Sixth Circuit Upholds Validity of Medicare Audit Despite Lack of Notice, Citing Lack of Substantial Prejudice

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On June 24, 2020, the U.S. Court of Appeals for the Sixth Circuit issued an opinion addressing whether an overpayment assessment should be invalidated when the Medicare contractor fails to provide notice of a post-payment audit as required by the Medicare statute. In this case, a Medicare contractor sent record requests to numerous physicians without notifying the parent entity that the contractor was conducting an audit. The court concluded that such failure to comply with the statute may be excused by a court if the provider was not substantially prejudiced by the lack of notice. In reviewing the facts of the case, the Sixth Circuit concluded that the provider was not substantially prejudiced by the lack of notice because the additional records that could have been gathered by the provider in response to a notice would not have changed the overpayment determination, and because the provider was able to ably argue the principal issues resulting from the audit. The case is cited as General Medicine P.C. v. Azar, 2020 BL 234272, 6th Cir., No. 19-1365, 6/24/20.

The case involved General Medicine, P.C. (General Medicine), a medical services provider whose physicians and nurse practitioners perform services for patients in long-term care facilities. In 2004, a CMS contractor initiated an audit of all General Medicine physicians without notifying General Medicine of the audit. The CMS contractor sent record requests to the twelve facilities in which General Medicine’s physicians provided services. The physicians maintained their medical records in the patient charts at these facilities. Based on the records collected, the CMS contractor denied payment for over 80% of the claims reviewed. Of the denied claims, 75% were denied due to failure to document medical necessity, 23% were denied due to lack of documentation to support the services and the rest were denied due to failure to meet policy guidelines.

General Medicine argued that the CMS contractor’s failure to provide notice of the audit to General Medicine violated 42 U.S.C. § 1395ddd(f)(7)(A), which states that “the contractor shall provide the provider of services or supplier with written notice … of the intent to conduct [a post-payment] audit.” While the statute does not state what consequence should be imposed if a CMS contractor fails to give the provider notice of the audit, General Medicine argued that failure to provide a notice should invalidate the entire audit.

The Sixth Circuit acknowledged that the purpose of the notice requirement was to give the provider an opportunity to gather and review its records in order to present its best case to the auditor before the audit begins. Based on this legislative purpose, the court concluded that Congress intended for there to be a consequence if the lack of notice substantially prejudices the provider.

Applying this standard to the facts in the case, the Court agreed with the Medicare Appeals Council’s conclusion that that lack of notice did not substantially prejudice General Medicine. The conclusion was based on the findings that (i) the overpayment assessment was based on records that should have supported coverage on their own, without any supplemental records that could have been provided by General Medicine following a notice, and (ii) General Medicine was able to “ably and thoroughly” argue the principal issues resulting from the audit, the validity of the sampling methodology, and the coverage of the reviewed claims.”

A copy of the Sixth Circuit case is available here.

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