Jackie Papish, Partner, Barnes & Thornburg LLP, and Peter Dressel, Senior Managing Director, FTI Consulting, discuss Medicare outlier payments in the health care industry and how providers can navigate issues related to fraud, waste, and abuse. They cover what outliers are in the health care context, how the government deals with outliers from a reimbursement perspective, a history of outlier payment government enforcement, and how providers can deal with outlier payments that are the focus of a government fraud and abuse investigation. Sponsored by Stout.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Jackie Papish, Partner, Barnes & Thornburg LLP, and Peter Dressel, Senior Managing Director, FTI Consulting, discuss Medicare outlier payments in the health care industry and how providers can navigate issues related to fraud, waste, and abuse. They cover what outliers are in the health care context, how the government deals with outliers from a reimbursement perspective, a history of outlier payment government enforcement, and how providers can deal with outlier payments that are the focus of a government fraud and abuse investigation. Sponsored by Stout.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Support for A HLA comes from Stout, a global investment bank and advisory firm , specializing in corporate finance, transaction advisory, valuation, financial disputes, claims and investigations. They serve a range of clients from public corporations to privately held companies and numerous industries. For more information, visit stout.com.
Speaker 2:My name is Jackie Papish . Uh , I'm a partner here in the Washington DC office of Barnes and Thornburg. Um, I defend healthcare companies , uh, small time providers, practice groups, all the way to Fortune 50 pharma companies, hospitals, health systems , uh, health insurance companies, and the like in government investigations and litigation involving healthcare fraud, abuse issues , um, most frequently surrounding the False Claims Act. And I kick back statute and the like. Um, and in fact, I've had the pleasure of working with my , uh, my friend here, Peter Dressel , who, I'll let you go ahead and introduce yourself, Peter.
Speaker 3:Thanks, Jackie . Yeah, my name's Peter Dressel . I am a senior managing director with FTI Consulting. I'm based in Washington, DC and I've been consulting in the healthcare industry my entire career , um, working with , uh, healthcare organizations and primarily providers, but also , uh, payers , uh, addressing a range of billing, coding, and compliance issues ranging from providing expert witness testimony and litigation , uh, serving as , uh, organizations IRO for those that are under corporate integrity agreements, as well as assisting a number of organizations address different types of inquiries from D-O-J-O-I-G and other , uh, other governmental contractors.
Speaker 2:Well, let's go ahead and dig into it. I think , um, you know, the title of our, our presentation is Medicare Outliers, not exactly Malcolm Gladwell's Idea of Success. Um, for those of, for those of , uh, our listeners who have not actually read the book , um, just briefly wanted to kind of touch on it and, and help folks kind of understand why we decided to go with that title. Um, Malcolm Gladwell's book is called Outliers The Story of Success. Um, and it's about how these remarkable individuals among are among us and, and they reach these extraordinary heights of success , um, and our culture and, and are truly outliers. Um, Malcolm Gladwell defines outliers as something that is situated away from, or classed differently from a main or related body, or a statistical observation that is markedly different in value from the others of the sample. And I can tell you, I think both Peter and I would agree , um, that that's exactly , uh, what we're talking about here today in terms of the definition of outliers. Um, they are just that , uh, but in terms of , um, the success of the outliers in in the healthcare expenditure , uh, um, side of things, I, I , I'm not quite sure that we could, we could go so far to say , um, how successful , uh, those have been. And I think we have a variety of things to talk about today about why they sort of , um, you know, can contribute to factors relating to, you know, fraud, waste and abuse issues in the, in the healthcare industry.
Speaker 3:Yeah, Jackie , I'd I'd add to that. Yeah, for sure. I mean, I think outliers, especially as , uh, Gladwell wrote, you know, sort of the, you know , at least a standard deviation or two away from the mean, and, and certainly more rare than, than not. And you know, I think for the vast majority of Medicare claims that, you know, when, when a a , uh, an admission, especially on, on the hospital side is, you know, exceptionally costly and, you know, then, then Medicare outlier payments do their job and compensate providers for, for providing that costly care. Um, you know , as we'll get into the details, the , um, or rather the , the devil truly is in the details as we, as we get into those in terms of how Medicare, you know, originally designed outlier payments and, and how that's evolved over time, where, you know, providers can , um, knowingly or unknowingly get themselves into, into issues with respect to either false Claims Act issues, DOJ issues or, you know, just general billing, coding and compliance concerns related to outlier payments.
