Reducing Billing Compliance Risk for Laboratories...Source: OIG analysis of Medicare Part B lab test...

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Reducing Billing Compliance Risk for LaboratoriesPreserving revenue in a changing environment

Advisory and Management Services to the Medical Diagnostics Industry

I 2Addressing the Increasing Compliance Risk for Laboratories

1. Introduction

The United States spends among the highest amount per capita for healthcare compared to industrialized nations. Yet, outcomes in the United States do not reflect an impact from this higher spending level. As healthcare spending grows in excess of 4% per annum and approaches 20% of gross domestic product (GDP), various stakeholders – government, private insurance, and employers – are examining ways to reduce spending and better tie expenditures to outcomes.

In some cases, providers are receiving training on “appropriate use” of different diagnostic techniques.

Efforts to move away from fee-for-service (FFS) reimbursement are driven by a belief that FFS pushes up the cost of health care by incenting more procedures. On the other side, payers question the extent to which laboratories “drive” volume as opposed to external factors: individual patient demand, defensive medicine, and the effects of an aging population. Nevertheless, payment models are shifting quickly at a macro level. Part of this rapid shift is driven by the government: the 2015 Medicare Access and CHIP Reauthorization Act (MACRA) established significant financial incentives for value-based payments. The chart below illustrates this trend:

Figure 1 Health care payments by payment models. Sources: Health Care Payment Learning & Action Network APM Measurement: Progress of Alternative Payment Models, 2017.

Percentage of Total U.S. Health Care Payments by Payment Models, 2015-2016 Percentage

Traditional fee-for-service or other legacy payments not linked to quality

Pay for performance or care coordination fees

Value-Based payments (e.g. shared savings, bundled)

Category 1

Category 2

Category 3&4

62% 43%

20152016

15% 28%

23% 29%

Source: OIG analysis of Medicare Part B lab test payments, 2018.

Alternatively, the government is taking more top-down reductions as it relates to patients on Medicare and Medicaid. A study commissioned

in 2018 looked at how Medicare spent money on money on laboratory tests in 2017. The chart below summarizes the results:


NICHOLS MANAGEMENT GROUP NOVEMBER I 2018

As part of the Protecting Access to Medicare Act (PAMA), Medicare Part B cuts are estimated to reduce revenue for laboratories by $670M in 2018. This is a particular challenge for laboratories because of the complexity of laboratory medicine and its associated revenue cycle management. More specifically,

reduced reimbursements for laboratories often require additional cuts to sustain profitability. “There is probably no other medical specialty - nor even an industry outside healthcare - that has the revenue cycle complexity of clinical laboratories,” according to Lale White, CEO of Xifin. Laboratories

In 2017, Medicare alone paid $7.1B under Medicare Part B for laboratory tests. More than 60% of these PartB payments were for the top 25 tests.

Total Medicare payments: $4.54 billion. Source: U.S. Department of Health and Human Services Office of Inspector General, Medicare Payments for Clinical Diagnostic Laboratory Tests in 2017: Year 4 of Baseline Data, September, 2018.

The table below summarizes the top 25 laboratory tests for 2017:


compromise 2% of total healthcare spending, but 1/3 of all healthcare claims. At the same time, the technology required to perform cutting edge diagnostic medicine continues to increase, manifesting in more expensive equipment, higher skilled labor, and other ancillary investments, such as information technology and proprietary databases. Genomics – in particular next generation DNA and RNA sequencing (NGS) instruments – can range in price from $75K to $1M and support bioinformatic talent can earn up to $200K or more a year – a real departure compared to historic laboratory labor rates.

At the micro level, the chart below looks at the impact of Medicare Part B cuts to one lipid panel for 2018 through 2020:


The PAMA legislation limits cuts in subsequent years to 10%. In the first look at the impact of the 2018 cuts, 75% of rates decreased, 15% did not change, and 10% of reimbursement rates actually increased. These cuts will have profound effects on the laboratory industry, likely leading to an acceleration of consolidation and exits, among other changes. In addition to reimbursement cuts, laboratories are also facing new liabilities with profound consequences.

One of the most important changes is another aspect of the PAMA legislation, which granted the Centers for Medicare and Medicaid (CMS) the authority to issue civil monetary penalties if labs fail to report data or if they misrepresent or omit reported data. Liabilities will include lookbacks in addition to current and future practice. The potential size of monetary damages under this scheme present an existential threat to laboratories that demands vigilance and pro-active actions to comply.

Figure 2 HCPCS 80061 Pricing, 2017-2020 Source: Xifin.

