Regulatory

Medicaid is the New Medicare

By Mark Taylor

Get-tough fraud investigators say they’ll train their eyes on providers of all types and sizes

Brian Flood, inspector general of the Texas Health & Human Services Commission, spoke Texas-plain when he told 2,300 health care compliance officers in April that “in 2008 your world will change.” Flood, whose program is regarded as a national model for state Medicaid fraud enforcement, warned those attending the Health Care Compliance Association conference in Chicago to plan for complications. “This is the reality now,” he said.

The changed reality stems from a confluence of new federal laws, mandates and programs targeting Medicaid fraud, as well as beefed-up funding and staffing. Flood’s message was clear: Medicaid is the new Medicare.

In recent years, congressional committees and legislatures in other states have invited Flood to report on the success of his program and the $23 return on investment for every dollar Texas spends on Medicaid enforcement. His evangelizing is paying off. New York Gov. Eliot Spitzer in April nominated the best-known health care fraud prosecutor in the country, Jim Sheehan, to serve as the state Medicaid inspector general. Once confirmed, Sheehan, who served in the U.S. Attorney General’s office in Philadelphia for 27 years, will lead a staff of 600 to ferret out and prosecute fraud in the nation’s largest Medicaid program. With spending approaching $50 billion, it consumes half the state’s budget.

Even before New York enacted a false claims statute and toughened enforcement, regulators there had recouped $1.5 billion in the last five years from providers.

“It’s a huge opportunity and we’re committed to making big changes in the program,” says Sheehan, who claims New York’s program accounts for 15 percent of all national Medicaid spending. “There is consensus that this is a significant problem that needs significant efforts.”

Expanded Focus

The largest Medicaid recipients—hospitals, long-term care facilities and managed care companies—will likely command the lion’s share of Sheehan’s attention. “In the past, most state fraud efforts focused on small providers because those are usually easier cases,” he says. “But we are going to examine all provider classes.”

Sheehan says the Medicare fraud initiatives unveiled more than a decade ago emphasized hiring more prosecutors and investigators. “The Medicaid push focuses more on edits and audits and reviews, which also could end up in cases, but allows us to identify issues further upstream sooner and recover money through payment error measurements, for example. You’ll see a stronger reliance on data mining,” he says.

Controls for state programs in general were not as tough as they could be and that provided greater opportunities for fraud. “Now everyone is concerned about how much money is lost and we’re hoping to reduce those opportunities by exerting more effective controls,” he says.

Marc Raspanti of the firm Miller Alfano & Raspanti says the U.S. Department of Justice is suffering a “brain trust drain” from its Attorney General offices. “But that’s opened up opportunities for industrious states willing to work to make big cases stick,” he says. “The environment has never been better for states to assume a leadership role.”

Raspanti foresees other states hiring seasoned federal prosecutors and investigators. “There are many talented career federal employees who wouldn’t have gone to the states in the past because of salary needs or a perceived loss of prestige,” Raspanti says. “But Eliot Spitzer changed all that.”

DOJ spokesman Charles Miller says the department is handling its health care caseload with existing staff. “It’s not uncommon to have turnover, as it is in any government office,” he says. “When there is attrition, we will hire so long as our budget permits it.”

As combined Medicaid and Medicare started to take ever bigger bites out of the federal budget, congressional leaders like Sen. Charles Grassley (R-Iowa), former chairman of the Senate Finance Committee, reacted. He attached two measures to the 2005 Deficit Reduction Act intended to reduce Medicaid fraud. They encourage both states and whistle-blowers to report and prosecute Medicaid fraud the way the federal False Claims Act has revived health care fraud prosecutions and recovered billions from Medicare providers. In fiscal 2006, False Claims Act lawsuits recovered $3.1 billion. Of that, $2.2 billion was from health care fraud. Since Grassley spearheaded a modern version of the Civil War era law in 1986, prosecutors have returned more than $20 billion to federal coffers, according to DOJ figures. Health care accounted for roughly 63 percent of qui tam cases.

Grassley’s initiatives give states a larger percentage of the federal match from Medicaid settlement recoveries if they pass False Claims Act laws at least as tough as the federal one. That 10 percent incentive has ignited legislative activity: 19 states and the District of Columbia already have such laws.

Patrick Burns of the Washington, D.C.-based whistle-blower advocacy group, Taxpayers Against Fraud, says states with False Claims Act laws, such as California and Texas, already have recovered hundreds of millions of dollars in fraud settlements. “The reality is investments in False Claims Act enforcement are moneymakers for the states: not just good policy and good economics, but good politics,” Burns says. “They are changing the legal landscape.”

Grassley’s Deficit Reduction Act amendments also require health care organizations receiving more than $5 million annually from Medicaid to educate their staffs on the state and federal laws, essentially training employees to become prospective whistle-blowers.

But hospitals may be less aware of the Centers for Medicare & Medicaid Services’ Medicaid antifraud initiatives mandated by a 2002 law, the Improper Payment Information Act, which requires federal agencies paying more than $10 million in claims to study and reduce payment errors. Last year, CMS began introducing those programs, which include a federal Medicaid Integrity Program modeled after its Medicare counterpart and its first-ever Medicaid Payment Error Rate Measurement program. CMS is auditing state programs and extrapolating error rates based on statistically valid sampling. CMS also is hiring program integrity contractors to conduct provider and state program audits.

