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HCFA, IRS, FBI intensify fraud and abuse investigations.

The Government's ongoing crackdown on health care fraud and abuse is expanding to include the sweep of more Federal agencies and the resources they command.

Physician self-referral continues as perhaps the hottest topic, but Washington officials also are intensifying their review of certain joint ventures and fraudulent billing practices. The step-up comes just as the Bush administration is articulating its vision of health industry reform. it seems clear that part of the strategy is to wring waste out of the existing system.

For laboratory interests, center stage is still dominated by the Health Care Financing Administration, which is in the process of collecting additional data on physician investment in health care facilities.

The agency has already extensively surveyed clinical laboratories in keeping with the legislative ban on referring Medicare patients to facilities in which the doctor has a financial interest. But the law requires information on such financial links to be collected from other providers as well. The list covers hospitals, suppliers of ambulatory services, end-stage renal disease facilities, parenteral and enteral suppliers, and providers of physical therapy services.

Additional surveys have now been sent to those providers in 10 states: Arkansas, California, Connecticut, Florida, Michigan, Ohio, Pennsylvania, South Carolina, Texas, and West Virginia.

HCFA officials say the sampling will be sufficient for "developing the statistical profile required by Congress and in evaluating the need for future legislative, policy, or operational actions" while minimizing the cost of collecting and analyzing the data. They note that the states selected constitute a mix of urban and rural areas and geographic spread.

The findings are due to be presented this summer on Capitol Hill, where some lawmakers are considering whether a more sweeping ban on self-referrals of non-Medicare patients is in order.

In a preemptive strike, the American Medical Association's House of Delegates approved strict guidelines that generally prohibit referrals to facilities in which doctors invest but do not practice. One exception is to permit such investment if there is "a demonstrated need in the community for the facility and alternative financing is not available." AMA leaders have said they believe doctors will comply with the voluntary guidelines, thus demonstrating that there is no need for additional legislation.

Still, Rep. Pete Stark (D-Calif.), author of the Medicare self-referral ban, has already held hearings on broader exclusions. And he vows that the latest HCFA survey sexercise will not be simply a matter of "collecting numbers to store in the basement."

One key piece of evidence now in Stark's possession is a final analysis filed by the Florida Health Care Cost Containment Board. The panel surveyed 2,669 stat health care facilities, in part to determine how many were joint ventures owned by doctors and medical groups.

A report concluded that "at least 40% of physicians involved in direct patient care in Florida are involved in joint ventures that they can refer patients to." It said that the high percentage of joint ventures "clearly indicated problems" in 'access, costs, charges, utilization, or quality" among clinical labs, diagnostic imaging centers, and physical therapy/rehabilitation centers.

Specifically, a summary said the number of tests per patient was 3.3 in doctor-owned labs, compared with 1.7 in non-joint venture labs. The average charge in a full-service joint venture lab was $43 per patient, versus $20 at other facilities.

On another front, the Internal Revenue Service has begun a full-court press on certain hospital--physician joint ventures that could threaten the tax-exempt status of some not-for-profit hospitals.

Reversing a stance taken in previous private-letter rulings, a recent IRS legal opinion turned thumbs down on three deals in which hospitals sold "net revenue streams" from outpatient surgery centers and other facilities.

Here's how the deals work: As a competitive tool, and as a purported way to improve efficiencym, hospitals sell doctors the profits from a department for a fixed period of time. The doctors stand to do well, IRS estimates, since the price they pay for future net revenues is based on the department's past performance. They directly benefit from earnings increases on the patient referrals they are likely to boost.

IRS says the deals allow physicians to profit excessively from the delivery of tax-exempt services, a situation referred to as "private inurement."

The agency's opinion also introduces a more stringent "community benefit" standard. Officials say the deals in question were designed to retain physicians, limit competition, and increase referrals. And according to the legal opinion, the public benefits of a hospital's improved financial health or efficiency through higher utilization bears "only the most tenuous relationship" to the charitable purposes of community health.