Speaker 2:So I think it'd be useful to kind of set the stage for folks here in terms of what outliers are, maybe for, maybe for some who aren't as familiar with them as, as we are , um, you know, so intimately familiar with them. I guess <laugh> , fortunately or unfortunately, Peter , um, I actually took a look at, you know, I'm preparing for this podcast a couple of different articles. 'cause I just wanted to make sure that I could fully articulate exactly what an outlier is because in the, you know, healthcare expenditure side, they , they are really complicated and , um, you know, the formula that underlies them is, is, is pretty complicated. Once you get it, I think, you know, it starts to crystallize. But , um, one of the articles I took a look at was the American Journal of Managed Care , um, had published an article back in, in 2021, and if anybody's listening and you wanna know what article this was, feel free to reach out. Um, but it essentially talks about , um, you know, what, what are outliers? Why do we have them in , in the healthcare , uh, industry in the United States? Um , they said something like in , and , and this is a little bit older 'cause the article was a couple years old, but in 2016 there were 30, 35 0.7 million hospital stays in the US with a rate of 104.2 stays per 1000 population. And that the estimated total cost for those stays was more than $417 billion, which amounted to a mean cost per stay of $11,700. The article gets into sort of what the outliers , um, uh, uh, uh, what outliers kind of occurred within that , um, uh, within that universe. And essentially concludes that, you know, there are folks who stay beyond the length of time that's typically expected , um, and, and contribute to really, you know, high costs in both hospitals and health systems. Um, while the risk associated with those hospital stays, you know, sort of stays the same. And so , um, Medicare and other federal healthcare programs have tried to figure out how to, how to compensate hospitals and , and health systems and providers for those extended stays. Um, and I'll let Peter really get into the nitty gritty and get under the hood, but , um, you know, at the end of the day, it can be a real problem of course, for hospitals to have to , um, deal with outliers and , and try to cover those costs. Um, but it can also create kind of an issue and , and a compounding effect , um, in terms of , um, issues related to, to fraud, waste and abuse.
Speaker 3:Yeah, exactly. I mean, yeah, you walk through those numbers. I mean, the, the I amounts get high pretty quickly. Um, and, you know, Medicare and, and other payers created outliers really on the basis of paying for , uh, you know, particularly in the inpatient setting , um, paying for admissions on a, on a DRG basis. So you've got that, you , you've got that base payment associated with the admission based on the patient's diagnosis code , um, primary diagnosis, primary condition. And, you know, the outlier payment compensates those providers in instances where the costs associated with, with, you know, treating that patient, whether it be from a , you know, exceptionally long length of stay or you know, a, a abnormally high , um, you know, utilization of resources required to, to treat the patient's condition. The, the, the thought behind the, the Medicare outlier payment was to provide compensation to the provider to to account for those, those situations. And so that concept of the DRG payment is, is baked into how Medicare calculates an outlier payment on any given claim. Um, so when, when those of you out there who are , uh, providers submit your claims to the contractor, the contractor processes the claim based on, based on the DRG and all, all of the associated geographic factors associated with your, your, your hospital. Um, and then in, in , for every claim, they, they calculate whether that claim exceeds what's referred to as an outlier threshold based on a, a calculation of, or an estimation, really, of, of the costs associated with providing the care for that admission. And the way Medicare and, and its contractors estimate those costs is by applying the cost , the , the , the hospital specific cost to charge ratio to the hospital to, to that, to the , the charges associated with that claim. Um, and, and that yields a, an estimate of the costs and if those costs , um, exceed the , um, the, the threshold associated with, with that claim. And that threshold equals the DRG payment plus , um, based on as well as a , a fixed loss threshold if , if the , if those estimated costs exceed that threshold, Medicare issues a , an outlier payment. And so , um, you know , it's certainly easier with, with demonstratives and, you know, there's, we could, we could put it on a whiteboard, but essentially those are the broad strokes of, of how the contractors calculate the outlier payment. And, you know, kinda as we, as we continue to go through this, a couple of key things to zero in on, there are, you know , the contractor's use of the cost of cost to charge ratio, that cost to charge ratio is sourced to the hospital's most recently , uh, submitted cost report . And so naturally there's a lag there in terms of, you know, cost reports are submitted 5, 6, 7 months after the end of a , a hospital's fiscal year, then takes the, the contractor a little bit of time to process those cost reports. And so, you know , very quickly the cost to charge ratios, you know, somewhat out of date if, if the hospital's implementing, you know, normal , uh, normal, normal , normal cost to , uh, normal charge increases at, at, at, at the hospital. And so that, that concept of, you know , what charges are set to and how they change over time, and then, you know, how long it takes for those changes to get reflected through the cost reporting process can have significant impacts on, on the outlier payments. And I think as Jackie, as we continue to talk through this, some of the examples we'll walk through are illustrative of that in, you know, just scenarios in which , um, those, those, those lags and, you know, adjustments to charges for, for reasons, you know, maybe specific to outer payments, maybe , you know, completely unrelated have, have triggered government other regulatory focus on, on outer payments.
