Compliance concerns - a hypothetical example - fraudulent coding of health services financed under Medicare - Column

Healthcare Financial Management, August, 1998 by Richard L. Clarke

Last month in this column, I described the general approach that should be used when inquiring about potentially fradulent practices - how to ask the right questions. This month's column takes up a question posed by an HFMA member to the HFMA Knowledge Network[R]. I will use a hypothetical situation to clarify the question and the Knowledge Network's response.

Hypothetical situation: A physician works for a medical clinic that offers diagnostic, treatment, and preventive healthcare services to Medicare beneficiaries. The physician and staff of this clinic have good relationships with their patients, and attempt to provide the best care possible. The physician knows that comprehensive physical examinations are effective in preventing elderly patients from becoming ill, and by extension, in preventing higher costs to the Medicare program in the future. Accordingly, the physician encourages elderly patients to have physical examinations routinely. Medicare, however, does not pay for routine comprehensive physical examinations, and some patients are unable to afford the cost of these examinations on their own.

What might the physician do to see that a patient who cannot afford a routine comprehensive physical examination gets one? If a patient has a past history of an illness, the physician might code the examination as a Medicare-covered Evaluation and Management (E&M) service for the illness even if the patient's condition has not worsened and he or she is not be experiencing any symptoms requiring a separate office visit. As a result, bills might be inappropriately coded for services that are not currently Medicare-reimbursable.

Also assume that the physician practices in a hospital with an approved intern and residency program. In addition to the visit and diagnostic testing claims for the patient, the hospital generates a UB-92 for the technical component of the clinic visit, thereby submitting yet another bill for a service that, given the true nature of the patient's visit, is not Medicare-reimbursable.

Question: Is the physician, the clinic, or any other entity involved in this situation potentially subject to fines and penalties under Federal fraud and abuse statutes and/or the Federal False Claims Act?

Answer: Medicare will pay only for services that are medically necessary and reasonable. Physicians who order tests that do not fit both categories are acting fraudulently, despite their belief that preventive services will help the government avoid future high costs for medical care. A physician who routinely codes comprehensive physical examinations as a covered E&M service for payment purposes could be demonstrating a pattern of abuse.

As for responsibility, anyone knowingly submitting a claim for a service that should not be covered can be held liable. The physician, the clinic, and any other entity involved in the submission of the claim could be subject to civil monetary penalties and penalties provided for by the Federal False Claims Act. Moreover, all risk exclusion from future participation in Medicare and Medicaid.

This type of liability was dramatically illustrated by SmithKline Beecham's $325 million settlement with the Federal government last year. One allegation against SmithKline was "code jamming." Code jamming occurred when laboratory personnel allegedly picked, or "jammed," a diagnosis code onto the claim form because they did not have a diagnosis code for a specific procedure. Although this may have been done as a convenience, it was viewed as fraud.

With respect to interns and residents, the government's Physicians At Teaching Hospitals (PATH) project goes beyond investigating whether a physician billed for services actually performed by a resident. Errors in billing for the appropriate level of E&M services provided by attending physicians are being scrutinized, as are other Medicare Part B billing errors. Thus, the hypothetical situation described above could subject the hospital to additional penalties if a PATH audit were conducted.

The use of the hypothetical situation just described, allows us to review pertinent factors and relevant rules about a compliance concern. It also allows the situation and our analysis of it to be shared with others. It does not imply that we, or anyone else, have knowledge of wrongdoing.

We hear from many of you that you receive mixed and sometimes conflicting messages from your Medicare contractors. While HFMA works to make HCFA aware of your concerns, we believe it is also important to help you navigate through the confusion. Hypothetical examples are one way to accomplish this goal.