Notice, February 1997

UC Moves to Initiate Audits
In Medicare Billing Investigation

What promises to be a long, expensive process of financial self-examination will begin soon at the University of California, as it has agreed to conduct audits at all five of its medical centers to determine whether any of them improperly billed the federal government for Medicare services.

The audits are part of a sweeping national investigation of Medicare billing being conducted by the Office of Inspector General of the federal Department of Health and Human Services. The Medicare billing issue is generally referred to by a shorthand of IL 372 (for Intermediary Letter 372, a set of guidelines on Medicare reimbursement.)

According to Robert Dickler, senior vice president of the Association of American Medical Colleges in Washington, D.C., 40 of the 125 academic medical centers in the country have thus far received letters from the Office of Inspector General (OIG) notifying them of an impending audit. A number of other academic medical centers have been sent letters announcing the possibility of an audit. Dickler adds, however, that "The Inspector General has also said it would audit all teaching physicians who teach in all teaching hospitals. That's 1,100 hospitals."

The stakes in the issue are potentially enormous for each institution being investigated. In December 1995, the Hospital of the University of Pennsylvania in Philadelphia agreed to pay $30 million to Medicare for what was alleged to be overpayment of Medicare charges $10 million for the overpayments themselves and a $20 million penalty to settle charges of fraudulent billing. In August 1996 Thomas Jefferson University in Philadelphia paid $12 million to settle charges of overpayment.

The OIG has given all institutions being audited a choice: Have the OIG conduct the audit, in which case any overbilling uncovered will be subject to treble damages, as at the University of Pennsylvania; or have the institutions under investigation pay for an independent audit, subject to OIG scrutiny, in which case payments would be limited to twice the amount of overbilling. The University of California has chosen the second option, according John Lundberg, a deputy general counsel in UC's General Counsel's Office. The first steps in initiating the audit are beginning now, Lundberg said in January, as UC is drafting requests for audit proposals to accounting firms. The period being audited is 1990 to 1995, with 1994 being used as a "sample" year in the investigation at UC.

There are two primary issues in the billing dispute. The first is the degree of involvement "teacher-physicians" have had in medicare services that have been rendered by residents. The position of UC and the American Association of Medical Colleges (AAMC) is that, prior to July 1996, the regulations governing this were vague but with certain exceptions for surgery and dangerous procedures they seemed to require only that teacher-physicians render "personal and identifiable services" in connection with the work of residents.

In July 1996, regulations were issued that clearly required the physical presence of teacher-physicians when care was being provided by residents. However, Lundberg says that the position of the federal government is "that there has always been a requirement for physical presence." It is the position of DHHS that charging Medicare for services performed solely by residents amounts to double-billing of the federal government, since the government subsidizes the education of residents.

The second issue has to do with so-called "up-coding" in Medicare billing, meaning performing a given medical procedure but billing Medicare insurance carriers for a more expensive procedure. A critical question here is the documentation institutions have for any of the thousands of codes they have applied to procedures. The position of AAMC is that, in this issue as with the physician/resident relationship, the government is attempting to apply new standards to past activities. Documentation guidelines that were not issued until August 1995 are now asserted to be the guidelines in effect from 1990-1995, the AAMC says. (Representatives from the OIG's office did not return phone calls for this story.) Deputy General Counsel Lundberg adds that the OIG has stated that should any underbilling of the government be uncovered in the audit of academic medical centers, the amounts discovered will not be allowed to offset such overbilling as is found.

As if all this weren't enough potential trouble for UC, Lundberg informed the UC Regents in January that a Federal False Claims Act (or "whistleblower") suit has been filed in federal court against the University in connection with Medicare billing. When such suits are filed, they are immediately sealed, which gives the Department of Justice time to decide whether to litigate the suit itself, pending a review of the whistleblower's evidence. If the department does not wish to carry the suit forward, the whistleblower may carry it forward by retaining private counsel.

The Justice Department has had the suit under review for months, Lundberg said, but has not yet decided whether it will pursue it an alternative UC would prefer, since the University could then negotiate with the federal government in connection with all Medicare claims. UC has asked the Justice Department to consider the issue of "double exposure" in the combination of audit and whistleblower suit, but Lundberg says it's possible that UC could be held liable for payments in both actions.

On UC's health-sciences campuses, some medical school department chairs have been outraged by what they see as the government's heavy-handed actions in connection with IL-372.

"This is Kafka," said one UCLA department chair who wished to remain anonymous. "Can you imagine that the hundreds of academic medical centers in the country have set out to fraudulently bill the government?" "My guess is that our faculty have under-coded more than they have over-coded, yet the under-coding won't be considered."

At UC San Francisco, the administration took the unusual step of informing medical faculty that they did not have to respond to inquiries about Medicare billing from government investigators, who reportedly were making "cold-calls" to faculty about their practices.

Some member institutions of the AAMC have been urging the organization to take legal action against the government in connection with IL-372. AAMC Vice-President Dickler says that while his organization has been "thinking about what a complaint might look like," no decision has been made on "whether we will pursue a legal challenge in the courts." AAMC has proposed a set of "operating parameters" for the audits, under which the government would not impose recently issued guidelines on past practices.