Speaker 2:Yeah. Yeah. And I think that's really important, Peter, to, to help folks understand in terms of like, what are these, these key levers , um, that sort of would trigger the types of , um, maybe , uh, investigations that, that we've seen or litigation that we've seen. And , um, you know, obviously the, the cost to charge ratio and the charge increases , um, and then sort of this lag in time. So if you're not exercising your diligence , um, you know, there could be other unintended consequences that are happening maybe on the business side, I think we talked about, right, that could, you know, be attributed to, to charge increases. And folks aren't necessarily, you know, considering those , um, on, on the other side of things in terms of, you know, compliance and, and , um, filing false reports and, and understanding what, what's, you know, getting input into the , that formula, which is , um, you know, it is complex and there are a variety of factors that affect it. Um, and they can be compounded over time. So , um, yeah, that's a super helpful explanation, Peter, and I would love for folks to be able to actually see the really amazing chart that you've made for us previously <laugh> because it's so helpful. Um, and , uh, and in a podcast we can't necessarily do that, but I think the , the , the big, the big take home in terms of outliers is, and, and from a, you know, defense perspective specifically is, you know, are you getting paid more than , um, the services that you're being provided? And, you know, it's hard to track it sometimes in the way that outlier payments are paid because of this really complex formula, what goes into it and sort of this time lag. Um, but, but at the end of the day, outliers are supposed to be just that, right? Um, outliers. And so you need to be paid from the government's perspective commensurate with the services that are, that are being provided.
Speaker 3:Yeah, it's, it's interesting. I mean, and you know, probably listeners are all familiar with peppers and different ways of assessing, you know, whether , uh, any given provider is , is , you know, if, if they're billing patterns are potentially aberrant through comparisons to other other providers. But, you know, the outlier payments in, in their, back in when they were originally created back in, you know , the nineties were actually calculated , um, or, or determined on a, on a, on a length of stay basis. And so, you know, the, the, the , the length of stay associated with an admission needed to exceed a certain number of days beyond two standard deviations of the mean associated with that DRG . So a bunch of kind of statistical mumbo jumbo, but point being, what it, what it, what it highlighted was, you know, for a, for a given admission or claim to trigger outlier status, it, it kind of, going back to Malcolm Gladwell's, it truly had to be, you know, very, you know, very to the right hand side of the cur , you know, very far to the right hand side of the curve on, you know, resource utilization or, or length of stay for it to trigger that outlier status. And so, you know, as people think about false claims act, risk, compliance risk, those sorts of things, you know, looking at their volume of outlier claims as well as, as the total dollar in, in an outlier payments is, is something to consider as, you know , you kind of handicap your risk , um, you know , if you're not , um, if you're lucky enough not to have, you know, issues from, or, or those, those regulatory bodies come knocking, or if you are, you know, starting to figure out, you know , what, what, what led to that and, and what, you know, what elements of that formula on a year over year basis, was it year over year charge increases? Was it year over year delays in the cost to charge ratio being updated? You know, what, what got you to the situation where your outlier payments started to look elevated as , uh, you know , in comparison to other providers
Speaker 2:Previously, we've sort of talked about, you know, what's, what's in a , you know, what's the alignment? It's, it's like the perfect, the outlier payment is the perfect storm, essentially of all of these factors coming together and aligning just perfectly , um, so that you get the number that you're supposed to have, and you've gotta have controls in place. And , um, you know, from a compliance perspective, accounting perspective, billing perspective, if your ven , you know, you could have consultants and vendors who are doing the billing for you, and maybe they're not doing the, the billing and , um, necessarily up , up to snuff. And, and that's gonna affect you as well. And we've certainly seen that on the, on the False Claims Act side , um, uh, too. So it's not just, you know, in-house, it's , um, who do you have sort of on the third party side that could be affecting the factors , um, that, that, that go into that formula?
Speaker 3:Yeah, no , that's totally true. And very often, you know, you're the , uh, a provider's charge master management is something that's going to be oriented towards managed care negotiations and, you know, really factors that address other payers. And because Medicare pays on a DRG basis and, you know, the, the , the level of charges outside of outlier payments and a few other niche , um, reimbursement areas doesn't really impact reimbursement. You know , hospitals can get blindsided to some extent by outlier payments because, you know, it's, it's really not something that, you know, operations is gonna be focused on when they're setting the charges, because from an operational standpoint, they may be, you know, and rightfully so super oriented towards, you know , those managed care or, or other payer negotiations.
