1. The RACs are Coming: What O&P Providers Must Know about Medicare Claim Audits and Denials September 30, 2010 Peter W. Thomas, JD Powers Pyles Sutter and Verville, P.C. peter.thomas@ppsv.com 202-466-6550 Seventh Floor 1501 M Street, NW Washington, DC 20005 Phone: (202) 466-6550 Fax: (202) 785-1756

2. Topics Contractors –RACs –PSCs/ZPICs –Carriers/MACs Extrapolation Audit & Appeal Readiness Recoupment Voluntary Refunds 2 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

3. Recovery Audit Contractors (“RACs”) Demonstration project ran from March 2005 through February 2008, with extensions granted Primarily in CA, FL and NY. Heavy focus on inpatient rehabilitation hospital claims Numerous issues arose during demo leading to contracting with independent organization for validation of California RAC’s performance Validation audit led to temporary hold on reviews, CMS-ordered re-reviews of certain claims, and agreements to return fees overturned on appeal 3

4. RAC Demonstration Project (con’t) California RAC overturned many denials following the re-review Majority of California RAC denials overturned by ALJs on procedural grounds related to “reopening” On remand, many overturned based on medical necessity grounds as well PPSV gained extensive experience with RAC demo appeals as legal council to over 50 clients with over 3,000 separate cases ranging from $7,500 to $45,000 in value, including extrapolation cases 4

5. Permanent RAC Program Congress permanently extended RACs and applied them to all 50 states and Medicaid Congress moderated most egregious aspects of RAC demo but left many factors the same Example: RAC keeps percentage of recovery but only if not overturned at any level of appeal CMS has more oversight now than under demos Congress created an independent contractor, the RAC Validation Contractor, to oversee the RAC program 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550 5

6. Permanent RAC Program (con’t) The rollout of the permanent program was delayed, with slow progression from “automated” reviews to “complex” reviews (i.e., record review) All areas of review must be approved by CMS First “medical necessity” record reviews were recently approved RACs are now fully implemented and functioning in every state “Bounty” incentive will prompt RACs to focus on legitimate providers, not fraudulent ones. 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550 6

7. 7 RAC Contractors & Subcontractors Four separate RAC jurisdictions established Single primary contractor chosen for each region Most of the primary contractors were involved in the demonstration Subcontractors also involved –Oversight of subcontractor activities left to primary contractors 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

8. 8 RAC Validation Contractor Involved in new issue review –Conducts final review of proposed new issues –May recommend changes to proposed new issues (e.g., scope, methodology) Involved in oversight of the individual RACs’ auditing techniques and determinations 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

9. Key Elements of Permanent RAC Program Medical Record Request Limits For institutional providers, every 45 Days: –1% of all Medicare claims from previous calendar year, divided by 8 (to account for 45- day periods) –Theoretically possible to receive 2400 medical record requests in a 12-month period Limits based on institutional provider’s “campus” – all facilities and units sharing a TIN that are located within a zip code sharing first 3 digits 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550 9

10. Medical Record Request Limits (con’t) Institutional providers are those providers with multiple locations and a centralized structure Limits for non-institutional providers and suppliers for medical necessity reviews have not yet been published No specific limits published yet for providers of professional services or DMEPOS suppliers 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550 10

11. The “Look Back” Period RACs may only look back three years to reopen claims, but no earlier than claims dated October 1, 2007 The permanent RACs are explicitly required to comply with CMS’ “reopening” regulations All reopenings that occur after one year following the initial determination must be accompanied by a showing of “good cause” 11 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

12. “Good Cause” for Reopening “Good cause” for reopening claims more than one year after payment: –new and material evidence that was not known or available at the time of payment or –the evidence available at the time of payment shows on its face that an error was made. CMS has issued a new manual provision indicating that medical records, if not previously submitted to the reviewing entity, can be “new and material evidence” for purposes of satisfying the “good cause” standard Federal courts have allowed RACs to ignore the requirement for “good cause” and upheld CMS’ position that the decision to reopen may not be reviewed 12 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

13. 13 Approval of “New Issues” RACs must have all “new issues” approved by CMS New Issue Review Board made up of mostly clinicians (i.e., nurses and one physical therapist) RACs required to maintain lists of the issues that they are targeting on their websites Issues must be approved independently for each region 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

14. Existing Areas for RAC Focus on O&P Date of death of patient vs. date of care provided Lower limb suction valve prostheses Prosthetic additions for knee prostheses Knee orthoses DMEPOS supplied while beneficiary was inpatient Use of mutually exclusive lower limb prosthetic billing codes Complex review of lower limb prostheses (i.e., record reviews to determine medical necessity) 14

15. Program Safeguard Contractors (PSCs) & Zone Program Integrity Contractors (ZPICs) Handle post-payment review only Focused on identifying fraud and abuse rather than isolated or individual incorrect payments Review usually triggered by: –Referral from primary contractor or RAC –Government reports identifying vulnerable areas Will repeatedly audit on slightly changed criteria 15

16. Medicare Administrative Contractors (MACs or DME MACs) Handle pre- and post-payment review Pre-payment review can be sporadic and random or systematic –100% pre-payment review may not be utilized without first conducting “probe” review –“High or sustained” error rate must be identified –Tend to be focused on claims payment (primary responsibility) but still active in ongoing claims denials and audits 16