Analysts say the revenue-stream arrangements are relatively uncommon, and they note the IRS opinion is not binding, except for the three unnamed hospitals involved. The opinion, however, does give an indication of what the agency will be looking at in a broad range of joint ventures between not-for-profit hospitals and doctors. It's reported that IRS is undertaking comprehensive audits of more than a dozen health care systems that may take at least a year to complete.

Assessing the new IRS posture, Laura Kalick, a health industry tax specialist with Coopers & Lybrand, says, "Joint ventures must be arm's-length, fair-market transactions that do not create private inurement or benefit private interests more than incidentally. In addition, these activities cannot violate the anti-kickback laws."

Analysts envision various scenarios in the case of deals that don't pass IRS muster. Among the possibilities, the hospital could renegotiate with doctors over terms that favor the hospital more than the individuals, or the doctors could take over and run the joint venture as a freestanding operation.

Maureen Mudron, senior counsel for the American Hospital Association, notes, "One of the reasons ventures developed was to provide services that didn't exist or to enhance the ability to deliver services. Those needs will still be present. The question will be whether the specific arrangement, given the needs of the community, will fall within the parameters of the IRS analysis."

But as Kalick suggests, the IRS probing could also have serious repercussions across town with the Inspector General of Health and Human Services, which is enforcing the "safe harbor" regulations. These rules spell out the circumstances under which physicians can make Medicare or Medicaid self-referrals.

"You have a situation where the IRS is directing its agents to look for these kind of ventures. The IRS is going to refer them to HHS, and you may have HHS doing more investigations that they might have done in the normal course of events," Kalick explains.

Not to be left out of the expanded crackdown, the Federal Bureau of Investigation announced a diversion of resources to attack another health industry problem: fraudulent provider billing.

The FBI will reassign 50 agents from counterespionage and counterterrorism activities to join the nearly 100 agents already involved in rooting out health care fraud.

"These agents will work exclusively on the investigation of health care fraud and abuse offenses through the use of various investigative techniques," announced Attorney General William P. Barr.

A Justice Department report said the FBI would look closest at false billings, phony claims, staged accidents, and insurance companies that sell health policies without enough reserves to pay claims. Officials indicated that the "investigative techniques" Barr referred to would include sting operations.

The 50 reassigned agents will be sent to new health care units being established in 12 cities. They are Baltimore, Charlotte (N.C.), Chicago, Dallas, Detroit, Las Vegas, Los Angeles, Miami, Newark (N.J.), New Orleans, New York, and Philadelphia. These are the cities investigators consider especially hard hit by fraud problems.

The Government has not issued a firm estimate of the annual cost of health care fraud, but officials cite industry estimates that it totals approximately 10% of overall U.S. health care expenditures.

Elusive CLIA regs

on track, more or less

The projected mid-January appearance of final regulations on the Clinical Laboratory Improvement Amendments of 1988 (CLIA '88) never materialized. But as of early February, officials said progress was being made and the chances of their release was a day-to-day proposition.

The delay apparently was unrelated to a 90-day moratorium on Federal regulations called for by President Bush.

In his State of the Union address, Bush couched the moratorium as a means of easing the regulatory burden on businesses and helping to pull the economy out of recession. He said that during the 90-day ban, major departments and agencies would carry out "a top-to-bottom review of all regulations, old and new, to stop ones that will hurt growth and speed up those that will help growth."

Sources indicated, however, that the moratorium could not affect regulations that must be issued to meet a court or Congressional mandate, such as in the case of CLIA '88. As the laboratory industry continued its vigil, it was considered likely that organizations intending to sponsor CLIA briefing seminars during February would reschedule their meetings for later dates.
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Washington Report; Health Care Financing Administration; Internal Revenue Service; Federal Bureau of Investigation; healthcare fraud and abuse
Author:Albertson, David
Publication:Medical Laboratory Observer
Date:Mar 1, 1992
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