Speaker 2:Yeah. And it's not, you know, I , we, I I deal with variety of different types of fraud and abuse issues on a regular basis. Um, and it's not, you know, this isn't like a run of the mill medical necessity issue where you could just come in and say, okay, there was a particular surgeon who was , um, you know, doing surgeries that maybe weren't necessary. And how do we kind of drill down on, on that? Um, this is, you know, again, multiple factors that that , um, that go into this formula and then compounded by lags in time over time , um, years, years sometimes. And so it does really require a very close eye. But let's take a second, Peter and talk about what were the cases , um, sort of that , um, you know, precipitated the , you know, or , or sort of show the government's enforcement priorities on this , um, kind of, I guess, I don't wanna say the word back in the day, but <laugh>, maybe fair to some listeners, we can say back in the day , um, I think we're talking like early two thousands , um, where there was a number of really big ticket cases , um, related to outlier payments.
Speaker 3:Yeah, it's , um, there's cer it was a little bit back in the day, which age me a little bit . I, I , um, actually was working, you know, at a time when I became pretty familiar with these, you know, the , the , the, probably the still the sort of the granddaddy of the mall is, is, you know, back to the early two thousands and the 2006, I believe that settlement was in 2006 with tenant healthcare, you know, which really initiated a , a lot of focus on outlier payments. And , um, you know, it was, you know, it , it addressed multiple hospitals and, and, you know, for folks listening, if you're not familiar with it , um, I highly recommend doing some Googling of it because it's really interesting how, you know, tenet at the time and, and still is publicly traded, and how stock analysts used Medicare cost report and other data to figure out how revenues were increasing. And, and they traced that back to , uh, year over year increases in Medicare outlier payments, which, you know, as that information came out, you can actually track the stock price and you can see when, when things really changed. And, you know, with, with that, and , uh, with, with that, you know, public , you know, with that, with that becoming public, it obviously attracted some government scrutiny and, you know, digging into, you know, some of the core issues which then permeate through a, a number of other publicly, you know, disclosed outlier payment issues involving, you know, what are the appropriate increases that a hospital can, can affect on charges on a year over year basis. What does, you know, what, what do, or what does rather Medicare guidance refer to when it says costs or charges rather need to be reasonable relative to costs? Um, and, and you know, how do those, you know, if a Medicare contractor is delayed in updating a cost to charge ratio, you know , where's the liability fall? Um, you know, those were, those were some of the core, you know, kind of issues that, that were, that were, you know, addressed as part of, as part of that and, and, and, you know, are set the table for a number of other investigations, settlements and, and, and other activity related to outlier payments you , and, and that, you know, from a, from an industry standpoint, that that tenant case really, you know, also set a lot of ground rules going forward because the outlier payments were part of the corporate integrity agreement. And, and coming out of that, you know, there were some sort of guardrails, if you will put around contractors in terms of forcing some, some reconciliations when cost to charge ratio change by, you know , more than a , a certain percentage from, from year to year, or if outlier payments , um, you know, in , in , in an absolute sense, you know, out of our , in a absolute ba on an absolute dollar basis change more from one year to the other. So, you know, that that case then, you know , then you can continue to Google, there's a Methodist case, there's all the way up until, you know, the, the more recent time period where there's some different variations of outlier payment issues. But it's, it's really, you know, you can learn a lot from kind of digging into and, and, and googling and, and reading about that, that tenant case getting, you know, the CIA or at least for i , I believe it's still publicly available reading through the ccia a there's a lot to learn in terms of, you know, kinda where the Medicare formulas, how the Medicare formulas work and, and where some of the, the vulnerabilities are in, in that formula by, by reading through, you know, the specifics with, with the tenant matter.
Speaker 2:And I, I'm not sure if you actually mentioned the settlement amount, Peter, for the tenant matter, but , um, it was not small for our listeners, it was $900 million in 2006 specific to that particular settlement. I think 788 million of which dealt with the actual outlier payment issue. And I, I don't remember like how mu how long of a time period did that span? I mean, those , they must have been getting like pretty significant outlier payments on a , on a , for a number of years. Yeah,
Speaker 3:I I, I, it was, I'm going off a little bit on memory here, but it was, it was a five, six year period and, you know, they had 40, 50 hospitals. And so now , yeah, it, it , it adds up to , um, you know, real, real money even in 2020 $4 <laugh> . So , um, yeah, it's, it's something where , uh, you know, even in today's, you know, today's day and age, you know, 20 over the last few years, I mean, Medicare is making upwards of $5 billion in outlier payments every year. Um, and, you know , just if you're listening at home and wondering, you know, how many hospitals are receiving meaningful outlier dollars, you know, it's , it's actually quite a, quite a few. We've got , um, across the industry, probably upwards of a thousand hospitals receiving more than $1 million in outlier payments every year. So, you know, the, the Kim , as we discussed the, the fact that, you know, charge increases and you know, what's going on in the charge master can influence outlier payments, how, you know, there's formulaic sort of , uh, nuances. And then how those, how those kind of become , um, relevant on a, on a year over year basis contributes to the fact that, you know, an outlier payment issue can, a, becomes systemic because it impacts every claim. And then b, you know , take a few years for, for a, you know , diligent compliance group to, to figure it out or, or a smart relator. And, and by that point, you know, it , it , you know , as illustrated in that tenant matter, it starts to add up to, to really significant dollars.
