CMS establishes new audit requirements, proposes new overpayment rule - Medicare/Medicaid - Centers for Medicare and Medicaid Services

Healthcare Financial Management, April, 2002 by Christopher L. Keough

Two recent publications of the Centers for Medicare and Medicaid Services (CMS) seem to belie the view that providers can expect to see an easing of their regulatory burden under the Bush Administration. Program memorandum (PM) A-01-141, issued in December 2001, sets forth the agency's expectations with respect to audits of Medicare cost reports. PM A-01-141 instructs Medicare intermediaries 'as a general rule" not to reopen a cost report or settle an appeal if the request for reopening or appeal is based on submission documentation that was not made available at the time of the audit. A proposed rule issued by CMS on January 25, 2002, would require a Medicare provider to identify and return an overpayment to its Medicare intermediary within 60 days after the provider identifies the overpayment. The proposed rule defines "overpayment" but leaves many issues open to interpretation.

The Centers for Medicare and Medicaid Services (CMS) recently issued two publications that may significantly affect all Medicare providers. In December 2001, CMS issued program memorandum (PM) A-01-141, setting forth the agency's expectations with respect to audits of Medicare cost reports. (a) On January 25, 2002, GMS issued a proposed rule requiring all Medicare providers, suppliers, individuals, and other entities (such as managed care organizations) to disclose and refund overpayments within 60 days after the recipient identifies the overpayment. (b) Taken together, these two publications suggest that CMS continues to impose increasingly rigorous requirements and restrictions on healthcare providers, despite the agency's recent reorganization into a "kinder, gentler" entity.

New Audit Documentation Requirements

Although PM A-01-141 is directed to the Medicare intermediaries, it establishes at least three cost-report and audit requirements of interest to healthcare providers. First, it provides a checklist of several items that providers must include in their submitted cost report and sets forth a process for intermediaries' handling of incomplete cost-report submissions. PM A-01-141 specifically requires intermediaries to give a provider written notice if a cost-report submission is incomplete and to allow the provider 15 days to supply missing items. After that, program payments may be suspended until the provider completes its submission.

Second, PM A-01-141 clarifies the time frame for initial retroactive adjustments, instructing intermediaries "to make such adjustments within 60 days of the receipt of an acceptable provider cost report." The memorandum provides that for purposes of calculating the initial retroactive adjustments, intermediaries should accept the provider's costs as reported on its submitted cost report, although the intermediary may impute estimated adjustments to the submitted costs based on its past audit experience with the provider.

Third, PM A-01-141 tightens Medicare policies with respect to the timely submission of audit documentation. It requires intermediaries to put requests for documentation in writing and instructs them to make adjustments if the provider fails to meet the requirements of timely submission of the documentation. PM A-01-141 requires intermediaries to allow a four-week grace period after the audit for submission of any requested documentation that was not provided during the audit. Documentation submitted after the grace period may not be considered by the intermediary in issuing its final determination. In addition, intermediaries are instructed as a general rule not to reopen or settle appeals from resulting adjustments if the provider furnishes the requested documentation at a later date.

The new documentation policy described in PM A-01-141 potentially could be problematic for providers that do not respond expeditiously to requests for audit documentation. The policy described in the memorandum applies not only to documentation for payment to cover costs of care, but also to documentation relating to other considerations, such as graduate medical education, that can have a substantial affect on the provider's level of payment.

CMS's new policy does not mean, however, that every adjustment based on an alleged "lack of documentation" will need to be litigated through a hearing before the provider reimbursement review board (PRRB). Auditors often invoke a "lack of documentation" as a catch-all explanation for a variety of adjustments that have nothing to do with a provider's failure to submit in a timely manner supporting documentation for the claims made on its cost report.

For example, a provider should not need to request a hearing before the PRRB regarding an adjustment that was made because the provider did not document compliance with a policy or program instruction if it ultimately is determined that the policy or program instruction is legally invalid. In the 1990s, for instance, several intermediaries disallowed the actual costs incurred by skilled nursing facilities (SNFs) to provide therapy services under arrangements with outside contractors, unless the SNFs could document their "prudent-buyer" efforts at the time they entered into the contracts. The courts ultimately ruled that this prudent-buyer standard is invalid because it conflicts with the plain meaning of the Medicare reasonable cost regulation. (c) Thus, a provider's failure to document its prudent-buyer efforts in a timely manner would not be a legally sufficient basis for a disallowance of the reasonable costs incurred in furnishing services to Medicare patients.