No Downturn in Federal Health Care Fraud Enforcement

On May 27, 2014, the Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) announced recoveries of approximately $3.1 billion from the federal health care programs for the first six months of fiscal year 2014, according to the agency's Semiannual Report to Congress (“Report”). The bulk of the recoveries ($2.8 billion) are attributable to 465 criminal and 266 civil actions concluded during this period. In addition to the expected recoveries, OIG also reported excluding 1,720 individuals and entities from participating in federal health care programs over the first half of FY 2014.

The Report puts to rest indications that the federal government would be reigning in its enforcement efforts, which included the temporary suspension of the Recovery Audit Contractor (“RAC”) program by CMS in February. The RAC program has been the subject of scrutiny since its inception by provider groups and members of Congress for engaging in costly and non-meritorious claim reviews. According to the American Hospital Association’s (AHA’s) latest RACTrac survey, hospitals reported appealing 50 percent of all RAC denials in the first quarter of 2014, with a 66 percent success rate in the appeals process. CMS, however, has not taken any significant action to address the RAC program’s relative poor record of performance, including any long-term audit suspension. Instead, on June 2, 2014, CMS established a Provider Relations Coordinator position “to help increase program transparency and offer more efficient resolutions to providers affected by the medical review process.”

Funding for investigation activity is also on the rise. Despite testimony before Congress by the OIG's Deputy Inspector General for Audit Services that OIG would have to cut Medicare and Medicaid oversight by 20 percent by the end of the year due to prior decreases in budget funding for investigative activity, on June 10 a subcommittee of the Senate Appropriations Committee approved a fiscal year 2015 spending bill for HHS, which included a $672 million allocation for fraud and abuse enforcement. According to the subcommittee, the latest statistic regarding enforcement success indicates that $8.10 is recovered by the Treasury for every $1.00 spent on fraud and abuse prevention. The increased funding is expected to generate more than $5.4 billion in savings.

New regulatory and legislative initiatives also presage increased health care fraud enforcement moving forward. Notably, on May 20, 2014, the U.S. Senate Special Committee on Aging Chairman Bill Nelson (D-FL) and Ranking Member Susan Collins (R-ME) introduced The Stop Scams Act of 2014 (the “Act”). The bipartisan bill would require CMS to verify that providers wishing to enroll in the Medicare program have not owned a company that previously defrauded the government, and would require new medical coding systems to be tested for susceptibility to fraud and abuse schemes. The Act would also authorize private insurers to share information about potentially fraudulent providers. The Act has the support of key stakeholders, including Humana, Blue Cross Blue Shield, the Coalition Against Insurance Fraud, and America's Health Insurance Plans and therefore similar bill language could be introduced in future legislation.

At the regulatory level, CMS issued a final rule on May 19, 2014, which adds significant fraud enforcement provisions to the Medicare Advantage and Medicare Part D programs. With respect to Medicare Part D, the final rule: (1) permits CMS to collect claims information directly from pharmacies and pharmacy benefit managers who contract with Part D Sponsors for purposes of conducting audits and investigations; and (2) permits CMS to revoke a physician’s Medicare enrollment if it determines the physician is engaging in abusive prescription practices. Further, on May 28, 2014, CMS issued a proposed rule that would require Medicare prior authorization for certain Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) items that the agency characterizes as “having a high rate of fraud or unnecessary utilization,” including the power wheelchair.

Given the findings in the Report and the continuing initiatives by CMS, Congress, OIG, and other enforcement entities to address health care fraud, hospital administrators and providers should continue to monitor and take a proactive approach to their compliance activities.