Scouting the legal landscape.

INTERVIEW WITH JODY ANN NOON, RN, JD

Lawyer jokes? Perhaps this is not the time for them, at least in the long- term care industry. 1999 sees nursing facilities confronted by new and serious legal challenges: the legal vulnerabilities posed by the Medicare Prospective Payment System (PPS) and its complicated new rules; a federal government "top cop" (Health and Human Services' Office of the Inspector General) determined to crack down on nursing homes' "abuse" or "defrauding" of government programs; a threatening surge of false claims actions, with heavy financial penalties, brought by federal prosecutors finding poor quality of care; the Clinton administration's OBRA survey initiative aimed at "poor-performing" facilities and chains; and an experiment in anti-nursing home "class action" suits being conducted by the famous (or infamous) Florida attorney James Wilkes. No self-respecting facility would want to get caught in any one of those nets, but, in fact, very easily could. Recently, Nursing Homes/Long Term Care Management asked Jody Ann Noon, RN, JD, a partner with the Portland, Oregon, office of Davis Wright Tremaine and a frequent writer and speaker on long-term care legal issues, how this flurry of new activity is likely to affect administrators in the field this year. Questions were posed by Editor Richard L. Peck.

Peck: Would you explain what impact the Medicare Prospective Payment System (PPS) is likely to have on providers' legal situations?

Noon: Skilled nursing facilities will have to be very careful that they can meet the clinical needs of the people they admit at the PPS rate that has been set by Medicare. Failure to provide the necessary care could be prosecuted as a false claim. These rates are to be "all-inclusive," which means if you agree to the rate by admitting a patient, you must provide the care that is called for, whatever the real financial impact might be.

This calls for some difficult decisions in admitting patients. There are facilities specializing in AIDS care, for example, which have found that the average cost of medications alone will exceed the prospective payment rate, forcing them to withdraw from the Medicare program.

Peck: Can't facilities protect themselves from financial shortfalls by declining to admit some patients or by transferring them to other facilities?

Noon: Yes, but questions still surround these decisions. For example, in declining to admit or in transferring a patient, are they violating their Medicare Conditions of Participation (COP)? These are rather broad and hold providers responsible for delivering a variety of services. A refused admission or an involuntary transfer could put the facility in apparent violation of COP and result in sanctions, including termination from the Medicare program.

Also, although some facilities claim they "can't live with" the PPS blended rates or even the federal rates, the federal government is already taking the stance that the rates may be "too high." I suspect we're going to see some facilities falling by the wayside before this is over.

For now, facilities should at the very least examine their case mix, and the costs to serve their patients, and devise their admissions criteria and processes based on this information. They should define the populations they serve and market themselves accordingly.

Peck: Of course, with the complexity of these rules, many facilities are going to be making honest mistakes. Which facilities do you think will be most vulnerable to false claims actions?

Noon: Those facilities with a repeated history of providing substandard quality of care documented in their state surveys will be most vulnerable - particularly if they perform inaccurate MDS assessments, because the RUG on which reimbursement is based depends on the assessment. An inaccurate assessment could (and, for these facilities, probably would) be construed as a false claim.

Peck: How can facilities protect themselves from getting inadvertently caught in this kind of situation?

Noon: I can't overemphasize the importance of having a corporate compliance program in place. This, of course, is a formal program of regular self-evaluation that gives an organization a chance to catch mistakes before they recur too often and correct them. I'll give you an illustration as to why this sort of program is so important. We had an institutional pharmacy client that had received two cents per prescription more than it was entitled to for some time, for a total overpayment of approximately $5,000. They were, in fact, charged by the Office of the Inspector General (OIG) with filing 219,000 false claims and were assessed triple damages plus $5,000 per claim. The exposure to the provider was over a billion dollars. The client ended up settling at $600,000.

What happened? The problem was that we could not demonstrate that this company had a compliance review system in place. OIG said the company should have known that there was a problem with the billing system and, indeed, that a warning had been sent to all providers about it. Unfortunately for my client, this warning was received by staff but never made it up to the executive decision makers. I'm convinced that if the company had a compliance system in place, the error would have been caught and my client would have been assessed only for the $5,000 honest mistake.

