CMS wants to end 'pay and chase' model: What hospital execs should know

CMS released a final rule Sept. 5 that bolsters CMS' efforts to stop Medicare and Medicaid fraud by creating new authorities for the agency.

The final rule, effective Nov. 4, includes a new affiliations authority to identify healthcare organizations that may be at risk of committing fraud based on their relationships with other organizations that have been sanctioned for fraud. The final rule also gives CMS new authorities to revoke or deny Medicare and Medicaid enrollment. For example, if a provider submits false or misleading information in its enrollment application, CMS can bar the provider from enrolling in Medicare or Medicaid for up to three years.

The goal of the final rule is to stop fraud before it happens.

"For too many years, we have played an expensive and inefficient game of 'whack-a-mole' with criminals — going after them one at a time — as they steal from our programs," CMS Administrator Seema Verma said in a news release. "Now, for the first time, we have tools to stop criminals before they can steal from taxpayers. This is CMS hardening the target for criminals and locking the door to the vault. If you're a bad actor you can never get into the program, and you can't steal from it."

Here, Kathleen McDermott, a partner at Morgan Lewis who previously served as assistant U.S. Attorney and U.S. Department of Justice healthcare fraud coordinator, discusses the final rule and how hospitals and physicians should prepare for the changes.

Editor's note: Responses were lightly edited for length and clarity.

Question: How will the final rule affect hospitals and physicians?

Kathleen McDermott: The final rule intends to end the pay and chase vulnerability in the Medicare payment system by creating for currently or newly enrolled organizations a new and significant enrollment process that will vet potential provider and supplier enrollees for fraud, waste and abuse and permit enhanced denial and revocation authorities. The criteria for invoking enrollment denial or revocation includes direct or indirect affiliation with individuals or entities that have been suspended, terminated or excluded from federal healthcare programs or have been subject to a payment suspension.

While intended to target the bad actors in the program at the stage most critical to program vulnerability — the enrollment application — the criteria could apply to many providers and suppliers who currently operate in compliance with federal healthcare program requirements and seek to affiliate with other providers or suppliers.

The final rule also allows enrollment denial or revocation for broader circumstances involving: use of different names or numbers in federal healthcare programs to come back into the program; billing for services or items from non-compliant locations; pattern of abusive billing practices; and, referral of a CMS debt to the U.S. Department of the Treasury. Many mainstream providers and suppliers have had episodic issues that involve these issues and CMS has existing authorities to deal with some of these abusive practices so there will be some agency judgment in sensibly implementing these broad and enhanced remedies on a widespread scale to the general health industry providers and suppliers.

Q: How can hospitals and physicians prepare for the changes under the final rule?

KM: Hospitals and physicians need to upgrade their due diligence process in contracting, credentialing, employment and background checks to anticipate the risk of contracting, acquiring or hiring directly or indirectly with new individuals or entities with prior regulatory or enforcement action as any misinformation may be deemed a basis for enrollment denial or revocation. This may have its largest impact on hospital ancillary services (home health, durable medical equipment) where there is a greater potential to unknowingly affiliate with persons or entities that have been sanctioned. Finally, small or episodic compliance issues can be subject to the these enhanced remedies so hospitals and physicians should not fall into the trap of thinking these important, get-tough remedies are only for the "bad actors."

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