Final Determinations NLA for Lipid Panel (HCPCS 80061) with Phase-in Caps, 2017-2020 - $USD

$18.37 $16.53

$14.88$13.39

2017 New NLA

New 2018 Pay w/ Cap

New 2019 Pay w/ Cap

New 2020 Pay w/ Cap

-27%

Billing compliance not only reduces regulatory risk

and liability exposure, but better assures maximum

reimbursementunder the law. David Nichols,

President of Nichols Management Group



Some of the common billing practices that run afoul of regulations including the following practices:

complex testing. While it appears as a “box” that providers must check, the guidance on “who” and “how” is severely lacking in most places around the United States. This ambiguity creates a potential challenge for institutions that may have disagreements with payers about the roles and responsibilities involved in establishing medical necessity determinations. Clarity and alignment between payers and providers is key. Having information technology to aid in medical necessity compliance is paramount to success.

Overcoding/undercoding of Anatomic Pathology cases: Proper coding of clinical diagnostic tests are an essential element of accurate billing, which is vital for not only financial, but also compliance reasons. Undercoding results in lower prices provided; overcoding will be interpreted as fraudulent if a consistently high pattern is established without medical necessity. By understanding which types of tests usually result in under- or overcoding, laboratories can hone their efforts to improve the accuracy of coding.

Out-of-date reference lab fees: Changes to reimbursement rates, CPT codes, and other adjustments are occurring at a dizzying pace. Without proper vigilance, labs can find themselves using fee schedules that either under- or over-bill and/or do not use the proper codes for professional and technical components. With recent legislation and stated policy positions covered in the next section, easy-to-make oversights like these will no longer be a simple error with a simple fix. In its simplest form, pricing should always cover the cost of performing a test.

Pass through billing schemes in rural hospitals: Most recently manifesting in the form of some – byno means all – management service organizations(MSOs) and hospital outpatient department (HOPD), pass through billing models are entanglingsmaller, less sophisticated hospitals. In passthrough billing arrangements, outside laboratoriesperform services, but instead of billing themselves, the hospital bills for the procedure and shares the generated revenue with the lab at a higher reimbursement than had the lab itself directly billed the claim.

Specialized coding: The development of diagnostic tests in which the description of the test appears to be require a specific, often rarely used CPT code, can be a way to obfuscate the actual procedure and the corresponding reimbursement amount. In some cases, over-complicating of definitions like “samples” or“procedure” creates challenges.

Balanced Billing: Balance billing practices involve situations where providers bill a patient for thedifference between what the insurance pays and the remaining amount billed. The difference, orthe balance, is the amount left for patients to pay the provider for the testing. Balance bills are different than an explanation of benefits (EOB);lab providers must invoice this balance to make an attempt to collect from the patient. Balance billingrequirements can create headaches for providers when patients complain about receiving significantbills for diagnostic testing. Out-of-network rates drive balance bills amounts higher especially if the lab fee schedule is set with typically high hospitalcharge amounts, the patient is responsible fora bigger portion. Laboratories should considerthese factors in establishing your charge master. Some private labs attempt to allay concerns aboutbalance bills by telling providers that no patient will pay beyond a certain amount. In many states, these type of patient pay caps arising from balancebills constitutes insurance fraud.

The challenge of “medical necessity”: Medical necessity decisions are becoming a more common requirement, especially for most

Incorrect Billing: The accuracy and omission of billing components – post-PAMA data reporting period - is more important than ever. Historically, incorrect billing could create inconveniences around denied claims, resulting in delays in payment and increased administration. In this new world, inaccurate billing data, including elements as detailed as test performance location can result in rejected claims as well as attract unwanted attention from regulators during audits.


2. U.S. Government Position and Enforcement

Following the passage of PAMA in 2014, the Office of the Inspector General (OIG) in 2016 published a report entitled “Changing how Medicare pays for clinical diagnostic laboratory tests,” which evaluated CMS’s progress through August 2016. That report was followed in July, 2018 by another reported entitled, “Setting Medicare Payments for Clinical Diagnostic Laboratory Tests”, which focused on CMS’s implementation activities in 2017 and the new payment rates that took effect on January 1, 2018.

In this new scheme, the government views misreported payments as not a question of intent, but strictly outcome. The government will recoup payments going back years, exponentially increasing the liability facing laboratories. This is perhaps the most important philosophical component of the government’s approach.

To serve as a fact base for the government, the OIG and CMS started enacted many of the requirements of PAMA as early as 2015. These included issuing the final rule for how it will implement the new payment system, establishing the PAMA-required advisory panel for the new payment system, and building a web-based system for labs to report data from private payers.