Speaker 2:Yeah. And just to be totally clear, and I I am not sure if we were completely clear about this, but like these, I mean, these matters are generally proceeding under the False Claims Act, right? So we could have a whistleblower who comes in and identifies this issue who could be , um, you know, somebody internal, but also somebody external , um, you know, a consultant or, or something like that. Um, so certainly something to keep in mind. Um, and, and again, under the False Claims Act , um, you can have trouble damages and statutory penalties per claim. So when we're talking like a $900 million settlement and 788 of which was , um, related to the outlier payments , um, you know, that's, that's a number, that's likely some multiple of whatever , um, amount was actually reimbursed on the outlier payments. Uh, and , and probably some statutory penalties thrown in there as well. And, and those, you know, today, in today's age are somewhere close to maxing out around 30 K per claim. So, like Peter just said, if it's systemic and you don't figure it out sooner than later, I mean, you could have many, many claims adding up over many, many years. Um, and, you know, under the False Claims Act generally, I think the classic theory relates to, to , um, reverse false claims. That is, are you getting these overpayments that you're not otherwise identifying and , and paying back in a timely fashion? And , um, of course, you know, there's a variety of different elements to the False Claims Act, including, you know, materiality and falsity and ter and causation. But , um, at the end of the day, if you've got an overpayment that you're retaining and you know, you're not exercising appropriate diligence to understand why those are being paid , um, that , you know , there could be a settlement there, there , there could be a case there, there could be a whistleblower.
Speaker 3:Yeah. Yeah, you're totally right. Yeah. I mean, and that's why, yeah, a , a a , I forget what the saying is, a pound of diligence or, you know, an inch of diligence is worth something in , in , you know, something later on. But in any event, you know , knowing where your outlier payments are, looking at your pepper , um, you know, just doing those kind of compliance blocking and tackling activities can, can really, you know, pay dividends , um, in avoidance. But if you find yourself sort of dealing with an outlier payment issue, and I , I , and I think, you know, we'll probably talk about some of these more recent matters, but, you know, thinking about ways of, of fleshing out potential outliers , um, or, or problematic scenarios is really valuable because, you know, the government's theories on these have evolved over time and, you know, different, different charge increasing and, you know, other payer, you know, Medicaid pays some outlier payments. And so, you know, it's, it's, it's, it's, it's resulted in, you know, outlier payment issues continuing even up until, you know, more recent time periods , um, sparking, sparking government government activity.
Speaker 2:Yeah, let's, let's talk about that for a minute. 'cause there was a particular matter I think that settled somewhere, I think late 2022 , um, the, the St . Vincent Hospital case, which I believe was owned by, by tenant as well , um, and dealt with a number of , um, outlier payment issues. But what was interesting in that case, I felt like , um, was that, you know, they had these sort of incremental , um, costs or , uh, incremental changes to their charges over time . So in , uh, may of 2017, they had increased all charges in their hospital's charge master for inpatient services by 15%. And then in April, 2018, they increased all charges for inpatient services by 18%. And then in October of 2018, they did another 18%. And at some point that amounted to , um, receipt of , uh, outlier payments that , um, you know, in , in the government's eyes were not warranted. And so where , how do we get there and, you know, where is that threshold, Peter, and, and how can hospitals , um, sort of figure out where that line is? You know, what are, I think one of the biggest questions here is, you know, what is a reasonable , um, charge increase? I , is there a definition of that? And I think both of us are pretty well <laugh> well aware that there isn't a specific threshold or a specific , um, line in the sand. And, you know, hospitals have to operate too. Hospitals are also, you know, businesses. And I think even in specifically in today's age , um, you know, we have a lot of , um, you know, hospitals that , um, you know , have tight, you know , tight budgets and tight costs today. And so where do we see , um, you know, increasing those charges when necessary versus ones that might meet thresholds or , or exceed thresholds to , to trigger those outlier payments that would otherwise, you know, be unwarranted.