17. Extrapolation of Claims Denials RACs, PSCs/ZPICs, DME MACs are permitted to use an identified error rate in a specific sample of claims to estimate an overpayment across all similar claims within a defined period of time Must identify a “sustained or high” error rate to use extrapolation – but these terms are not actually defined by CMS (Guidance suggests over 50% but could be as low as 10%) Overpayment demands resulting from extrapolations can total in the millions of dollars and add up very quickly RACs proposed use of extrapolation must be reviewed and approved by RAC Validation Contractor prior to start of audit 17 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

18. Appealing Extrapolations Providers may not appeal a determination that an error rate is “sustained” or “high” Providers may appeal individual claims denied and exponentially reduce the overpayment amount by lowering the calculated error rate Providers may also appeal the methods used by the contractor in constructing and/or analyzing the sample Strongly consider involving experienced counsel and/or independent statistical experts for these cases 18 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

19. Audit and Appeal Readiness: 5 Phases of Appeal Redetermination (Phase I) –Filed with primary contractor –120 days to file –60 days for contractor decision Reconsideration (Phase II) –File with Qualified Independent Contractor (QIC) –180 days to file –60 days for QIC decision –Provider may “escalate” case if deadline is missed 19

20. Administrative Appeals (con’t) Administrative Law Judge Hearing (Ph. III) –60 days to file request –90 days for ALJ decision –May escalate case to next level Medicare Appeals Council Review (Ph. IV) –60 days to file request –90 days for ALJ decision Federal Court Review – 60 days to file appeal: Only really viable for extrapolations 20

21. Additional Methods to Challenge Denials Rebuttal –15 days to submit a written statement to primary contractor –Argument = recoupment/repayment should not occur –Does not postpone appeal process deadlines RAC Discussion Period –15 days to contact RAC and initiate discussion –Argument = denials are in error –Does not postpone appeal process deadlines 21

22. Preparing for Appeals: What Can O&P Providers Do? Plan will vary with size of the business Develop your audit team, including a point of contact with responsibility for all communications with auditors of any kind Prepare your medical records staff/department Pursue self-audits to assess compliance with existing documentation and medical necessity requirements Create a systematic response to contractor audits including case tracking and strict adherence to timelines and deadlines 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550 22

23. Medical Records Manage and track electronic notices such as remittance advices (time deadlines are linked to these notices) Develop system for tracking submission of records, including proof of contents, mailing and delivery Develop system for maintaining medical records in accessible format Develop system of tracking contractor requests to compare against requests by other contractors and against any limits on requests 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550 23

24. Education and Internal Audits Purposes: –To allow for preparation/maintenance of medical records that may be requested –To identify vulnerabilities for purposes of proactive responses, including education and/or repayment Carry out internal education of clinical, coding and billing staff based on Medicare guidance to avoid audits in the future There is an obligation to disclose to Medicare any overpayments that are discovered in the course of a self- audit within 60 days of identification of an overpayment 24 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

25. 25 Recommendations for a Successful Appeal 1. Don’t Assume that the Contractor Knows What It Is Doing 2. Prepare Now, Not When the Contractor Comes 3. Don’t Miss Deadlines for Appealing Denials 4. Make Effective Use of Every Stage of Appeal 5. Write Effective Appeal Letters (e.g., use layperson’s language, no acronyms, and make a persuasive case) 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

26. Repayment & Recoupment Several options exist for returning overpayments to government –Repayment in lump sum –Recoupment (where CMS offsets amount owed from current payments) –Extended repayment plans Interest accrues based on 30-day periods 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550 26

27. Stay on Recoupment May limit recoupment at redetermination level of appeal by filing request within 30 days May limit recoupment at reconsideration level of appeal by filing request within 60 days Once QIC decision is issued against the provider, recoupment occurs unless provider makes a lump sum payment 27

28. Voluntary Refunds For individual claims: –Send payment to DME MAC along with documentation clearly identifying the overpaid claim –New 60-day timeframe applies from the date of identification of the overpayment or false claims liability may occur –Be prepared to follow up with DME MAC For related groups of claims based on self-extrapolation –Follow methodology guidelines set out in Medicare Program Integrity Manual –Submit all supporting documentation to DME MAC –Establish ongoing communication with DME MAC –Be prepared to support your sampling methodology 28 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

29. Deciding to Make a Voluntary Refund Advantages –Potential exclusion of claims from RAC audit if provider uses statistical sampling to extrapolate overpayment –Impede ability of DME MACs and ZPICs to carry out own statistical sampling and extrapolation –Help forecast impact of audits by identifying vulnerabilities and allowing for appropriate planning for further provider education and financial choices 29 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

30. Deciding to Make a Voluntary Refund (continued) Disadvantages –Any self-audit is resource intensive –Self-audits with statistical sampling to allow extrapolation (and subsequent exclusion of claims from review) are extremely resource-intensive –No guarantee that carrier/MAC will accept sampling and extrapolation 30 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

31. Fraud and Abuse Implications Refunds of self-identified overpayments do have the potential to impact a provider’s payment error rate, possibly triggering a more targeted review of claims Failure to repay overpayments identified through a self- audit could give rise to liability under the False Claims Act –Reverse false claim occurs when provider attempts to avoid payment due to the government (e.g., refund of an overpayment) –New 60-day rule on overpayments becoming False Claims 31 1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

32. Conclusion RACs and other Medicare contractors WILL target O&P claims: It’s only a matter of time Prepare now by assessing your vulnerabilities and improving compliance to avoid painful overpayments (or worse) later Know the rules, your rights, and stand by the care you provide throughout the appeal process Know when to consult counsel to assist you with appealing single O&P claims and extrapolations 32