Like any DME retailer, pharmacies serving Medicare funded
patients run the risk of getting audited for Medicare claims. Unfortunately,
many pharmacies, especially those just starting to add DME
products and services to their mix, aren’t familiar with DME requirements
and find themselves ill-prepared for when — not if — the auditors come
calling. Remember, an audit doesn’t mean you did something wrong.
Audits can happen simply because you’ve had an increase in your
volume or because you’ve had audits in the past that you didn’t pass.

“Pharmacies are allowed to bill for the DME they dispense but they
aren’t very good at keeping up with their DME requirements,” says Mary
Ellen Conway, RN, BSN, President, Capital Healthcare Group, LLC. “They’re
very good at keeping up with pharmacy requirements because they
have a lot of patients using drugs, but when it comes to DME, they tend to
not pay attention because they think it won’t be them getting audited.”

Part of the reason behind that, says Conway, is for most pharmacies,
DME is a small percentage of their business. “They live in the world of
pharmacy with a little bit of DME,” she says.

But by not responding appropriately to an audit, a pharmacy can be
faced with an overpayment demand letter for millions of dollars or even
criminal allegations. An appropriate response from the pharmacy, says
Conway, can stop auditors from drastic actions and let the pharmacy
get back to the business of taking care of patients.

Audits Today

Before discussing how pharmacies can minimize audit exposure, it’s
important to understand how audits are affecting the HME and pharmacy
industries today.

“The Medicare program is administered through ‘contractors,’ which
are private companies that contract with Medicare,” says Jeffrey S.
Baird, Esq., Chairman of the Health Care Group, Brown & Fortunato, P.C.
“Over the last 10 years, contractors have become increasingly aggressive
in conducting post-payment audits and prepayment reviews of
HME suppliers. The contractors are incentivized by Medicare to collect
as much money as possible. HME suppliers are being bombarded with
audit requests and have to allocate an increasing amount of resources
to respond to the audit requests.”

Furthermore, getting a recoupment is only part of the problem.
Recoupments are often up for debate, either because they are
based on a technicality or flawed interpretation of guidelines from
the jurisdictions on the part of the audit contractors. Medicare audits have an appeals process, and it turns out that a high percentage of
these recoupments are overturned through appeal. So the onus is on
providers to prepare just as much for appeals as they do for the audits.

“If a contractor concludes that a supplier should not have been paid
on a number of claims, then the contractor will recoup against future
payments to the supplier,” Baird explains. “The supplier can appeal a
recoupment demand and can forestall offsets (against future payments
from the contractors) during the early appeal stages. However, when
the appeal makes it to the Administrative Law Judge stage, the
contractor can offset pending the ALJ decision. Unfortunately, because
of the backlog of appeals, it will take several years before an appeal
makes it before an ALJ.

“This audit phenomenon is resulting in two outcomes: HME suppliers
are closing their doors and those suppliers that stay in business are
increasingly providing products to Medicare beneficiaries on a nonassigned
basis,” he adds. “This means that the beneficiary must pay the
supplier up front and then the supplier will submit a claim to Medicare
that asks Medicare to reimburse the beneficiary.”

To date, pharmacies are not being overburdened by audits by Medicare
Part D Plans or by state Medicaid programs, Baird adds. However,
pharmacies are being hit with increasingly aggressive audits by pharmacy benefits managers (PBMs). And this on top of the possibility of
DME Medicare Part B audits can be burdensome.

“If a PBM is dissatisfied with the results of an audit, then not only will
it demand recoupment but even more ominously, the PBM will kick the
pharmacy off the PBM’s provider panel,” Baird says. “In conducting
audits, PBMs are looking to see if the pharmacy’s documentation
supports the claim. Additionally, the PBM is attempting to determine
if the pharmacy is engaging in inordinate (in the eyes of the PBM)
compounding and/or delivering prescriptions via mail order. The
reason that PBMs are focusing on compounding is because they got
burned over the past three years by paying large amounts of money for
compounded pain and scar creams. The reason that PBMs are focusing
on mail-order is because they do not want pharmacies competing with
the PBMs’ own mail-order pharmacies.”

Audit Types and Goals

There are numerous DME auditors and their goals vary. According to
Baird, the two primary types of audits are prepayment reviews and
post-payment audits. With a prepayment review, the supplier submits
its claim for payment. However, the contractor will not pay the claim
until the HME supplier submits documentation justifying the claim. With
a post-payment audit, the contractor pays the claim but subsequently
asks the supplier to submit documentation that justifies the claim. If
the supplier’s documentation does not satisfy the contractor, then the
contractor will recoup the amount previously paid. Audits by DME MACs
and RACs focus on whether the claim meets medical necessity requirements.
Audits by ZPICs focus on whether the HME supplier has been
committing fraud in submitting claims.

