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November 16, 2012

The passage of new regulations and healthcare reform, combined with a dramatically increased focus on government enforcement and compliance, have created an unprecedented set of challenges for the healthcare industry. Two recent cases demonstrate these challenges.

Complex Contract Provisions Lead to Contract Disputes
The new healthcare regulations will likely result in more complex rate structures. As a recent litigation case in which A&M was engaged highlights, payer-provider contracts can include complex pricing terms for medical services with different payment methodologies and payment rates covering different types of services. As a result, issues often arise regarding the interpretation and application of contract terms that limit reimbursement for services.

In this matter, more than 35 providers filed lawsuits relating to various contracts between providers and payors, which stated that the provider will be paid for services at a percentage of "billed charges" (for example, 75 percent of the billed amount for such services). However, the contracts also included separate language, stating "in no event shall payments made for medical services provided to beneficiaries exceed one hundred percent (100 percent) of any government reimbursement."

The providers alleged there was a violation of their contracts — if not for the use of the government rates as a ceiling on reimbursement for certain services, the claims would have been paid at the agreed-upon percentage of billed charges. Further, the payers were seeking to collect an amount equal to the difference between claims priced at a percentage of billed charges and the actual payments based on government rates, for an eight-year period.

While the above premise appears to be a simple dispute, the analysis was complex for the following reasons:

  • Each of the contracts contained different payment rates covering different types of services and were amended over time (sometimes retroactively).
  • Large databases of payer entities claims, across many years, had to be reviewed, cleaned, matched and analyzed. Because the data was not maintained for the purpose of litigation or any type of ex-post audit, the accounts payable for services rendered in one database had to be "matched" to the amounts actually paid in another database.
  • Since it was not practical to review every hardcopy claim, statistical sampling analyses were used to respond to the allegations and identify patterns of unusual billing practices to quantify any damage associated with any underpayment or overpayment of claims.
  • The underlying physical documentation supporting the claims was often missing or incomplete and many electronic claims were either "bundled" together or "miscoded".
  • Co-insurance and other factors needed to be taken into consideration.
  • Government-provider payment terms and payment rates changed over time.

A&M professionals had the expertise needed to address the issues described above; our team includes economists, accountants, statisticians, forensic technologists and healthcare experts. Notwithstanding the complexities of the above, A&M successfully quantified the amount of damages resulting from various scenarios of liability and contract interpretation. More importantly, the collaboration and strategy employed by the company, counsel and A&M facilitated successful outcomes for all of these cases.

Rise in Alleged False Claims Act Violations for Healthcare Organizations / Providers
With the government's focus on stepping up enforcement activities, combined with the prospect of an individual receiving an award that, in some cases, can be millions of dollars, even healthcare providers in compliance with the regulations are encountering an increase in the number of qui tam actions.

The False Claims Act (FCA)[1] includes an ancient legal device called a "qui tam" provision, which allows a private person, known as a "relator" or "whistleblower," to bring a lawsuit on behalf of the United States, where the person "allegedly" has information that a party knowingly submitted or caused the submission of false or fraudulent claims to the United States. [2] Violations of the FCA could result in triple damages and even exclusion from healthcare programs, and whistleblowers are allowed to keep a portion of what the government collects.[3]

Another case in which A&M was engaged in response to a qui tam action, involved how a provider was required to produce documents and information, and address all the issues raised in the suit filed under the FCA, regardless of legal merit. In this matter, a hospital received a copy of the complaint (filed under seal) and A&M assisted the healthcare facility in evaluating the relator's analysis and conclusions.

The relator's damages expert selected a "stratified random sample" of Medicare claims, reviewed the underlying documentation and then extrapolated his findings to the larger population of claims at issue. While the above premise appears to be straightforward, there were numerous flaws in the relator's analysis. For example:

  • No methodology documenting the type of statistical sampling performed was provided.
  • The statistical sampling techniques did not comply with the Department of Health & Human Services (DHHS) Centers for Medicare & Medicaid Services' (CMS) Program Integrity Manual and were inappropriately applied in this matter.
  • Certain payments were netted in error and resulted in an overstatement of the sampled payment amounts that were extrapolated to the claim population.
  • An improper assumption was made regarding incorrectly services — instead of assuming a 100 percent reversal of payment, the proper reversal measure was the difference between the value of the services provided versus what was billed.
  • Other hospital billing data were referenced as a benchmark without substantiating the relevance; in fact, A&M analysis showed that the wrong geographic region was used and when corrected, the provider was within the reasonable range.
  • A review of the documentation supporting the sample of claims selected by the relator showed that the relator's allegations were unsubstantiated.

Separately, A&M applied its own statistical sampling techniques to make the correct inferences about the claim population and demonstrated that the relator's findings were systematically biased in favor of the relator. As a result, the provider was able to resolve the case in its favor. Success in this case was attributed to collaboration and experienced teamwork between the provider, legal counsel and A&M.

What the Future Holds
Integrated healthcare seems to be the wave of the future in healthcare. Pressure from employers to keep rates low, combined with increased scrutiny from state regulators, could force health plans to get tougher during contract negotiations with health systems. Certain healthcare insurers may also make acquisitions of healthcare-provider networks. In addition, future reimbursement mechanisms prompted by the health reform law  such as bundled payments or accountable care organizations  will likely shift more financial risk to providers. These activities indicate that the lines between healthcare providers and healthcare insurers are blurring. While this hybrid model may result in better data sharing and claims processes, it will likely also result in more complex rate structures and an increase in the number of disputes as their interests clash.

1 31 U.S.C. § 3729 et seq.

3 Id. The suit is filed under seal.  The Attorney General (or a DOJ attorney) must investigate the allegations of violations of the Act and determine where or not to intervene in the underlying action.