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The Department of Health and Human Services Office of Inspector General (“OIG”) recently announced that it would conduct a detailed review of the use of surety bonds by the Centers for Medicare & Medicaid Services (“CMS”) in regard to suppliers of durable medical equipment (“DME”).

Medicare-enrolled DME suppliers are required to maintain a surety bond against which CMS and its contractors can make claims and collect alleged Medicare overpayments. The required amount for the posted surety bond is generally $50,000 for each NPI the supplier maintains, but can be increased in certain circumstances. In theory, the bond provides a ready pool of funds from which CMS can collect overpayments without having to rely on recouping Medicare payments or forcing the supplier to pay the debt.

OIG asserts that it has long-raised concerns about fraudulent practices among DME suppliers and has reported that CMS underutilized surety bonds as a tool to protect Medicare from overpayments to DME suppliers. For example, OIG cites that CMS recovered only $263,000 from surety bonds of $50 million in overpayments identified for collection between October 2009 and April 2011. It is unclear why OIG is citing such out-of-date data or whether more recent data is available.

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Congress recently passed another limited extension of certain flexibilities relating to Medicare coverage of telemedicine. While the current extension is another stop-gap measure that expires September 30, 2025, it may further signal Congressional acknowledgement of the importance of these flexibilities to healthcare providers and patients across the country and an intent to eventually make them permanent.

Prior to the COVID-19 Public Health Emergency (PHE), Medicare coverage of services provided by telemedicine was very limited. Two of the most important limitations related to the “originating site” of the telemedicine service, that is, where the patient is located while receiving the service via telemedicine. Specifically, Medicare would only cover telemedicine services where the originating site (1) was located in specified rural area and (2) was a specified clinical setting, such as a physician’s office or other facility. These rules generally precluded the use of telemedicine in urban or suburban areas and precluded nearly all patients from receiving telemedicine services in their homes.

During the COVID-19 PHE, the Centers for Medicare & Medicaid Services (CMS) waived these requirements and allowed telemedicine services in more settings, including in patients’ homes and in more than just rural areas. When the PHE ended, so too did CMS’ authority to continue these regulatory flexibilities. However, by that point, telemedicine services had become widespread and providers and patients acknowledged that it had a valuable role to play in the delivery of healthcare services. Therefore, Congress by statute extended these flexibilities past the end of the PHE, but at the time included an expiration date of December 31, 2024.

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The US Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) recently released a report wherein it found what Medicare providers have long known, that Medicare Administrative Contractors (“MACs”) frequently commit significant errors and do not comply with Medicare requirements when they conduct audits of Medicare providers.

Specifically, OIG reviewed MAC audits of Medicare costs reports and found that, for federal fiscal years 2019–2021, each of the 12 MAC jurisdictions failed to comply with the contract requirements for audit and reimbursement desk review and audit quality for at least 1 of the 3 years. The Centers for Medicare & Medicaid Services (“CMS”) also identified 287 total audit issues among all MAC jurisdictions during that period, including MACs not performing proper reviews; inadequate review of graduate medical education and indirect medical education reimbursement; improper review of allocation, grouping, or reclassification of charges to cost centers; improper calculation and reimbursement for nursing and allied health programs; and inadequate review of bad debts.

Issues with MAC reviews are nothing new to Medicare providers. In addition to auditing cost reports, MACs also audit claims under Medicare fee-for-service and perform the first level of claims appeals, referred to as Redetermination. In regard to audits, MACs are often criticized for misinterpreting criteria, applying the wrong criteria, using nurse reviewers with little to no experience in the clinical area under review, and taking excessive amounts of time to complete reviews. However, MAC audit issues might not present such a significant issue if MACs did not also perform the first level of appeal – Redetermination – of their own audits.

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Multiple changes have been announced or proposed at the federal Department of Health and Human Services (“HHS”), which will likely impact healthcare providers engaged in Medicare audit appeals and regulatory compliance activities. Although, in some ways, these changes may simply be a return to the status quo experience 5 to 10 years ago.

HHS has announced that that it will further reduce its head count and rearrange some of its many divisions. Specifically, it will cut another 10,000 full-time employees in addition to the approximately 10,000 employees that have left the department since January. The bulk of the new cuts will be to the FDA, CDC, and NIH. The Centers for Medicare and Medicaid Services (“CMS”), which oversees the Medicare program and the many Medicare contractors, is expected to lose about 300 employees. While the reduction at CMS may be small relative to other divisions, the loss of experienced decision-makers is being keenly felt as established agency norms, contacts, and priorities can no longer be relied upon. For CMS to change is not necessarily a bad thing in the long term, but it in the short term, it creates significant uncertainty among providers.

