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GAO Concludes CMS Should Increase Oversight of Post-Payment Claims Review Process -
The Government Accountability Office (GAO) has released the findings of its study of the steps taken by CMS to prevent Medicare contractors from conducting certain duplicative post-payment claims reviews. Based on its audit, the GAO has recommended that CMS take actions to improve the efficiency and effectiveness of its contractors’ post-payment review efforts, including providing additional oversight and guidance regarding duplicative reviews.
In assessing post-payment claims reviews conducted by Medicare Administrative Contractors (MACs), Zone Program Integrity Contractors (ZPICs), Recovery Audit Contractors (RACs), and the Comprehensive Error Rate Testing (CERT) contractor, the GAO evaluated: (1) the extent to which CMS has data to determine if the contractors conduct duplicative post-payment claims reviews and whether CMS ensures that the contractors do so only as necessary; (2) whether CMS’s requirements for contractor communication with providers are effective and consistent; (3) the extent to which CMS conducts quality reviews of the contractors’ decisions about whether claims were paid properly; and (4) the extent of CMS’s methods to coordinate the contractors’ claims review process.
In its study, the GAO evaluated the effectiveness of the Recovery Audit Data Warehouse, a tool created by CMS intended to assist RACs, which perform most of the reviews, to avoid duplicating reviews performed by other contractors. However, the GAO noted that the Data Warehouse has limitations, including that it was not designed to estimate duplicative reviews performed by the other contractors, which limits the available data on duplicative reviews, and that not all contractors have been entering information into the Data Warehouse consistently, which reduces its effectiveness. Further, CMS has only issued guidance for some contractors regarding when duplicative reviews are appropriate. The GAO also noted that contractors’ correspondence with providers in connection with post-payment claims examination often differs by contractor and may not always comply with all of CMS’s requirements for such communications. Further, while CMS has methods to coordinate contractors’ claims review activities, such as requiring joint operating agreements for MACs, RACs, and ZPICs operating in the same jurisdictions, the review process among the contractors still is not consistent.
The GAO concluded that while CMS has established a number of mechanisms to ensure the effectiveness and efficiency of the post-payment claims review process, certain additional actions by CMS would help improve the process, including the following: (1) issuing guidance for all contractors on when duplicative review is appropriate; (2) ensuring accurate data entry into the Data Warehouse; (3) better monitoring and guidance of contractor communication to providers; and (4) ensuring appropriate coordination and communication among the contractors. HHS concurred with the GAO’s recommendations in the report and discussed its plans to address the GAO’s recommendations. A summary of the report may be found here.
Reporter, Christina A. Gonzalez, Houston, +1 713 276 7340, cagonzalez@kslaw.com.
First Circuit Rules in Favor of Dialysis Operator in Tax Dispute -
On August 13, 2014, the United States Court of Appeals for the First Circuit affirmed a district court’s judgment in a tax dispute proceeding that Fresenius Medical Care Holdings, Inc. (Fresenius) was entitled to more than $50 million in tax refunds relating to prior settlement payments made under the federal False Claims Act (FCA). The First Circuit concluded that the absence of a tax characterization agreement between the United States and Fresenius in connection with the resolution of an array of FCA claims did not preclude Fresenius from claiming that a certain portion of the total settlement amount was tax-deductible.
In 2000, Fresenius, an operator of dialysis centers, entered into a global settlement under which it agreed to settle a number of criminal and civil claims. As part of the settlement, Fresenius agreed to pay over $486 million, which included approximately $101 million in criminal fines and approximately $385 million relating to the allegations of civil violations of the FCA. Importantly, the agreements underlying the global resolution were silent as to the tax treatment of the sums paid by Fresenius.
Following the global resolution, a dispute arose between the United States and Fresenius concerning Fresenius’s ability to claim as tax-deductible a certain portion of the civil settlement payments. The parties did not dispute that the criminal fines levied against Fresenius were nondeductible or that the single damages under the FCA, which provides for up to treble damages, were deductible. (Punitive payments, such as criminal fines, are generally nondeductible, whereas compensatory payments can be deducted.) The parties disagreed, however, as to the treatment of roughly $127 million in excess of single civil damages.
Fresenius eventually filed a tax refund action in Massachusetts federal district court. A jury returned a verdict in Fresenius’s favor, finding that $95 million of the settlement payments was deductible. The district court then ordered tax refunds to Fresenius totaling more than $50 million. The United States appealed.
The issue before the First Circuit was whether a court is permitted to consider factors other than the presence, or absence (as in Fresenius’s case), of a tax characterization agreement when determining the tax implications of an FCA civil settlement. The First Circuit ruled that a court is permitted to do so, rejecting the government’s argument that, in the court’s words, “any FCA civil settlement sums in excess of single damages . . . be treated as punitive fines (and, thus nondeductible) unless the parties have manifested a contrary intention.”