Speaker 3:Yeah, yeah. And just also to note, so all of those, everything you lifted was correct, though it , it is sourced to, for those following along at home too. You can, you can Google that as well. It's all coming from the, the DOJ settlement agreement that's out on, on the web. So all those, all those factors are publicly , um, publicly available. But yeah, Jackie , to your point, it's, I I think, you know, on, on all of these outlier matters, you know, especially those that hinge on, you know, year over year charge increases that, that result in a cost to charge ratio being a , you know , essentially an outdated cost to charge ratio being applied to claims that have, you know, where the charges have increased substantially since that cost to charge ratio was set. It , it , it, it begs the question of, you know, okay, well what, what charge increase is acceptable? And, you know, what does Medicare mean when the, the regulatory and subregulatory guidance instructs providers that your charges should be, you know, reasonably related to, to costs ? Um, you know , every, every provider's got a different cost structure. Costs are not evenly distributed across, you know, services within a hospital. Some, you know, big systems are gonna be able to negotiate better costs in certain areas than not others, as opposed to, you know, smaller single hospitals may, you know, not have that type of, of negotiating power. So leaves a lot of subjectivity in , um, it , it leaves a lot, it leaves a lot of subjectivity in, you know , how a, how a system goes about even just setting their charges, not to mention, you know, year over year increases to react to, you know, what payers are doing, or, you know, how networks are changing and, you know, the different types of dynamics. And so I think that's one of the big challenges in, you know, addressing some of these outlier investigations is that, you know , a lot of times, and, and I don't know what the specifics were on, on the tenant , but I, you know, I think when, when hospitals, I, I am familiar with hospitals who are implementing those types of, of, you know, double digit charge increases on a year over year basis. And oftentimes it's, it's because, you know, they're reacting to other payers or they're reacting to market dynamics or, you know , they want to , you know , kind of goes back to the, you know, the, the, the motto that no money, no mission, right? They've gotta make a little, they've got , they've gotta make a margin and they've gotta be able to continue to employ people. So they're, they're pulling the levers that they can pull. Um, oftentimes, you know, I , I know we've hit on this point a few times, but you know, o often with, with the unintended consequence that that outlier payments will go up. And so that's where, you know, I, I do think, you know, how you address those, especially once it gets to a false Claims Act investigation stage , um, you know , is is is complicated because you've really gotta kinda re you know, reset what, what the thought process was leading up to , um, you know, when those charge increases were implemented.
Speaker 2:Yeah. What is , um, you know, I think one thing I I wanna make sure we touch on is , um, the issue related to kind of the reconciliation and how , um, that's impacted , uh, outlier payments that have been paid. It's especially in, in recent years. I don't know, Peter, if you can kind of give us a little bit of understanding of what's happened in the, in the last decade or so related to that, and then I'll , I can kind of comment on, you know , what that looks like from a defense perspective.
Speaker 3:Yeah, sure. I mean, especially coming out of the, the , the tenant matter in the early two thousands , um, you know, contractors were instructed to , um, you know, so Meridian and , and the, like, were instructed to perform what's called outlier payment reconciliation when they, when they process cost reports. And what that meant was if a hospital submitted a cost report and the cost to charge ratio on that cost report changed by more than 10 percentage points from, from the prior cost to charge ratio or the prior cost report, then, then that was supposed to be a flag to the, to the Mac to, you know, take a closer look at that hospital, potentially adjudicate claims using a different cost to charge ratio in order to avoid that, that lag, right? You know , instead of applying a 0.5 , you know, 0.5 cost to charge ratio to a , a cost structure that's changed by 15%, or , you know , they would , they would apply a more contemporaneous percentage. Well, what, what OIG, and this was a , a November, 2019 report issued by OIG. What they, what they found was that contractors were, you know, slipping, slipping up. They weren't, they weren't always performing that reconciliation and, and, and adjudicating claims according to the, the regulatory and subregulatory guidance. And as a result over in, in OIGs view, overpaying out outlier payments. And, you know , I, I think it's, it's a good sort of reminder that, you know, just like how the, how Medicare and its contractors have other, you know, clean claim requirements and, you know, should be , um, you know, bumping claims up against the common working file and that sort of thing. You know, you can't, as a provider necessarily rely on those sort of, you know, systemic what should be a safeguard on, on the claim adjudication side to catch some of these things.
Speaker 2:Yeah. Yeah. And I think , um, well , yeah, surprise, surprise, the Maxs aren't necessarily calculating <laugh> or , um, uh, staying up , up to date on, on certain things, but , um, not a , not a total knock there. Um, so I, I think from a false Claims Act perspective, that's really important because, you know, there's arguments that can be made related to materiality, for example. Um, so if you're a provider and you say, well, you know, they've, I've been audited numerous times and they're still paying the claims, or , um, you know, we've, we've , um, CMS has known about this for 10 years and, and they're still paying the claims. Um, there is a, there is a line at which it becomes a question of whether , um, you know, it really matters to , um, to, to, to the Mac or to CMS or whatever , um, that you know, what you're doing. Um, it really matters to, to actually the payment of the claim. But to lean on , um, the Mac to say, well, they're , it's their responsibility to reconcile this, and they would tell me if I wasn't really entitled to this outlier payment , um, is, is not necessarily going to , um, move the needle as much as one might think from a false claims act perspective. I think , um, you know, it's still an overpayment. So how do we, how do we move out of the overpayment , um, uh, uh, line and we can say it's, you know , in, in many cases, it's a mitigating factor if, if they didn't catch something over a number of years and, and yeah , ma'am, you maybe if it was 10 years, it's not material at all. Um, I don't know where that, where that line is, but it certainly puts you sort of on the back of your heels at at that point.
