Fraud and abuse update

Report 25 I-97

Subject: Health care fraud and abuse update*

Presented by: Thomas R. Reardon, MD, Chair

Referred to: Reference Committee B (Arthur L. Eberle, Jr., MD, Chair)

Current environment
Congress and President Clinton are demanding tougher action on fraud and abuse in response to perceptions that the problem is greater than previously indicated. The Inspector General of the U.S. Department of Health and Human Services (HHS IG) released an audit in July 1997 that suggested that fraud and abuse in the Medicare program totals $23 billion a year, or 14 percent of the traditional Medicare program. The IG audit substantially stretched the definition of fraud and abuse. Physician claims which were not fully documented and initial medical necessity denials that are frequently overturned on appeal (up to 70 percent are reversed), were labeled as "evidence" of fraud and abuse. The Board of Trustees has expressed strong concerns that fraud and abuse estimates should be confined to proven cases of fraudulent intent and acts which are inconsistent with accepted medical practices.

The Kassebaum Kennedy legislation enacted in 1996 allows the HHS IG to retain a percentage of dollars recovered to fund future anti-fraud activities. The budget and staffing level of the HHS IG are both projected to double by the year 20O2 as a result of this funding mechanism.

Record recoveries and reports of widespread abuses also increased pressure to expand federal anti-fraud efforts. A $3O million settlement agreement with the University of Pennsylvania sparked a nationwide audit of teaching hospitals. High levels of fraud and abuse in the Medicare home health benefit led President Clinton to impose a moratorium on certifying new home health agencies.

Perceptions regarding the extent of fraud and abuse can be a barrier to overdue reforms in federal programs. Surveys of senior citizens indicate that some beneficiaries mistakenly believe that Medicare financing problems can be "solved" by eliminating fraud and abuse. The American Association of Retired Persons cited fraud and abuse concerns as a major basis for opposing the Kyl legislation to allow physicians to privately contract with Medicare patients.

AMA advocacy
Our AMA has continued to advocate a zero tolerance policy for acts of intentional misconduct to obtain unauthorized benefits. Upon request, AMA representatives have provided federal officials with information on accepted medical practices. As noted earlier, our AMA has expressed concerns with overly broad definitions of fraud and abuse that confuse inadvertent errors and lack of documentation with intentional misconduct. In keeping with traditional standards of American justice, our AMA has advocated that prosecutors prove fraudulent intent. Our AMA has defeated repeated attempts by the Department of Justice and HHS IG to lower the current knowing and willful standard for fraud prosecutions.

Physicians at teaching hospitals (path) litigation
On Oct. 29, 1997, our American Medical Association and the Association of American Medical Colleges filed a lawsuit in the U.S. District Court for the Central District of California against the federal government to end the retroactively applied standards of the Physicians at Teaching Hospital (PATH) audits. The suit addresses a range of issues with the audits, including the underlying presumption that billing errors uncovered by the investigations are fraudulent. Our AMA and the AAMC are joined in the complaint against the U.S. government by specialty societies, other associations and academic organizations that represent medical schools, faculty physicians, teaching hospitals and group practices. The filing of the lawsuit followed lengthy discussions with the federal government, where our AMA and the AAMC strenuously urged Secretary Shalala to change the audit protocols of PATH. The lawsuit was filed when these discussions failed to resolve many points of disagreement surrounding the audits.

Federal False Claims Act
Increasingly, federal law enforcement officials have used the False Claims Act to obtain settlements or judgments in alleged cases of health care fraud. The False Claims Act can easily trigger potential payments of millions of dollars because the law provides for treble damages and mandatory fines of $5,OOO to $1O,OOO per claim. In addition, prosecutors do not have to prove specific intent to defraud federal programs. As a result of concerns about the coercive features and potential misuse of the False Claims Act, a coalition of health organizations, including the AMA, is exploring possible restrictions on the use of the False Claims Act in the health care arena.

Federal fraud enforcement and compliance
The existence of an effective compliance plan provides evidence that any mistakes were inadvertent, and this evidence could be considered by the federal government in determining whether reasonable efforts have been taken to avoid and detect fraud and other misbehavior. A compliance plan also will detect under-coding and improve communications within a practice setting. An effective compliance plan should include the following seven elements:

1. A clear commitment to compliance. A compliance plan must ensure that everyone in the organization understands the obligation to comply with established and understood standards, and that the organization will take actions to uphold those standards.

2. Appointment of a trustworthy compliance officer with a high level of responsibility. The compliance officer will be considered to have the requisite authority if he or she is able to influence behavior and organizational practices.

3. Effective training and education programs. There must be a routine training and education process that addresses the role of everyone involved in the organization and makes participation in the compliance program understandable.

4. Auditing and monitoring. There must be a regular review of the organization's claim development and submission process from the point where a service for a patient is initiated to the submission of a claim for payment. The monitoring process includes a methodology to facilitate employee reporting of suspected situations of fraud or abuse.

5. Communications. Organizations must maintain an effective communications process, including a process to facilitate reporting of suspected violations.

6. Internal investigation and enforcement. Organizations must be able to conduct an appropriate investigation and take disciplinary actions.

7. Response to identified offenses and application of corrective action initiatives. On the identification of a compliance problem, organizations have a responsibility to take demonstrable corrective actions, including steps to prevent further similar offenses. Documentation is a central component of an effective compliance plan.

Documentation must be maintained on the operation of the compliance plan, and accurate patient record documentation is a key component of the compliance plan. Medical record information provides the justification necessary to support claims payment.

Recommendations
The Board of Trustees recommends that the following be adopted and the remainder of this report be filed:

1. That our AMA leadership intensify efforts to urge federal policymakers to apply traditional definitions of fraud and abuse which focus on intentional acts of misconduct and activities inconsistent with accepted medical practice.

2. That our AMA continue to work with federal law enforcement officials to improve the ability to root out intentional schemes to defraud public programs.

3. That our AMA work with federal policymakers to balance payment integrity objectives with reasonable documentation and other administrative requirements.

4. That our AMA develop model compliance plans and educational materials to assist physicians in conforming to the latest laws and regulations.

5. That our AMA continue to work in a coalition of other health care organizations to lobby for restrictions on the use of the False Claims Act.

*A review of recent fraud and abuse investigations is contained in Informational Board of Trustees Report 27 1-97.