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From Health Law Daily, March 12, 2013

Consultants, fiscal intermediary did not violate False Claims Act by submitting outlier costs to Medicare

By Sarah E. Baumann, JD

A fiscal intermediary and a consulting group did not violate the False Claims Act (31 U.S.C. 3729 et seq.) by submitting or causing to be submitted bills for a hospital’s outlier costs based on stale cost-to-charge ratios (U.S. ex rel Associates Against Outlier Fraud v Huron Consulting Group, Inc., March 4, 2013, Rakoff, J). The district court determined that the consulting group’s predecessor advised the hospital to increase charges to align them with actual costs, rather than to perpetuate fraud, and that the fiscal intermediary followed CMS guidelines in submitting charges. The government’s appropriate remedy was reconciliation. The court dismissed all charges with prejudice.

Cost-to-charge ratio. Medicare generally reimburses providers at fixed rates for services. However, CMS calculates a provider’s estimated cost by using a cost-to-charge ratio based on the cost report submitted by the provider. Prior to 2003, CMS only utilized settled cost reports; after 2003, it began using either settled or tentative reports. In the event that the provider’s actual charge exceeds the ordinary price and loss amounts, CMS automatically issues an outlier payment.

Annual cost reports may be submitted up to five months after the end of the calendar year and may not be settled for several years. As a result, comprehensive charge increases may result in a provider receiving a number of outlier payments before cost reports are settled and cost-to-charge ratios are appropriately updated. Once cost reports become settled, CMS may reconcile payments and seek reimbursement from providers who received excessive outlier payments.

Background. St. Vincent’s Catholic Medical Centers (St. Vincent’s) hired the consulting firm of Speltz & Weis, LLC (Speltz & Weis) to improve its financial situation. Speltz & Weis determined that St. Vincent’s was charging below-market rates and failing to completely bill for services. As a result, St. Vincent’s implemented an overall price increase of 33 percent within a year, placing it in the 75th percentile of pricing in the market. Several months later, Huron Consulting Group, Inc., Huron Consulting Group, LLC, and Huron Consulting Services, LLC (collectively Huron) purchased Speltz & Weis. Two months later, St. Vincent’s filed for Chapter 11 bankruptcy protection. Throughout this time period, Empire Health Choice Assurance, Inc. and Empire Medicare Services (collectively Empire) served as St. Vincent’s fiscal intermediary.

Over the next several years, St. Vincent’s continued to receive outlier payments. It notified Empire of the need to adjust its cost-to-charge ratios at the end of 2006 and then submitted its final cost report for 2005. Like many fiscal intermediaries, Empire’s cost report review process can take several years to reach final settlement. After St. Vincent’s emerged from bankruptcy in 2007, Empire updated prospective cost-to-charge ratios. However, at all times, Empire followed CMS instructions by notifying it that St. Vincent’s met the criteria for outlier reconciliation. CMS advised Empire not to take additional steps until instructed to do so by CMS. CMS did not issue guidance for conducting such reconciliation until 2011, at which point, Empire began the process.

The relator, Associates Against Outlier Fraud, alleged that Huron caused St. Vincent’s to submit fraudulent records for reimbursement and that Huron falsely certified compliance with Medicare statutes, in contravention of the False Claims Act. It further alleged that Empire violated the False Claims Act when it authorized payment of claims, ignoring its contractual obligations to CMS.

Claims against Huron. The court determined that Huron did not violate any law, regulation, or other guideline by submitting bills that produced outlier costs. At worst, the court said that Huron’s actions could only be termed “bad practice.” Various CMS regulations served as warnings against overcharging and suggested that charges should reasonably relate to costs. However, the court noted that St. Vincent’s instituted price increases after being advised that it was charging rates that were below market-value and could be construed as reasonably relating to costs. One regulation referenced by the government (42 C.F.R. sec. 412.84(i)(4), (m) simply established the reconciliation process by which the government can retrieve its outlier payments, plus interest. St. Vincent’s decision to set aside money for potential reconciliation was not an admission of fraud, but a reasonable decision, given its concerns about reconciliation.

Claims against Empire. The government’s claims against Empire failed for the same reasons as those against Huron. In addition, no statute or regulation required fiscal intermediaries to refrain from submitting outlier charges based on stale cost-to-charge ratios. In fact, Empire followed CMS’ instructions by flagging St. Vincent’s potential outlier excesses and reporting them to CMS. Empire was specifically advised not to settle prior cost reports or take additional actions until given further guidance. When further guidance became available in 2011, Empire began the reconciliation process.

Because no reasonable juror could find that either Huron or Empire submitted a false claim or caused a false claim to be submitted in contravention of the federal False Claims Act or the nearly identical New York False Claims Act (N.Y. State Fin. Law sec 187 et seq.), the court dismissed the relator’s complaint with prejudice.

The case number if 09 Civ. 1800 (JSR).

Attorneys: Philip Roy Michael (Michael Law Group) for the United States. Kathy Sue Marks (U.S. Attorney's Office, SDNY) for the State of New York. Robert Salcido (Akin, Gump, Strauss, Hauer & Feld, LLP) for Huron Consulting Group, Inc. Michael J. Tuteur (Epstein, Becker & Green, P.C.) for Empire Health Choice Assurance, Inc. Elizabeth Tobio (Akin Gump Strauss Hauer & Felp,L.L.P.) for Huron Consulting Group, LLC.

Companies: Huron Consulting Group, Inc.; Empire Health Choice Assurance, Inc.; Huron Consulting Group, LLC; Huron Consulting Services, LLC.

MainStory: TopStory CaseDecisions FCANews IPPSNews AuditNews BillingNews CostReportNews MedicareContractorNews PaymentNews NewYorkNews

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