It’s not the only federal agency expanding Medicaid enforcement.

HHS’ Inspector General spokesman Don White says Congress allocated the agency $25 million in additional funds to fight Medicaid fraud, beginning in fiscal 2006 and extending through 2010. The agency also spent more than one-quarter of its budgeted $165 million under the HIPAA law on Medicaid enforcement.

The inspector general is also charged with evaluating state False Claims Act laws, approving five to date.

Gregory Demske, assistant HHS inspector general for legal affairs, says the influx of cash could also strengthen investigations in the quality arena, focusing on unnecessary tests, surgeries, treatments or poorly delivered care, particularly in long-term care settings. “Those cases seldom result in large dollar amount settlements, but are important investigations,” Demske says.

Experts disagree how these initiatives will affect providers. Health care defense attorneys and provider association leaders predict little impact, saying most hospitals have built solid compliance programs that will withstand scrutiny. But whistle-blower attorneys and inspectors general overseeing two state Medicaid programs forecast fundamental changes in how providers will interact with regulators.

Flood calls the Medicaid enforcement initiatives “completely new in the 41-year history of the program.” They represent a focused effort to address Medicaid fraud with a long-term plan, he says, and change the focus from the “pay and chase strategy” of the past to a more proactive and exacting approach using statistically valid error rates and inappropriate payment measures.

The CMS programs also double the number of regulators in the marketplace. “Before you had a single state agency with a Medicaid Fraud Control Unit and an underfunded integrity program,” Flood says. “Now you have multiple federal agencies and their contractors and better funded state regulators. This will likely cause a great deal of confusion over who does what.”

Resolving that issue is critical, though. State regulators don’t want to jeopardize beneficiary access to providers or provider enrollment in Medicaid. “We want them to stay in the program. We’ve been telling CMS not to replicate audits because they can cause confusion,” says Alan White, director of program integrity for the Wisconsin Division of Health Care Financing and president of the National Association for Medicaid Program Integrity, adding that hospitals with quality compliance programs won’t be overly affected.

Flood believes the initiatives represent more than just added regulatory oversight. “This fundamentally changes how the marketplace will operate,” he says. “Providers need to build new compliance functions to manage the risks that this new model will create. And new business risks create costs and added overhead. Bottom line: This will cost providers time and money.” He says providers will need to invest in at least some new personnel to oversee who’s asking for what and why and where that information is going. They’ll need to expand their Medicaid compliance program to add the federal oversight piece to satisfy federal regulators.

Not everyone is convinced that the new initiatives will rock providers’ worlds.

Maureen Mudron, chief Washington counsel with the American Hospital Association, says hospitals have long-standing compliance programs that include Medicaid-specific provisions.

“We view much of this as another layer to hospitals’ existing compliance activities, as opposed to starting again from whole cloth,” she says, adding that the AHA hopes investigating agencies coordinate efforts to avoid creating overlap, duplication and extra paperwork for hospitals. “The last thing anyone wants is to take away resources from patient care. We respect compliance and hope these new programs do not create unreasonable burdens for hospitals.”

Former federal prosecutor Glenn Martin describes the Medicaid enforcement initiatives as “a new sheriff on the beat.” Martin, now chief compliance officer for eight-hospital Eastern Maine Health Care System in Brewer, says the compliance process hasn’t changed. “We’ll continue doing what we’ve been doing,” he says. “I don’t think we ever believed that billing Medicaid appropriately was optional.”

Washington health care defense attorney John Boese of the firm Fried Frank Harris Shriver & Jacobson doubts that the new state false claims acts will spawn a plethora of new whistle-blower lawsuits.

“I think this is all a sham,” he says. “People will still file whistle-blower suits under the federal False Claims Act. If you file under state Medicaid laws, a significant portion of that Medicaid money is already federal, so why wouldn’t you file under the existing federal law?” The difference, he adds, is with state attorneys general in the mix, there’s another layer of enforcement. He likened the many Medicaid fraud initiatives as “just another provider cost of doing business.”

A CMS official who spoke to Hospitals & Health Networks only for background, says CMS understands provider concerns. “I’m sure there are times when we will look at hospitals,” he says. “But only when activity in those hospitals represents a threat to the Medicaid Integrity Program. If it’s a good hospital already in compliance, it’s probably not going to hear from us. Our program shouldn’t be considered a threat to them.”

The official says CMS will focus resources, using data mining and analysis to identify risk areas. CMS and its contractors will randomly sample claims to identify troubling patterns.

He notes that from 1990 to 2000 CMS dedicated fewer than 10 full-time employees to fight Medicaid fraud. “Now we have 100 FTEs, $50 million this year, $50 million next year through 2009 and after that $75 million annually to carry out this program,” he says. “It’s a dramatic turnaround in resources.”

Flood says states with high Medicaid error rates will pay the consequences for not ratcheting up their oversight. And, he warns, what hospital executives don’t know today can hurt them tomorrow. “Ignoring these issues won’t make them go away,” he says. “I think the folks getting regulated should have fair warning to prepare for it.”—Mark Taylor is a writer in Indiana.

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