5 Cornerstones of a Culture of Compliance for Hospitals

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The fight against healthcare fraud is a top priority for the government today, as evidenced by harsher federal sentencing guidelines for healthcare fraud, an increase in the number of Medicare Fraud Strike Force teams and federal fraud prevention programs such as the Medicare and Medicaid Recovery Audit Contractor programs.

The dollar amounts of Medicare RAC recoveries have escalated throughout the past few years. In the first quarter of fiscal year 2012, RACs took back $397.8 million in overpayments. That is roughly half the amount RACs collected in all of fiscal year 2011 ($797.4 million) and more than 10 times the recoveries collected in FY 2010 ($75.4 million).

Enhanced efforts and increased federal funding for fraud prevention have led to significant returns for the government. For instance, in fiscal year 2011, the government recovered approximately $2.4 billion through civil healthcare fraud cases brought under the False Claims Act. The government has also reached other milestones in fraud prevention, such as the takedown of a $452 million Medicare fraud scheme in May.

"As a general statement, government enforcement is becoming more rigorous as time progresses. The government enforcement budget has climbed dramatically in the past several years, with a substantial increase of tens of millions of dollars going toward healthcare fraud enforcement," says David Pivnick, JD, a lawyer with McGuireWoods in Chicago.

The rise of RACs
The Medicare Recovery Audit Contractor program went into effect with the Tax Relief and Health Care Act of 2006. RACs 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.

The breadth of the audits expanded this year, as well. CMS took many of its key findings from the Medicare RAC program to create and implement the Medicaid Recovery Audit Contractor program, which was included in the Patient Protection and Affordable Care Act. States were required to establish programs by the beginning of 2011, in which they contracted with one or more RACs to review claims submitted to state Medicaid plans. The government expects Medicaid RACs to save $2.1 billion over five years.

Most hospitals have experienced Medicare RAC audits. In the first quarter of FY 2012, about 87 percent of hospitals experienced RAC activity, according to the American Hospital Association's RACTrac Survey. Additionally, the scope of RAC audits seems to be expanding: Hospitals reported 447,523 medical record requests from RACs through the first quarter of 2012 compared with 306,349 in the third quarter of 2011.

Attorneys with McGuireWoods say hospitals should be prepared for RAC activity. "Larger systems should anticipate a RAC audit in the same way they anticipate an accreditation survey," says Holly Carnell, JD, lawyer with McGuireWoods.

Cornerstones to developing a culture of compliance
The government's stringent focus on fraud, abuse and waste — and the increasing role of RACs — has implications for hospitals and their traditional understanding of compliance.

"Having a compliance plan sitting on the bookshelf gathering dust is simply not enough," says Ms. Carnell. "Every individual who is involved in operating a hospital and health system has to be fully committed to compliance."

Hospitals that promote and adopt an active culture of compliance rather than a passive compliance plan may be able to more effectively protect themselves against fraud and abuse. Here are five key steps to creating a culture of compliance at a hospital.

1. Conduct internal billing and coding audits. Internal billing and coding audits should generally be performed twice per year and periodically with outside auditors to ensure compliance with requirements for Medicare, Medicaid and third party payors, according to Scott Becker, JD, CPA, a partner with McGuireWoods. Specifically, internal audits may focus on areas in which there is high concentration of procedures or outlier Medicare payments to determine if the claims are necessary and services were rendered. The latter can be determined by examining the hospital's internal clinical documentation.

U.S. Attorney Jerry E. Martin said Maury Regional Medical Center in Columbia, Tenn., should be commended for the manner in which it disclosed billing issues once they came to light through the hospital's compliance program.

An internal audit identified improper claims for ambulance services from 2004 through 2009. Claims in question included those for ambulances that were not medically necessary, for which a physician certification statement was not obtained or that were billed with incorrect mileage units. The hospital recently reached a $3.6 million False Claims settlement with the government after voluntarily reporting the billing discrepancies.

2. Train and educate employees. Hospital management should conduct periodic educational sessions for employees on compliance. This information should not be reserved for a one-time training session with new hires. Rather, hospital staff and physicians should be refreshed on the cornerstones of compliance and how they should report potential billing errors or fraud. Frequent education and discussions on legal compliance is one of the major differentiators between an active culture of compliance and a passive compliance plan.

3. Designate a compliance officer. This high-level official should be extensively involved in all matters of the hospital's compliance discussions and initiatives. The compliance officer should have direct lines of communication to the hospital CEO and governing body. Depending on the size of the hospital, the compliance officer may be a full-time job in itself, or the responsibilities may be added to an existing management position.

It's a bad sign when the organization's compliance officer isn't visible to staff, or isn't an active participant in the hospital's legal discussions, according to Mr. Becker. "You need to be sure you're being open and honest with your compliance officer and generally include them in compliance discussions."

4. Respond to detected offenses appropriately. When a hospital employee reports potential misconduct, noncompliance or fraudulent activity, hospital management needs to respond promptly and appropriately. "The appropriate response is to thank the individual and let them know you'll investigate their claim," says Ms. Carnell.

Hospitals do not necessarily owe the reporting employee further information in terms of investigation or audit findings, but hospitals should keep in mind that the first people to report misconduct may very well be the government's first witness for a federal investigation.   

A hospital's approach in handling compliance concerns today can affect how employees report misconduct in the future. Employees who are dissatisfied with their employer's response may be more likely to file whistleblower suits with the government.

"People bring claims to the government for a variety of reasons. Some of them just feel that they are not being heard when they raise complaints internally," says Mr. Pivnick. "Making sure you conduct a detailed investigation and making sure you take complaints seriously can be helpful in avoiding future claims."

5. Maintain open communication. Internal investigations conducted by legal counsel can breed mistrust and defensive behavior among hospital executives and employees, but open communication is crucial for employees to come forward with complaints or speak up if something seems wrong.

"Some people are very defensive. They feel their job is on the line. During an internal investigation, certain executives feel it's their job to defend the organization and make sure no wrongful behavior is uncovered, even though we're on their side," says Ms. Carnell. "Being able to foster an environment of trust in any internal investigation is key to getting all the facts and working toward a resolution."  


More Articles on Hospitals and Compliance:

What's the Status of Medicaid RACs?
Healthcare Compliance Budgets Rising, Partly Due to RACs
3 Biggest Ways Medicaid RACs Will Affect Hospitals in 2012


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