Recognizing that its holding may be at odds with its sister Ninth Circuit’s decision in Talley Industries v. Commissioner, 116 F.3d 382 (9th Cir. 1997), the First Circuit noted that “generally accepted principles of tax law compel us to part company with the Ninth Circuit.” As a practical matter, the First Circuit observed that a rule requiring a tax characterization agreement as a precondition to tax-deductibility would allow the government to “always defeat deductibility by the simple expedient of refusing to agree.” The First Circuit further reasoned that courts tasked with determining tax characterizations of private transactions typically assess the substance of the transaction (i.e., its “economic realit[ies]”) rather than the form of the transaction. The court also pointed to a “fundamental tenet of tax law” providing that settlement payments should receive the same tax treatment “as would have applied had the dispute been litigated and reduced to judgment.” If an FCA claim is tried, the court observed, there can be no tax characterization agreement to address the tax impact of any awarded damages. For these and other reasons, the court concluded that the absence of a tax characterization agreement was not dispositive and that Fresenius was entitled to a refund.
The case is Fresenius Medical Care Holdings v. United States, No. 13-2144 (1st Cir.). You can read the First Circuit’s opinion here.
Reporter, Greg Sicilian, Atlanta, +1 404 572 2810, gsicilian@kslaw.com.
CMS Reopens Open Payments System, Extends Review/Dispute Period and 15-Day Correction Period -
On Friday, August 15, 2014, CMS officially announced the reopening of its Open Payments system and an extension of the covered recipient review/dispute period and subsequent data correction period. Our understanding is that the system was reopened at some point on Thursday, August 14. As we previously reported in Health Headlines, the Open Payments system was taken offline on August 3 to resolve a “technical issue” that resulted in data regarding physicians with the same name being linked together in the system.
To resolve the issue, CMS implemented “enhanced algorithms and validation checks . . . and verified that . . . all payment records are attributed to a single physician.” Notably, CMS indicated that “[i]ncorrect payment transactions have been removed from the current review and dispute process and . . . will not be published this year.” The agency did not provide further explanation regarding what it deems to be an “incorrect payment transaction” or how it made those determinations.
As a result of the temporary suspension of the system, CMS has extended the covered recipient review/dispute period and subsequent data correction period. Under the new timeframe, covered recipients will be able to initiate disputes until September 8, 2014. The subsequent 15-day correction period will extend until September 23, 2014. We note that any changes to data that result from disputes initiated after September 8 will not be considered for CMS’s initial publication of the data (in that case, the data that the manufacturer reported initially will be published and not marked “disputed”). Similarly, if a dispute that was initiated by September 8 is not resolved by September 23, then any updates to the disputed data made after that time will not be considered for CMS’s initial publication of the data (in that case, the data that the manufacturer reported initially will be published and marked “disputed”).
Finally, despite these time extensions and calls by the American Medical Association and others, CMS appears to be holding strong to its intention to publish data by September 30, 2014. Indeed, CMS noted somewhat cryptically that the public website will “launch” on September 30, 2014.
The email that CMS sent on August 15 regarding these issues is available here. CMS’s Press Release on this issue is available here.
Reporter, Brian Bohnenkamp, + 1 202 626 5413, bbohnenkamp@kslaw.com.
Court Enjoins CMS From Enforcing Dissatisfaction Requirement When a Provider’s Appeal Stems from the MAC’s Failure to Issue a Timely NPR -
On August 6, 2014, the United States District Court for the District of Columbia enjoined CMS, its Medicare Administrative Contractors (MACs), and the Provider Reimbursement Review Board (PRRB) from applying the self-disallowance regulation to any pending or future administrative appeal to the PRRB that involves a MAC’s failure to issue a timely notice of program reimbursement (NPR) within twelve months of the provider’s filing of its cost report. In particular, the court issued an order “that the Board, the rest of [HHS] . . ., and all current and future Medicare contractors are enjoined from applying 42 C.F.R. § 405.1835(a)(1)’s ‘dissatisfaction’ requirement for Board jurisdiction to any pending or future Board appeal that . . . is based on the Medicare contractor’s failure to issue a timely NPR.”
The statute governing PRRB jurisdiction states that a provider may file a PRRB appeal either from an NPR or from the MAC’s failure to timely issue an NPR. The statute requires a provider to show that it is “dissatisfied” with its MAC’s determination only when appealing from an NPR. It does not require that a provider be “dissatisfied” when appealing from a failure to timely issue an NPR. Yet, CMS’s regulation draws no distinction between the two types of appeals but purports to apply to all appeals. The court, therefore, enjoined CMS from applying this “self-disallowance” requirement to appeals stemming from a MAC’s failure to issue a timely NPR. The court stopped short of granting the full-relief requested by the providers; that is, it did not hold that the entire regulatory provision was invalid (even as applied to appeals from an NPR) because it was overbroad and its plain language violated the statute. Rather, the court explicitly limited its holding to appeals from a failure to timely issue an NPR and emphasized “that no provision of this Order pertains to the application of 42 C.F.R. § 405.1835(a)(1)’s ‘dissatisfaction’ requirement to Board appeals pursuant to 42 U.S.C. § 1395oo(a)(1)(A) that are based on a timely NPR” (emphasis added).