As early as 2015, CMS and the OIG had concerns about data collection. Specifically at the time, they mentioned two aspects of CMS’s implementation plans that particularly warrant monitoring. First, although CMS requires certain labs to report data, it did not plan to verify whether they do so. Labs that will be required to report their data, which CMS will use to set new Medicare

payment rates, represented a projected 5 percent of all labs and received 69 percent of Medicare payments for lab tests in 2015. Second, CMS did not plan to independently verify the completeness or accuracy of the data that labs report. CMS cited limited time and resources to carry out such quality assurance activities, and warned that a lack of these activities could result in inaccurate Medicare payment rates for lab tests.

New rates in 2018 were based on this lab-reported data: including rates paid by private payers such as private health insurers, Medicaid, managed care organizations, and Medicare Advantage plans. Although only certain labs are required to report data, new payment rates apply to all labs paid through Medicare Part B. Previous OIG studies found that before PAMA, Medicare rates were 18-30% higher than rates paid by other payers.

Looking back on their effort in July, 2018, the OIG discussed labs reporting difficulty in determining whether they met criteria and needed to report data. That said, CMS’s own modelling demonstrated that increased reporting would not have had a material effect on 2018 payment rates. Labs experienced some one-off issues in compliance with the new policy, but the OIG cited an on-going concern around

CMS’s limited resourcing for quality assurance.

To tackle these issues, CMS plans to enhance

outreach to labs to ensure that labs

understand whether they meet the criteria

and report as required. They will also enhance data quality assurance activities to ensure labs report as required.


Figure 3 Case Studies Explored

3. Case Studies of Billing Compliance Risk

In each case, there are key lessons labs can take away to avoid the potential liability presented. As you will see in many of these examples, settlements often leave the laboratory in a ruinous state, either

filing bankruptcy, seeking other protections from creditors, or significantly scaling down operations. The severity of penalties should ring loud and clear for labs large and small.

Health Management Associates (HMA), formerly a hospital chain headquartered in Naples, Florida, was acquired in 2014 by Community Health Systems. HMA was – prior to 2014 – accused of billing government healthcare programs, such as CMS, for inpatient services that should have been billed as outpatient.

According to FierceHealthcare, in September, 2018, HMA will pay a $35 million monetary penalty to the Department of Justice as well as an agreement to pay an additional $216 million as part of a related civil settlement involving violations of the Anti-Kickback Statute and the Stark Law which prohibits hospitals from providing financial inducements to physicians.

Allegations included in the settlement included the following: submitting false claims between 2008 and 2012 in a corporate-wide scheme to increase inpatient admissions of Medicare, Medicaid and the Department of Defense’s Tricare program for beneficiaries over the age of 65; from 2003 through 2011, two HMA Florida hospitals billed CMS and other federal healthcare programs for services referred by physicians, those physicians received free office space and staff from HMA; between 2009 and 2012, two former HMA Pennsylvania hospitals executives billed federal healthcare programs for

EXAMPLES OF RECENT ENFORCEMENTS

A number of recent examples of enforcements from the OIG are discussed in this section. The chart below summarizes the case studies outlined from seven institutions across five states:

COMMUNITY HEALTH SYSTEMS – $262M



services referred by physicians with improper financial relationships; and an HMA facility in Mississippi leased space to a physician between 2005 and 2007 at a favorable rate in return for referrals. oOn January 9, 2018, SWMC, based in Sebastopol, CA, received a letter from Anthem requesting $13.5 million paid the hospital for primarily urine drug tests. This is a case of a pass through billing scheme, involving both SWMC and its parent, the Palm Drive Health Care District.

“Sonoma West appears to have conspired with several third parties to fabricate or misrepresent claims for toxicology testing services that were improperly billed to Anthem,” said the letter from Steven M. Cohen, Anthem’s Senior Associate General Counsel. “This scheme has resulted in more than $13.5 million in payments to Sonoma West. Sonoma West had no right to that reimbursement and obtained it only through material misrepresentations in the claims it submitted.”According to the Dark Intelligence Group, public documents show that healthcare providers from around the United States refer patients’ specimens to Reliance Laboratory Testing, and that Reliance

Labs distributes those specimens to various labs, including SWMC, for screening, the letter said. Reliance Labs keeps a portion of the specimens and does testing on those specimens “while purportedly passing on a portion of the same to Sonoma West for additional testing,” the letter said.