“DME MACs are making sure that the services are reasonable and
necessary and billed in accordance with medical necessity and technical
requirements,” says Wayne H. van Halem, CFE, AHFI, president and
founder of audit consulting firm The van Halem Group, now a division
of VGM Group. “RACs are looking for improper payments, whether they are overpayments or underpayments. This could be medical necessity
or based upon technical requirements. ZPICs and UPICs are looking to
identify and prevent fraud, waste, and abuse, so they are a little more
provider specific, where the other ones are looking at patterns or trends
with specific procedure codes.

“DME MACs can do prepayment or post-payment but an overwhelming
majority right now are prepayment. ZPICs and UPICs can
do both as well and often times will do both at the same time. RACs
are currently only post-payment. All of them focus on all different and
unique things. RACs and DME MACs focus mostly on codes with high
error rates. ZPICs and UPICs focus mostly on providers with aberrant
billing practices.”

Remember, the False Claims Act makes it a federal crime for anyone
knowingly presenting or causing to be presented a false claim for
payment of approval. The penalties for violating this Act can be severe,
including civil monetary penalties. The penalty for violating the False
claims Act is $11,000 per violation and/or there times the amount of the
falsely claimed charges. Each line on a submitted claim can be considered
a violation.

Preparing for Audits

Because they can be new to selling Medicare reimbursable items, there
can often be a disconnect with pharmacies when it comes to audits, so
the best first step is to look at the Local Coverage Determination (LCD)
criteria, located on the cms.gov website, says Sandra Canally, president
and founder of deemed Medicare accrediting organization The Compliance
Team. The LCD spells out what the pharmacy needs to have in
order to meet the requirement to bill.

Another important point is that certain reimbursable products, such
as orthotics, prosthetics and diabetic shoes, may require a license or a
specific certification, depending on the state. An auditor that visits will
look for specific training for required products in the form of a license
or certification. An auditor wants to know if the pharmacy employee is
competent to actually measure a patient for a fitted product.

Conway says the best way to respond to auditors is to read their
requests carefully, as they will tell DME suppliers exactly what they want. A document request letter will provide general information on the type
of documents to submit, such as:

• Patient medical records
• Supplier records
• Detailed written order
• Dispensing order
• Certificate of medical necessity (CMN)
• Delivery tickets

“If the letter says that they want XYZ then you respond in the order that
they’re asking you for it,” she says. “So if the patients are numbered one
through 15 or one through 100, whatever the numbers are, you respond
in that order. You put them in the order because you want to make it as
straight forward as possible when the auditors receive your response.
There are people who think that if they send the auditors a mess, that the
process takes the auditors a long time to audit and the DME provider will
do better, and that is not true. If you send everything back organized and
in a specific manner, it makes their job easier to go through things and
that’s what you want. Because the last thing you want is for it to be such a
mess that they decide that they’re not even going to look at it.”

Conway says some of the common audit issues encountered by DME
suppliers include:

• Insufficient physician documentation
• No objective measurements on face-to-face mobility evaluations
• Refill requests
• Required elements on forms
• Signature dates
• Incorrect diagnosis codes
• Invalid proof of delivery
• Re-evaluation requirement (must be followed up)

According to van Halem, compliance programs with appropriate
internal controls are the best way to manage through the process.

“Pharmacies should have an upfront QA process to check claims
before they get sent, but also a compliance program that includes
several elements, such as quarterly auditing, education and training,
and communication,” he says. “Compliance programs are designed to
protect suppliers. As the government considers it, it is their responsibility
to protect the Trust Fund, but entities that bill the government share in
that responsibility in making sure that the claims they submit are accurate.
The ACA has made it mandatory that entities billing the government
for reimbursement have a compliance program that includes
each of the elements we described.”

Finally, Conway suggests that DME suppliers should always keep the
following in mind as apart of everyday business:

• Proactively audit your files now
• Know various audit types and their objectives
• Learn how to respond to audits
• Examine documentation and its importance in audits
• Evaluate appeal process to overturn negative responses
• Set audit goals and measures for accountability

“There is an old television commercial in which an auto mechanic
looks into the television screen and says, ‘You can pay me now or you
can pay me later,’ Baird says. “The crux of the ad was that ‘an ounce
of prevention is worth more than a pound of cure.’ It does the HME
supplier/pharmacy no good to sell a ton of products only to have the
payments ‘clawed back’ pursuant to post-payment audits. It is important
for the supplier/pharmacy to know what is expected of them up
front so that they can feel confident that they will be able to keep the
money they have been paid.”