Speaker 3:Yeah, that, that makes sense. So kind of in, in other words, yeah , kind of, it , it's not as if, you know, it's as , I forget what , what cases that we're , but essentially, you know, it's, it's not the same as saying, you know , Medicare processed the claim with everything, you know , with full knowledge. It's, it's kind of buried deeper into the, you know, the, the guts of the adjudication process and, and not something that'll necessarily alleviate any, any , um, you know , any, any overpayment or, or repayment concerns for, I guess for either the enforcement or the provider. Is that, is that fair to say?
Speaker 2:I , I think probably, I mean, as a , as a defense attorney <laugh> who's dealt with this issue before, I would say I would, I'll always make that argument , um, and , and I'll stand by that argument for my client in terms of materiality. But, but yeah, I mean, it's, it's really hard , um, especially with, with, you know, reports out there from OIG saying that the Macs aren't actually collecting on this or aren't actually, you know, reconciling in the way that they should be. And, and there's, I think, bi billions of dollars that they're not recovering necessarily. So , um, yeah, that's, it's kind of a , a hard line to draw.
Speaker 3:Yeah. Yeah. Once you get over half a billion, it starts <laugh> it to get a little , a little hard to ignore, I guess. Huh?
Speaker 2:It is a lot of government dollars. Um, absolutely. So , uh, and yeah, I mean, I think, I think that sort of brings us to, to sort of, you know, the last points that we wanted to cover, right, Peter, which was sort of, you know , what do we, how do we deal with this , um, you know, from a, from a defense perspective, from a focus on the , um, from the government and fraud and investigation , uh, a fraud and abuse investigation, and , um, what does that look like? You know, we've had the pleasure to work together , um, previously, and I think both of us have dealt with this issue, of course, but, you know, what are the areas of focus? What are kind of the , um, uh, yeah, what are the areas of focus, I guess, that, that we would need to help our, our clients or, or whoever we're dealing with or talking to , um, think about and, and maybe not have to deal with this in the future?
Speaker 3:Yeah, yeah. No, I mean, I think, I think, you know, we've worked together on, on, on one of these and, and in my other experiences, I mean, I think especially at the onset, just getting all of the facts right and realizing that it, it touches a lot of different parts of the organization, right ? It's not like a medical necessity review, right? Where you're just dealing with maybe, you know, an LPD here or, you know , or admission requirements there, you know, you're talking charge master , you know, who, who was doing what with the charge master , uh, then cost reporting, okay. You know, which is more often than not, you know, not the same type of people who are gonna be involved in the charge master , um, you know, and then, and then, you know, claim, claim processing. And so you , you've got, you know, sort of, you've gotta start gathering, you know, facts and who knew what, and, and, you know, and just going back to the kind of the outlier payment formula, you know , what were the key inputs? How did they change over time? And it's not necessarily gonna be, you know, one stop shopping in terms of, of identifying, you know, the , the people who, who have that, that, that background and, and, and that information. So , um, yeah, I'm curious what your thoughts are just kind of on the discovery standpoint, but I, yeah, I think, you know, just from a nuts and bolts perspective of figuring, you know, starting to figure out why , um, you know, the government might come knocking on your door, those are the, I , you know, I think the immediate things to start thinking about in terms of, of , um, uh, uh, uh, uh, or , or the , the immediate facts to start gathering in order to, you know, being able to answer questions.