The court’s order is consistent with CMS’s “technical correction” in the 2015 inpatient prospective payment system (IPPS) final rule, which is scheduled to be published in the Federal Register on August 22, whereby CMS clarifies that the dissatisfaction requirement does not apply to appeals stemming from the MAC’s failure to timely issue an NPR. CMS’s technical correction is retroactive to October 1, 2008, and CMS states that providers may seek reopening of any adverse decisions issued in the three years before October 1, 2014 that were based on prior application of the self-disallowance regulation.
CMS’s technical correction and the court’s injunction are significant and could assist providers going forward. On occasion, providers fail to protest or include an item they arguably should have included on their as-filed cost reports. Appeals of such issues from an NPR are subject to a jurisdictional challenge because of the “dissatisfaction” requirement that applies to NPR appeals. But if a provider were to file an appeal of the vulnerable issue as soon as the 12-month deadline for the MAC’s issuance of an NPR elapsed, the dissatisfaction requirement would not apply. Providers in this situation have an incentive not to follow the more typical practice of simply waiting to appeal from the NPR once it is issued.
Reporter, Daniel J. Hettich, Washington D.C., +1 202 626 9128, dhettich@kslaw.com.
King & Spalding Secures PRRB Decision that Five-Day Presumption Applies to Emailed NPRs -
On August 7, 2014, the Provider Reimbursement Review Board (PRRB) issued a jurisdictional decision in Hays Medical Center v. Wisconsin Physicians Service finding that the “five-day” presumption applies to electronically issued Notices of Program Reimbursement (NPRs). The five-day presumption is a PRRB rule that presumes a provider “receives” its NPR five days after the intermediary issues the NPR (the five-day presumption). The five-day presumption is significant for determining the appeal filing deadline because pursuant to 42 C.F.R. § 405.1835, a provider must file its hearing request within 180 days of the date the provider receives its NPR. The regulations and the PRRB’s own rules state that the date of receipt of a NPR “is presumed to be 5 days after the date of issuance.” 42 C.F.R. § 405.1801(a)(3)(iii). Although both the regulation and PRRB Rule 4.3 state that this presumption is "conclusive" unless there is evidence that the NPR was actually received later than five days after the date of issuance, the intermediary nonetheless claimed that the presumption could also be rebutted by showing that the NPR was received earlier than the fifth day.
In Hays Medical Center v. Wisconsin Physicians Service, the intermediary issued the provider’s NPR electronically on October 22, 2013. On April 24, 2014, 184 days after the NPR was issued but 179 days after the NPR was presumed received under Rule 4.3, the provider filed its hearing request. The intermediary issued a jurisdictional challenge, claiming the appeal request was not timely filed because the provider must have received its NPR on the date it was issued, as it was emailed electronically. King & Spalding LLP responded to the challenge on behalf of the provider, arguing for the application of the five-day presumption to electronically issued NPRs.
The PRRB agreed with the provider, finding that the date of receipt can only be rebutted by showing the date of receipt was later than that established by the five-day presumption regardless of how the NPR was issued. Because the intermediary attempted to establish a date of receipt earlier than the five-day presumption, the PRRB found that the five-day presumption had not been conclusively rebutted. The PRRB relied on the CMS Administrator’s guidance that “a Provider’s reliance upon the five-day presumption is reasonable when no evidence is provided to demonstrate that the date of receipt was beyond the five-day convention period.” Because the provider’s hearing request was filed 179 days after the presumed date of receipt, it was timely filed and the PRRB maintained jurisdiction. The Administrator has sixty days to review the PRRB’s jurisdictional decision in this case. The provider was represented by Dan Hettich of King & Spalding LLP’s Washington, D.C. office and Paige Fillingame of the firm’s Houston office.
Reporter, Paige Fillingame, Houston, +1 713 615 7632, pfillingame@kslaw.com.
ALSO IN THE NEWS
Upcoming King & Spalding LLP Roundtable – On August 20, 2014, King & Spalding LLP will host a roundtable titled, “Affordable Care Act on Life Support? The DC Circuit’s Halbig v. Burwell Decision and Its Impact on Healthcare Providers.” The event will take place at the Atlanta office of King & Spalding LLP from 1:00 p.m. – 2:30 p.m. and will be offered as a webinar as well. To register for the roundtable, click here.
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