Incidentally, that $600,000 settlement is not uncommonly high in such cases. These cases normally don't go to trial because the stakes are just too high to trust to a roll of the dice. A loss in this case would have put the company out of business.

Peck: With the Clinton administration's aggressive new OBRA survey initiative, how might facilities go about improving their legal protection?

Noon: They have to focus on their quality assurance programs and make sure that they are clearly in operation. I'll bet that on any given day, in any given facility, you will find evidence of noncompliance, even substantial noncompliance. The key is to demonstrate that you are looking for it and correcting it when it is found.

I remember a facility that had received several deficiencies for having residents in restraints without a physician's order. The facility filed a corrective action plan but, on resurvey, one resident was still found in restraints without a physician's order. The administrator was upset because just one resident could create the potential for more than minimal harm - a D-level deficiency, which is serious. Fortunately, though, we were able to show that the facility had a quality assurance mechanism in place indicating the restraint had been applied by a nursing assistant in training, that the resident had no propensity for skin breakdown and, most importantly, that the incident would have been identified (and corrected) the very next day through the facility's quality assurance program. This quality assurance component allowed us to convince surveyors that their finding would amount to no more than minimal harm, an A-level deficiency.

I think we're going to see more and more appeals of survey findings. With or without filing a formal appeal, facilities should make sure that any inaccuracies they find in a survey report are identified as such and that they are not simply accepting whatever alleged deficiencies come their way. Yes, filing a formal appeal is a costly process. Facilities have only 10 days to do so, and they usually have to reassign staff to get it done. Those that don't take the trouble to do this, or at least dispute survey inaccuracies, will find themselves in legal peril. All too often, by the time I get called in to help, the facility already has a record of uncontested deficiencies that are difficult, if not impossible, to challenge. They've solved their short-term problem of getting a plan of correction filed, without evaluating the long- term consequences of how survey results might be used in following years.

Peck: What do you think are the prospects for the class-action-type lawsuits that have been filed by Florida attorney James Wilkes in an attempt to recover Medicaid and Medicare money spent on allegedly poor-quality care?

Noon: I imagine there a lot of folks waiting to see how these turn out, though I haven't seen such action taken in our area. I do recall, though, a case in which a resident was moved from a nursing home to adult foster care by case workers from the Medicaid agency, despite warnings from the nursing facility that the resident might not survive the transfer. And he did, in fact, die. His mother was referred to an attorney, but it was discovered that the only financial restitution available was to the government, as in the Wilkes cases - i.e., any damages would be applied to the resident's Medicaid lien, which they found to be a disincentive to sue.

Peck: That raises the question of facilities' legal exposure in making resident transfers to different levels of care - a growing issue, with states trying to save money by deinstitutionalizing residents. As an attorney practicing in Oregon and one of the pioneers in this process, do you have any thoughts to offer?

Noon: It's true that in Oregon we had Medicaid case workers going through facilities looking for residents who might qualify for a less restrictive setting. You hate to get into a tug-of-war over residents, but there are times when you have to let the record show your disagreement about a transfer decision.

Legally, a provider cannot transfer someone out of a facility until another facility has been found that will meet that person's needs. This becomes especially difficult in situations involving severe dementia, geropsychiatric problems or extreme behavioral problems, and we've had a couple of suits alleging transfer trauma. In any transfer situation, the facility's primary objective must be to find an appropriate care setting for the person being transferred. Simply evicting a resident rarely works. In a case where the facility does not concur with a transfer decision by a third party, such as the state, it should go on record opposing it. These are issues that are becoming more and more important in the legal arena.

Jody Ann Noon, RN, JD, a partner with the law firm of Davis Wright Tremaine, is author of Developing a Corporate Compliance Program: A Guide for Long-Term Care Corporations, available from the American Association of Homes and Services for the Aging ($100 members, $300 nonmembers; phone: [phone]). For further information, [phone].