In August, 2018, SWMC announced they would close its emergency room and become a long-term acute care facility. The hospital is expected to close its emergency department in September, 2018, and will change its name to Sonoma Specialty Hospital. The Palm Drive Health Care District, which owns the hospital, approved a management services agreement with Modesto-based American Advanced Management Group. The move is in part an effort to wall off liability from SWMC. Officials said the legal dispute is between Anthem and Sonoma West Medical Center. The new management services agreement would end the district’s relationship with the current hospital operator, according to the official. “SWMC basically goes by the wayside,” said Dennis Colthurst, district board president. “SWMC owns their debt. It’s not a district issue.”

SONOMA WEST MEDICAL CENTER (SWMC) – $13.5M

SUN CLINICAL LABORATORIES AND MISSION TOXICOLOGY – $44M

In April, 2018, United Healthcare has filed suit against both Sun Clinical Laboratories and Mission Toxicology, alleging the labs “conned” the insurer into paying at least $44 million for improper lab claims. The labs and other companies were described as “overlapping entities,” used kickbacks to induce healthcare providers to send specimens to the labs.

According to GenomeWeb’s 360Dx, UnitedHealthcare accused the labs of setting up testing centers within rural hospitals that are in-network with the insurer, and billing UnitedHealthcare from those hospital to make it appear that the hospitals were billing the insurer rather than out-of-network labs. According to the

suit, when UnitedHealthcare paid the rural hospitals, the defendants instructed hospital employees to transfer 95 percent of the payment to the labs or related entities. Using the rural hospital identities, the labs filed claims that were 50 times the actual cost of testing, the suit alleges.

UnitedHealthcare claimed the labs — Sun Clinical Laboratories and Mission Toxicology — were both CLIA-licensed laboratories, but actually performed “few, if any, of the lab services at issue” and instead paid separate out-of-network labs to perform the testing. The emphasis of the suit was toxicology testing and allergy testing.



The Houston, Texas-based Companion DX marketed a genetic test aimed at pharmacogenomics focused on drugs such as opiates for chronic pain. It also ran assays to treat cancer and urine screens to monitor drug abuse.

In 2016, the lab went bankrupt after Medicare required it to pay more than $16M for tests that health officials said were not medically necessary. In court filings, Companion DX blamed its demise on disagreements with CMS over the validity of its tests and the government audits that retroactively

disallowed claims. CMS audits typically take many years to complete.

Companion DX opened in January, 2012, trying to “capture favorable profit margins that existed in connection with cutting edge technology,” they wrote in the bankruptcy filing. Starting in 2013, CMS reconsidered their treatment and interpretation on some of Companion DX’s assays and eventually decided to cover them for little more than 1% of patients, according to the bankruptcy filing. The lab declared bankruptcy in July 2016.

COMPANION DX - $16M

IVERSON GENETIC DIAGNOSTICS INC. – $19.7M

CMS approached the Seattle, WA, lab in November, 2013, after receiving “numerous” complaints of bills for tests that patients “had not actually received,” federal officials wrote in a court filing.

Iverson fell under the jurisdiction of two MACs – Noridian Healthcare Solutions, LLC and Palmetto GBA. The MACs performed reviews of Iverson’s claims with dates of service ranging from January, 2012, through 2015. They identified problems with the billing on Iverson’s claims, such as iseparately billing services performed within a Skilled Nursing Facility that were subject to consolidated billing, and should not have been billed separately.

The MACs separately issued findings letters to Iverson between August, 2014, and December, 2015, informing Iverson of the overpayments and requesting prompt repayment. Collectively, the overpayments and requests for refunds totaled $19.4M, plus $265K of pre-petition interest for a total balance of $19.7M. Iverson denied the charge of overbilling and is appealed the CMS decision, saying in a court filing the charge “was not based upon sufficient or proper evidence.” Iverson filed a petition for bankruptcy under Chapter 11 September, 2015 and CMS was notified in December, 2015.

PUTNAM COUNTY MEMORIAL HOSPITAL – $60M

In a six-month period, Putnam County Memorial, a 15-bed hospital in Unionville, Missouri, billed approximately $92M relative to the previous year, when their revenue was $7.5M.

How did this happen? Shortly before Putnam was to close, a management company called Hospital Partners swooped in, promising to turn it around. Hospital Partners made deals with laboratories around the U.S. to send billing for blood tests and drug screens through Putnam. As a rural hospital, Putnam collects higher reimbursement rates. The deal

included Putnam keeping approximately 15%, with the balance wired back to the referring laboratories and the management company.

“Essentially the hospital appeared to act as a shell company for these questionable lab billings,” said Missouri state auditor Nicole Galloway. The 2017 Missouri audit also discovered the hospital was paying 33 people around the U.S. to conduct laboratory work. These “employees” were removed from the hospital payroll in October, 2017. In March, 2018, Blue Cross Blue Shield filed a $60M suit against Hospital


Partners, alleging the arrangement with laboratories was a “fraudulent scheme.” Hospital Partners sued Galloway, claiming she had no right to audit Putnam.