Several divisions relating to Medicare appeals and compliance are also being rearranged. The Health Resources and Services Administration (“HRSA”) is being combined with several other divisions into the new Administration for a Healthy America (“AHA”). HRSA has administered – often poorly – the Provider Relief Fund (“PRF”) and the many provider disputes related thereto. It is not clear whether this change will reinvigorate HRSA’s handling of PRF disputes, but given the policy statements of the new AHA, PRF disputes do not appear to be a priority. Further, two divisions closely related to Medicare appeals, the Office of Medicare Hearings and Appeals (“OMHA”) and the Departmental Review Board (“DAB”), will both be reassigned under a new assistant secretary of enforcement. OMHA and DAB already work together closely, so providers in the various Medicare appeals processes are unlikely to experience significant disruption from this change.

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Healthcare providers are no strangers to Medicare audits and the havoc they can impose, but with careful billing, attention to detail, and adequate documentation, it is possible to turn the tide. However, a recent trend indicates that these audits are being examined much more closely and are quickly morphing into something far more serious—an investigation under the False Claims Act (FCA).

The Medicare audit process typically involves a review of healthcare claims, medical records, billing codes, and supporting documentation. When alleged discrepancies are found—such as improper coding, overbilling, or inaccurate claims—providers may face repayment demands and other related consequences, usually contained within the administrative Medicare framework and not escalated to a matter under the FCA… Until now.

What is the False Claims Act (FCA)?

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As the burden placed on physician practices by government regulation and insurance company practices grows ever larger, many small practices find their existing practice model growing less and less viable. The combination of low reimbursement from government programs, endless regulatory and compliance requirements, billing and coding disputes, prior authorizations, risk of arbitrary enforcement actions, and the like take physicians away from their patients and render small practices unable to survive as a business. Two of the most common solutions for physicians are to sell out to a large entity or to convert the practice to all alternative payment structure, such as a cash-pay model. However, both of these options carry their own legal and practical considerations.

The sale of a practice generally involves issues regarding the nature of the transaction and what if any relationship the selling physician will have with the practice going forward. Many states only allow the sale of a practice to another physician. The compensation paid must also comply with various federal and state fraud, waste, and abuse laws, especially where the selling physician stays on as an employee or contractor. Where the sale of the practice is to a private equity company, or involves a management services organization (MSO), special attention should be given to the terms of the agreement and the nature of the compensation. Physicians should also be aware of local rules and ethical obligations regarding the transfer of patients and their medical records.

An alternative payment structure refers to what payors a practice accepts and can take many possible forms. Some practices may be best served by not taking Medicare and Medicaid, but still accepting Medicare Advantage plans, Medicaid MCOs, and commercial insurance. Some practices may want to forgo all government payors and accept only commercial insurance. Some niche practices may be best served by forgoing all third-party payors and accepting only cash payments directly from patients. Choosing not to accept payment from government programs can significantly reduce the regulatory, compliance, and administrative burden, but physicians should be aware that providers who treat Medicare beneficiaries are generally required to officially “Opt-out” of Medicare before charging patients directly for services that would otherwise be covered by Medicare. There may also be state laws or other rules that affect a “cash-pay” practice, but they are generally far less onerous than the burden placed on practices by Medicare and other government-funded programs.

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Healthcare providers and suppliers enrolled in Medicare are subject to a length list of regulatory and compliance requirements, among which is a duty to report information about a corporate provider’s ownership to the Centers for Medicare & Medicaid Services (CMS). A frequently misunderstood distinction in these reporting requirements is the difference between a “change of ownership” and a “change of information.”

Simply put, “change of ownership” has a specific regulatory definition which does not match up with the common understanding of the term. In the case of a partnership, the removal, addition, or substitution of a partner, unless the partners expressly agree otherwise, as permitted by applicable state law, generally constitutes a “change of ownership.” The lease of all or part of a provider facility generally constitutes a “change of ownership” of the leased portion. Transfer of title and property of an unincorporated sole proprietorship to another party also generally constitutes a “change of ownership.”

However, the most common and important part of the definition of “change of ownership” relates to corporations. The merger of a provider corporation into another corporation, or the consolidation of two or more corporations, resulting in the creation of a new corporation generally constitutes a “change of ownership.” On the other hand, transfer of corporate stock or the merger of another corporation into the provider corporation generally does not constitute a “change of ownership.”