Speaker 2:Yeah, it's, I , I think that the investigation itself is almost, you know, as complicated if not more complicated than the formula itself <laugh> , um, and, and trying to sort of balance all of the different inputs, right? Um, and when you have, you know, the , there could be some sort of acquisition that occurred or a change , um, a change in vendors or the COVID-19 pandemic, and how did that affect things? I mean, I think , um, you know, that really threw a wrench into things in terms of cost reporting itself and delays there, right? So we're now in 2024, and the pandemic ended, my gosh, Peter, was it last year, last April, or am I, am I already over, I think , or was it 2022? I think I've just been in a time warp. Um, but the pandemic has ended, and so cost reports I think, are back on track in terms of regular, you know, filing and everything by this point. But there was a delay , um, back, I think in 2020 and 2021, possibly into 2022. So that also can affect things , um, and, and, and compound , um, what might otherwise be a , a pretty simple , uh, a simple issue into something that is , uh, uh, just a huge web, a huge, huge web to untangle. Um, and so really drilling down in, you know , who were the key players , um, what were the, what were the types of services that were being rendered that charges were increased for, or were charges increased across the board? What were, you know, what were really, were the reasonable charge increases? Um, and how do we, how do we drill down on that? Who was involved? What did they know , um, from a entra perspective? Um, and, you know, did the charge increases actually , uh, was , was there some kind of causation measure there? So lots of different types of things to think about. Um, if you are dealing with this in an investigation , um, if you receive a CID related to outlier payments , um, you know, there's gonna be a lot of materials to gather and sift through, and certainly an expert is extremely , uh, well suited to assist with that because it is so complex and the numbers are , um, you know, they , they can really , um, uh, uh, balloon very quickly. So it's something to, to really get your arms wrapped around and as, as, as soon as possible. Um, but I think, you know, in terms of , um, I guess we can kind of wrap up with sort of like some key takeaways, I guess, and, and maybe some compliance considerations that we haven't already discussed. But, you know, what are the internal controls that you have today, right? Are you conducting audits , um, you know, who is doing the cost reporting? Who is , um, who has control of the charge master ? Uh, you know, this differs in terms of whether you are one hospital or you are a multi-hospital system , um, or you are, you know, a conglomerate that has many, many hospitals across many, many states. Um, so having those internal controls is, is very important , um, regardless really of of size and complexity. Um, are you benchmarking your charges sort of in comparison to their similarly situated hospitals? I think, you know, we sort of touched on that earlier, right, Peter , um, you know , what are, are you, you know, in receiving your outlier payments, are you an outlier, <laugh> ? Are , are , are you really , um, are you really an outlier in comparison to some of your peers? And I think the government will look at that and they're really leveraging, they're leveraging the data internally. And, and that's very clear. Um, and then, you know, this is an easy one, but, you know, do you have confident folks, do you have confident folks that you're confident are really completing , um, those internal reports and , um, billing and, and and whatnot? Um, either you know, as a vendor or consultant or, or internally , um, are, are you confident in their, in their skills and, and that they're doing it accurately?
Speaker 3:Yeah, I totally agree with all of that. And I think, you know, on the compliance part too , you mentioned benchmarking and comparison to comparing to peers. I think I'd also , I'd just add to that, you know, looking at year over year changes and sort of going beyond pepper, right? You know, looking at, you know, are there, are there specific DRGs, are there specific types of claims where the hospital's getting increased outliers relative to their base or to their peers? Um, you know, that's something, you know , we, we talked about some of these more recent cases, but that, that's something that's, that's popped up, right? Where, you know, it's, it's, it's a specific, you know, a handful of DRGs where the, the outlier payments are being triggered because of more targeted charge increases or, you know, things like NICU, Medicaid , um, cases where, you know , state by state they've got very different outlier payment formulas and, and, you know, application of cross the bar for charge increases or targeted charge increases can influence that. And so, you know, thinking about, and, and starting with the perspective of, you know, what, what are the government payments, what is the distribution of them and where are they coming from? I, I think is , you know, a, a , a good approach to proactively addressing the compliance concerns associated with outlier payments.
Speaker 2:Yeah, it is, it is surely a very complex issue, I think, right? Um, and we, we both are very well, well aware of that, well , very well versed in it, I think by this point. Um, it's a really interesting issue. I don't think that it's going away. It's been around for quite some time. We've seen activity related to ally or payments , um, as recently as, you know, the last couple of years. So , um, it's something to, to be on the lookout for and , and be aware of , um, of course. So , um, yeah, I, I don't know. This has been super fun, Peter. I, I love doing podcasts with Peter Dressel . Um, so I glad that we could do this and , um, you know, it's, it's always a pleasure to, to hang with you.
Speaker 3:Yeah, likewise, Jackie . I , um, I have never done a podcast, so hopefully there's some listeners out there who got here to the end with us <laugh> and , uh, enjoyed it as much as enjoyed it as much as anybody can enjoy a , a , you know, outlier payment conversation. So
Speaker 2:I was channeling , uh, for , for anybody who will get this reference, Selena Gomez from Murders in the Building, which is like one of my favorite, favorite shows these days. And I think very star study cast as well. But , um, yeah, I don't know, we'll see , uh, if podcasts are, you know, the future for, for Peter and Jackie, but in the meantime, we'll, we'll stick to our day jobs, right? <laugh>
Speaker 3:That that's right. For now, at least. Yes,
Speaker 2:<laugh> . Awesome. Well , um, to all of our listeners , uh, of course, if you have any questions related to outlier payments , uh, or , or the, like, please don't hesitate to reach out. Always happy to answer questions related to whatever we discuss today or , or , or otherwise. So thank you so much for listening.
Speaker 3:Yeah, thank you.
Speaker 1:Thank you for listening. If you enjoy this episode, be sure to subscribe to a HLA speaking of health law wherever you get your podcasts. To learn more about a HLA and the educational resources available to the health law community, visit American health law.org.