A follow-up audit by Galloway discovered that Putnam County Memorial Hospital is no longer affiliated with the management company Hospital Partners. The hospital’s finances — which improved under Hospital Partners management — are in poor condition and “continues to be a concern.”

“While the hospital’s bank account balances improved while Hospital Partners was managing the hospital, balances have since returned to their original levels,” the audit said. The audit also reported the hospital’s finances are so poor that Putnam can’t pay an accounting firm to work with the hospital. In 2016, it took the hospital more than a year to pay vendors and that the hospital’s revenues for that year did not make up even half of what had been budgeted.


NATURAL MOLECULAR TESTING CORP. – $71.1M

Once one of the largest testing facilities in the US, Natural Molecular Testing Corporation listed marque partnerships with key labs such as GenMark Diagnostics and technology partners including Luminex. In July, 2015, Natural Molecular Testing Corporation (NMT) reached a settlement with CMS to pay back $71.1M in overpayments received by the lab.

NMT was a high-complexity testing laboratory headquartered in Renton, Washington that filed Chapter 11 bankruptcy in October, 2013. After that filing, CMS ceased reimbursements to NMT for its genetic tests for treatment decision support, after CMS found evidence of improprieties around claims paid to the lab. The evidence included questions around the medical necessity of tests billed; lack of documentation for the completion of tests; testing for screening purposes; multiple claims for the same date of service, among other problems. For example, NMT was accused of paying some doctors who ordered tests up to $10,000/month in consulting fees, according to court records.

A Medicare contractor concluded CMS overpaid NMT approximately $71M. Taken together, CMS had two separate unsecured claims: one for $71M and another for $60.3M around the laboratories Chapter 11 bankruptcy filing. The two claims were merged into one claim for $71.1M. In December, 2017, John Kaplan, an attorney for the bankruptcy trustee, said there was little chance that NMT would be able to repay the fine. Five years in, the bankruptcy case is expected to settle next year, but there’s likely to be “no cash left” to repay Medicare, Kaplan said.


4. Decrease the Risk of Civil MonetaryPenalties to Your Organization

In this challenging environment, what can you do to decrease the risk to your organization? The drumbeat of revenue cycle management will carry forward. In 2020, the second data reporting period under PAMA will commence. This will be followed by a second fee schedule release on January 1, 2021.

While PAMA gave CMS the authority to issue civil monetary penalties if labs failed to report, misrepresented, or omitted data, the agency announced in 2016 that it did not intend to issue monetary penalties for the first reporting period. The second reporting period is unlikely to receive the same treatment according the OIG report in July, 2018.

Regardless of where your lab’s current revenue cycle management infrastructure and support stands today, the Nichols Management Group (NMG) can work with your laboratory to ensure the best possible position for compliance and the avoidance of the common pitfalls and schemes that lead to the penalties discussed in this report.

Specifically, NMG can help labs with the following:

• Perform audits to ensure compliance and ensure adequate billing:• Review sampling of patient cases from registration through

payment recoupment to evaluate process and workflow gapsand identify revenue opportunities

• Plan of corrections for billing• Billing department organization and staffing assessment and

recommendations for resource requirements to enable yourlab billing strategy going forward

• Document how the hospital and/or laboratories are billing andcompare to NMG’s proprietary database of best practices

• Provide the laboratory specific examples taken from NMG case studies about the evaluation of small billing amounts and theimpact of aggregated claims to CMS

• Assist a laboratory or hospital in the evaluation of outsourcedbilling – Could include the development of a request forproposal (RFP) or direct management on an interim basis

Contact NMG today to learn more.

There is increasing enforcement by payors

to recoup amounts reimbursed under a hospital

pass-through-billing arrangement. Exposure

to this risk of recoupment action should make

compliant billing a top priority on your to-do list.

Donna Beasley Chief Operating Officer

Nichols Management Group

The Nichols Management Group, Ltd. (NMG) is the medical laboratory industry leader in strategic development, mergers, acquisitions, joint ventures and operations management services.

NMG provides laboratory consulting services focused on lowering costs, increasing revenue and optimizing laboratory operations with experts in:

NMG has been the driving force behind many of the most successful ventures in laboratory management for over 25 years.

VISIT: NICHOLSMANAGEMENTGROUP.COM

EMAIL: INFO@ NICHOLSMANAGEMENTGROUP.COM

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Reducing Billing Compliance Risk for Laboratories...Source: OIG analysis of Medicare Part B lab test...

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