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Hospice care has long been an area of program integrity focus for the Centers for Medicare & Medicaid Services (CMS) and hospice providers are subject to greater scrutiny and regulation than other provider types. This scrutiny is generally rooted in concerns relating to both fraudulent business practices and patient care. One of the most salient examples regarding hospice ownership is the 36-Month Rule.

The 36-Month Rule generally becomes relevant when a Medicare-enrolled hospice is bought, sold, or otherwise changes ownership and limits how frequently the ownership interest in the hospice can be transferred. If a Medicare-enrolled hospice undergoes a change of majority ownership within three years of its initial enrollment in Medicare or within three years of its most recent change of majority ownership, the Medicare provider agreement generally cannot be transferred to the new owner. The new owner is generally required to enroll in Medicare as a new entity, including undergoing all site surveys, accreditations, and other requirements. In the absence of a new enrollment, the new owner will generally not be permitted to bill under the entity that it just bought. Purchases outside the 36-month window are generally not subject to this rule. Historically, the 36-month rule applied to home health agencies (HHAs). CMS expanded it to apply to hospices as well in early 2024.

Further, CMS has designated some hospices as high-risk providers, subject to additional enrollment requirements. CMS classifies provider types based on the perceived risk that the provider type poses to the Medicare program. Hospices are generally in the “moderate risk” category, requiring a site visit on top of the standard enrollment screenings. However, both newly-enrolling hospices and hospices reporting a new owner (5% or more) are designated as part of the “high risk” category. All owners of newly-enrolled hospices and new owners of existing hospices will be required to submit fingerprints for a criminal background check. Note that a new hospice owner may be subject to “high risk” screening without implicating the 36-Month Rule depending on the nature and of the purchases and how much of the ownership interest is transferred. Sales and purchases of Medicare-enrolled entities may also be subject to “change of ownership” or “change of information” requirements, again depending on the nature and amount of the transfer.

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The appeal of claim denials after a Medicare audit can be a long and complex process. Such audit appeals generally involve large amounts of documentation as evidence, usually medical records. There are many rules governing the submission of this documentation as evidence and many strategic considerations that a healthcare provider or supplier must weigh.

Medicare audits often start with an Additional Documentation Request (“ADR”) or other type of medical records request. Medicare providers are generally required to maintain and submit to Medicare documentation that supports coverage of the services billed. However, ADRs are often difficult to interpret. They often contain boilerplate language that requests large amounts of records that do not exist or are not relevant to the services provided. On the other hand, they may use hyper technical language, the meaning of which is not clear or understood. For example, “psychotherapy notes” in this context has a very specific meaning and does not mean simply the progress notes from psychotherapy sessions.

A provider submitting records to a Medicare contractor should be aware of the practical issues. What form are the records being submitted in? Is it a form that this contractor accepts? Is there proof that the records were submitted in case the contractor later loses the records and claims none were ever submitted? If there is imaging (CT, x-ray, etc.) in the documentation, what is the quality and legibility of the copy being submitted? Often imaging that appears in high resolution in an EHR system loses resolution when printed, scanned, or otherwise transferred to the form in which it is submitted to the provider’s attorney or contractor.

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Congress recently passed a limited extension of certain flexibilities relating to Medicare coverage of telemedicine. While the current extension is a stop-gap measure that expires March 31, 2025, it may signal Congressional acknowledgement of the importance of these flexibilities to healthcare providers and patients across the country and an intent to eventually make them permanent.

Prior to the COVID-19 Public Health Emergency (PHE), Medicare coverage of services provided by telemedicine was very limited. Two of the most important limitations related to the “originating site” of the telemedicine service, that is, where the patient is while receiving the service via telemedicine. Specifically, Medicare would only cover telemedicine services where the originating site (1) was located in specified rural area and (2) was a specified clinical setting, such as a physician’s office or other facility. These rules generally precluded the use of telemedicine in urban or suburban areas and precluded nearly all patients from receiving telemedicine services in their homes.

During the COVID-19 PHE, the Centers for Medicare & Medicaid Services (CMS) waived these requirements and allowed telemedicine services in more settings, including in patients’ homes and in more than just rural areas. When the PHE ended, so too did CMS’ authority to continue these regulatory flexibilities. However, by that point, telemedicine services had become widespread and providers and patients acknowledged that it had a valuable role to play in the delivery of healthcare services. Therefore, Congress by statute extended these flexibilities past the end of the PHE, but included an expiration date of December 31, 2024.

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