Hospital administrators should be nervous.  The Justice Department and HHS are out to pressure service providers, including hospitals and doctors, to reduce costs.  In Washington, hospitals and doctors are perceived to be a big part of the problem of rising health care costs: they gouge the system to line their own pockets.

In September, Attorney General Holder and HHS Secretary Sebelius warned hospitals that they would be prosecuted for using electronic healthcare systems to obtain payments to which they are not entitled.  In a stern warning to hospitals around the country, Holder and Sebelius noted that there were “troubling indications” that some providers are using [electronic health records] technology to game the system.   The letter continued, “false documentation is not just bad patient care; it’s illegal.”

DOJ and HHS identified several practices including: (1) cloning of medical records in order to inflate payments to providers; (2) upcoding of the intensity of care or severity of patients’ condition in order to profit with no improvement in quality of care.

Specifically, the letter warned hospitals and other providers to verify patient information individually and to avoid cutting and pasting a record from another patient.  Holder and Sebelius noted that the Centers for Medicare and Medicaid Services is initiating more extensive medical reviews to ensure that providers are accurately coding evaluation and management services. 

The strongly-worded letter was sent in response to regulatory concerns that hospitals were assigning more costly billing codes for emergency room services, and that doctors were using more costly billing codes for office visits. 

As I always say, the Department of Justice warns potential defendants in the white collar area and acts on its threats to investigate and prosecute offenders.  If you listen to the Justice Department, they always tell you what they are planning to do.

In policing these expenditures, CMS is relying on Medicare Recovery Audit Contractors (“RACs”) to conduct audits to identify overpayments and underpayments to providers in all 50 states, and contractors are paid on a contingency fee basis, receiving a percentage of the improper overpayments they recoup. RACs may conduct medical reviews and examine claims from the past three years for hospital inpatient and outpatient services, as well as physician, nursing facility, ambulance, laboratory and durable medical equipment services.

Most hospitals have experienced Medicare RAC audits and more can be expected.   Compliance officers at hospitals know they are under scrutiny.  The government is focused on fraud, waste and abuse, and they are relying on RACs and data mining programs to identify potential areas for investigation and prosecution. 

Hospitals need to redouble their compliance programs and efforts.  Here are some key steps which should be taken:

1.  Reiterate a statement of commitment to compliance.  Tone-at-the-top can only begin with a clear and concise statement of commitment from a hospital CEO. 

2.  Expand training and communication.  If there is anything that has been learned in the anti-corruption compliance area, it is the importance of frequent compliance reminders, even if sent by blast emails.  Training is the most critical communication avenue and should be expanded to periodic training sessions.

3.  Conduct internal billing and coding audits.  While the general practice is to conduct such audits twice a year, hospitals should consider quarterly audits, along with random sampling and monitoring programs.  Internal audits should focus on potential risk areas where there is a high number of procedures and outlier Medicare payments.  If issues are identified they should be dealt with quickly and, depending on the circumstances, disclosure to the government may be appropriate.