Is payment suspension the new Medicare overpayment recovery model?

By Christopher Kelly, Attorney; Page, Wolfberg & Wirth

A report issued by the HHS Office of Inspector General (OIG) several years ago found that 80% of overpayments identified by Medicare’s Zone Program integrity contractors (ZPICs) were never actually collected. This report recommended that the ZPICs and the Medicare Administrative Contractors (MACs) implement strategies to increase the collection of overpayments. It appears that one uniform program integrity contractor (UPIC) has in fact come up with a new strategy.

Developing such a strategy is not easy because federal law requires that no recoupment or offset of amounts identified as overpayments is allowed during the first level of administrative appeal. This allows the healthcare provider an opportunity to submit additional documentation and challenge these denials before they have to repay any money – a challenge which may take several months for the MAC to process. If the result of that appeal is not favorable to the provider, then the provider may be forced to close its doors if it cannot afford to pay back a large, often six or seven figure repayment obligation. This is likely an option that the provider has been preparing for during that initial appeal period. Once those doors are closed and new claims are not being submitted, there is nothing to offset against and therefore little chance of recovering the money.

So how do you collect money from a company that is no longer in business and owns very little, if any, assets that the government can collect from? Well, how about creating an asset that the government can hold on to? Here’s how the UPIC is doing just that.

Federal law allows Medicare contractors to suspend a healthcare company based on “reliable information that an overpayment exists” or “credible allegations of fraud.” The basis of either of these two options can be as simple as a small, 30-claim audit finding that the provider was billing for medically unnecessary services. Once suspended, the Medicare contractor has up to 180 days to investigate the matter, and if the suspension is based on credible allegations of fraud, may get a one-time extension for an additional 180 days.

It probably won’t come as a surprise to you, but almost all of the suspension cases we see allege “fraud,” allowing them the full year to investigate. Note: this investigation can include claims paid prior to the suspension period (hang on to that thought, it will be important in a minute). During this time, the healthcare provider may continue to provide services, to bill claims and will even have their claims approved, but no payment will be made. This creates a huge pot of money, one that continues to grow during this 6-month to year-long process. Not to worry; you can see the amount owed to you growing, you feel that you are providing necessary services, and you are sure that the money will all be released to you as soon as this Medicare auditor is done with their review, right?

Wrong. Remember what I said earlier about federal law not allowing any offset or recovery of identified overpayments during that first level of appeal? Well, that does not apply to the suspension process. Payments held during suspension are “first applied to reduce or eliminate any overpayments determined by the Medicare contractor.” This means that if the Medicare contractor conducts a statistically valid random sample and finds that it did not like 20% of the claims you billed during the period of the review, then they are going to take that money out of what they are holding before you even get a chance to appeal or provide any additional information.

So let’s do some quick, simplified math. You run 300 Medicare trips per month for 12 months while your payments are suspended. At $300 per transport, that’s about $1,080,000 that they are holding. If they did not like 20% of your claims, then that would be $216,000 that you owed them for that year, and they would release the remaining $864,000 to you. Not a great result, but one that your company could probably withstand. But, remember what I said about the period of review going back prior to the start of the suspension. These audits normally cover at least two years prior to the suspension period and can go back as many as four. So, going back to our example, if the 20% error rate for one year resulted in an overpayment of $216,000, then that error rate applied to three years’ of claims (the year of the review and 2 prior years) would result in the amount you owed being three times that, or $648,000, leaving far less to be released to you. If they went back 4 years, for a total of 5 years in the review period, then the amount you owed would be $1,080,000 – or every penny of what they are withholding from the suspension period, and nothing would be released to your company.

Take advantage of the appeal process

The bottom line is that pay-and-chase did not work. Out of $559M in overpayments referred to the MACs by the ZPICs in one year, the MACs collected only $96M. On the other hand, the new strategy of suspend-and-grab looks to be much more effective, allowing the MACs to recover the full amount of a large overpayment assessment before the appeals process even begins.

But all is not lost; that appeals process still exists and offers you the opportunity to fight for your payments. If caught in one of these UPIC suspensions, there will likely be a lot at stake by the time you get to that first level of appeal. Make sure you avail yourself of that process and make the best case for payment that you can for each of the claims being reviewed and denied – your company’s future will depend on it!

About the author

Christopher Kelly is a lawyer with Page, Wolfberg & Wirth LLC, which focuses on regulatory healthcare law as it relates to the EMS and ambulance industry. This article is not intended as legal advice. For more information or for assistance, Kelly can be reached at 717-691-0100 or ckelly@pwwemslaw.com.