sets forth the technique for such extrapolations.

 10A NCAC 22F .0606 TECHNIQUE FOR PROJECTING MEDICAID OVERPAYMENTS

(a) The Medicaid agency will seek restitution of overpayments made to providers by the Medicaid program.

(b) The agency may use a Disproportionate Stratified Random Sampling Technique in establishing provider overpayments.

(c) This technique is an extrapolation of a statistical sampling of claims used to determine the total overpayment for recoupment.

(emphasis added).

Disproportionate Stratified Random Sampling Technique.

What????

“Disproportionate” is defined as, “being out of proportion.”

“Stratified” is defined as, “the process of dividing members of the population into homogeneous subgroups before sampling. The strata should be mutually exclusive: every element in the population must be assigned to only one stratum. The strata should also be collectively exhaustive: no population element can be excluded.”

“Random” is defined as, “having no specific pattern, purpose, or objective.”

The definition of “Stratified Random Sampling” is, “a method of sampling that involves the division of a population into smaller groups known as strata. In stratified random sampling, the strata are formed based on members’ shared attributes or characteristics. A random sample from each stratum is taken in a number proportional to the stratum’s size when compared to the population. These subsets of the strata are then pooled to form a random sample.”

I had a tough time, as a double-major in English and Poli-Sci, with the whole “stratified” definition until I spoke, at length, with a statistician expert.  According to (we will call him Bill) Bill, two of the most important factors in a Disproportionate Stratified Random Sampling Technique are randomness and strata being mutually exclusive.  Meaning, each date of service (DOS) and each Medicaid recipient must be independent of one another, i.e. if Medicaid recipient X on DOS 1/1/10 is found to be incorrectly found noncompliant, then no other recipient and no other DOS should be contingent on finding of noncompliance from recipient X, DOS 1/1/10.  (As I explained to Bill, I had heard of strata before…plural for a layer of sedimentary rock or soil…but, apparently, this was a different strata).

Here’s a more specific and concrete example:

PCG audited 100 claims of my client, Samantha, the Medicaid provider.  Of the 100 claims, PCG audited 5 DOS for Medicaid recipient A: 2/3/10, 2/17/10, 3/1/10, 3/12/10, and 3/19/10.  The reason that PCG cited all 5 claims as noncompliant was that the auditor found no consent for services by the recipient.  In actuality, there was a consent for services.  The Medicaid recipient was only 10, so his mother signed the consent.  Problem? Mother’s last name was different from child’s last name? So PCG did not know that the signator was the mother. (Really, I say? Really?? In 2013? FYI: My last name is different from my daughter’s last name. But no private insurance has ever questioned the connection between my daughter and me).  Anyway, once the issue with the consent was cleared up (by explaining the child’s mother signed the consent), all 5 DOS were found compliant.

My statistician expert called this “a cluster.”  The importance of a cluster is that the strata is all messed-up.  A strata must be independent, one-element-affects-one-claim, otherwise the entire extrapolation is compromised.

Bill gave me this example:

If you want the statistics of flipping a coin and you flip a coin one time, then hit heads and just assume that heads would have been hit every time you flipped the coin…that’s a cluster.  No independent probability.

Or…tape 5 coins on a piece of paper, all showing heads. Flip the paper and determine, if it lands with all heads facing-up,  that, if independently thrown, all coins would have landed on heads.  Again, no independent probability.

Think about it…PCG (or whatever RAC) reviews 100 claims.  From those 100 claims, it extrapolates. But, what if, 5 or 10 or 20 claims are contingently dependent upon one another? Then the extrapolation is invalid.  Because, for an extrapolation to be valid, each claim must be independent; each element must affect one claim.

So, PCG (or whatever RAC) says you owe $1 million? Check for clusters!!!