Provider Strategy

A Scary New Trend: Six-Year Lookback Audits

Understanding another 'new normal' for HMEs from HHS OIG.

The Office of Inspector General (OIG) regularly performs audits and reviews as part of its normal functions. In June 2018, it released a scathing report entitled, “Most Medicare Claims for Replacement Positive Airway Pressure Device Supplies Did Not Comply With Medicare Requirements.” The report reviewed a sample of 110 claims out of a universe of over 7.2 million claims and found that 86 of them did not meet Medicare requirements. Those 86 claims accounted for $13,414, but when extrapolated to the universe of claims, the OIG estimated that the Centers for Medicare and Medicaid Services (CMS) overpaid approximately $631.3 million.

Now, many have been critical of the OIG report and its findings because they reviewed old claims, the sample size was incorrect, and many disagreed with the findings in the denials. All of that is beside the point. The most important issue to come out of this review was in the recommendations that the OIG made.

The recommendations started fairly consistent with what we have seen the OIG recommend in the past: It instructed contractors to recover the portion of the overpayments of $13,414 associated with the 86 sample claims that are within the four-year reopening period. It suggested that CMS work with contractors to establish periodic reviews of PAP supply claims. The OIG also suggested CMS take remedial action for suppliers found to consistently bill claims not meeting requirements. This is a reference to CMS’s authority under the Affordable Care Act to revoke the billing privileges of suppliers that show a “pattern or practice” of billing for services not meeting Medicare requirements.

It was the OIG’s last recommendation that started a process that took the industry by surprise and indicated the OIG’s future strategy: The recommendation stated, “Instruct the Medicare contractors to notify the 82 suppliers associated with the 86 denied claims to exercise reasonable due diligence to investigate and return any identified overpayments, in accordance with the 60-day rule, and to identify and track any returned overpayments as having been made in accordance with this recommendation.” So what does this mean?

60 Day Rule

To dissect the recommendation, let’s start with the phrase, “…exercise reasonable due diligence to investigate and return any identified overpayments, in accordance with the 60-day rule.” The 60-day rule refers to Affordable Care Act requirements that suppliers refund an overpayment within 60 days of the date it is identified. I think most would find this provision to be reasonable. However, another part of the 60-day rule includes a “lookback period” of six years. The rule essentially says that for a supplier to exercise reasonable due diligence, it must go back six years from the time the overpayment was identified to look for other overpaid claims.

That is when letters from the contractors started arriving at 82 suppliers (PTANs) stating, “As required by 42 CFR 401.305 a provider/supplier who has received an overpayment must report and return the overpayment within 60 days after having identified the overpayment...This requirement applies to overpayments identified within six years of the date the overpayment was received.” The letter went on to instruct suppliers to perform their own self-assessment to determine if an overpayment exists. The instructions included:

“With regards to the documentation, please provide a written description of: A) how each self-assessment was conducted; B) the universe, sample size and service dates of the claims identified and reviewed in the self-assessments; C) the statistically valid sampling and extrapolation methodology used to identify the universe and sample; and D) if extrapolation/sampling was not used, details of how you completed the self-assessment, including a statement that you individually reviewed the entire universe of those claims if identified for review, if applicable.”

In layman’s terms, suppliers either have to review every claim they have submitted for PAP supplies for the previous six years, or they must identify the universe of claims by taking a statistically valid random sample and extrapolating the results of the audit once the sample has been reviewed. They are asking suppliers to do something that requires the high-level skills and knowledge of an expert statistician. Now, The van Halem Group employs a statistician because we are auditors and this is a normal course of our business. It is not a normal course of business for most DME suppliers and as far as I know, this is the first time that contractors have told suppliers to do this themselves.

Why is this important

The first and most glaring concern about this new trend is what happens down the road if the government decides that the supplier did not exercise reasonable due diligence. Perhaps, the supplier responded, but didn’t look at all the claims, or didn’t pull a sample and extrapolate an overpayment correctly. What if they decided a claim should have been paid but the government disagrees. What the law states, specifically Section 6402 of the Affordable Care Act, is that if suppliers fail to comply with the 60-day rule, it may result in Civil Monetary Penalties under the False Claims Act (FCA). FCA violations often carry significant penalties and can also result in the revocation of one’s billing privileges or even being excluded from Medicare participation. The stakes are high and without any history to guide what actions the government might take, it is tough to determine the best course.

The safest course, and one that I believe most suppliers who received these letters are taking, is to perform the six-year lookback. It is very important though to engage legal counsel in this process because of the potential implications down the road of FCA violations. You want to make sure the audit performed is covered under attorney-client privilege. If you engage a third-party to perform the audit, make sure that it is engaged through your attorney for additional protections.

I expect that we will see this language in most, if not all, OIG reports. OIG is regularly performing audits, and review across all lines of business and DMEPOS claims is a prevalent topic. A December 2018 report on one supplier found that 11 out of 100 claims didn’t meet Medicare requirements. It recommended, “exercise reasonable diligence to identify and return any additional similar overpayments outside of our audit period, in accordance with the 60-day rule.”

Sadly, I think this is our new normal. It is a slippery slope when you think of all the overpayments that contractors initiate regularly. I’m not sure that was the intent of the six-year lookback rule and I think the way it is being used is a disincentive to suppliers to be proactive, but as an industry, I believe we will be hearing much more about this in coming months and years.

This article originally appeared in the June 2019 issue of HME Business.

About the Author

Wayne H. van Halem, CFE, AHFI is President of The van Halem Group LLC (Atlanta, Ga.), a business unit of VGM Group that helps providers navigate complex issues related to Medicare and Medicaid audits, appeals and compliance.

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