2014 OIG Work Plan Released: Our Observations on Enforcement (Part 1)

February 26, 2014

The Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS) recently released its Work Plan for Fiscal Year 2014 (the “Work Plan”). The OIG usually issues the Work Plan each October, but budget pressures delayed this year’s release. The Work Plan provides an annual view into the OIG’s planned areas of focus for investigation and enforcement activities in the coming year.

Below are a few interesting observations from this year’s Work Plan.

1. Provider-Based Facilities and Site-of-Service Billing Errors. The OIG intends to continue its focus on provider-based facilities. Provider-based facilities are hospital outpatient departments and are often located off-campus. These facilities tend to be paid more than freestanding clinics for similar Medicare services in recognition of the generally higher levels of overhead and infrastructure necessary to qualify as a hospital-based facility. Unlike at physician practice clinics, services at a provider-based facility are reimbursed both a technical fee (from the hospital) and professional fees (from the physician). Past OIG reports have documented cases of incorrect billing to obtain additional monies (e.g., filing claims with a provider-based site of service for technical fees, while reporting a physician office site of service for professional fees). The OIG plans to further investigate such improper place-of-service billing and to study differential payments between provider-based and freestanding clinics. From an enforcement perspective, the OIG appears most concerned about abusive practices resulting in improper provider-based payments. From a policy perspective, the OIG’s concerns echo those articulated by MedPAC in the past — namely, that Medicare should seek to pay similar amounts for similar services. The OIG is expected to issue its report on the impact of provider-based reimbursement on Medicare later this year.

Providers operating provider-based facilities should continue to ensure that they comply with all Medicare provider-based rules. In addition, hospitals may wish to consider adding site-of-service billing reviews to their annual compliance audits, if not already included.

2. Compounding Pharmacy Practices. As reviewed in a recent client alert, the OIG intends to review Medicare’s oversight of pharmaceutical compounding in Medicare-participating acute care hospitals and how state agencies and accrediting organizations evaluate such pharmacy services in hospitals. Further, the OIG will examine the Medicare Administrative Contractors’ (MACs’) policies and procedures for reviewing and processing Part B claims for compounded drugs and assess the appropriateness of such claims. Compounded drugs must be produced in accordance with the Federal Food, Drug and Cosmetic Act (FFDCA) to be eligible for coverage under Medicare Part B.

3. Payments for Pharmaceuticals. The OIG intends to review the potential savings Medicare Part B might achieve if Medicare were able to participate in shared savings for 340B purchased drugs. Currently, Medicare Part B providers who purchase drugs under the 340B program may retain the difference between the average-sales-price-based payment received from Medicare and the amount the Part B provider spent purchasing the drug in the 340B program. Previous OIG studies showed that some Medicaid state agencies have developed strategies and shared in the savings of the discounts on 340B drugs and now the OIG will study whether there is the potential for Medicare to emulate the savings achieved by some Medicaid state agencies. In a similar vein, the OIG has previously determined that Part D sponsors and state Medicaid agencies paid pharmacies roughly the same amount for brand-name drugs; however, the Medicaid rebate amounts exceeded by a substantial margin the Part D rebate amounts, resulting in lower drug program costs for Medicaid. In 2014, the OIG will compare pharmacy reimbursement and rebate amounts for a sample of brand-name drugs paid by Medicare Part D and by Medicaid.

4. Hospital Quality and Safety. The OIG intends to review two new subject areas regarding hospital quality of care and safety: emergency preparedness and hospital privileging. Currently, the Conditions of Participation (CoPs) of the Centers for Medicare & Medicaid Services (CMS) require hospitals to have adequate medical and nursing staff during emergencies. Further, CMS has issued a Proposed Rule that revises CMS’s CoPs to require hospitals to develop an emergency preparedness plan utilizing an all-hazards approach. Hurricane Sandy dramatically affected multiple hospitals in the New York City area and the OIG intends to assess and describe hospital preparedness and response during Hurricane Sandy. Specifically, the OIG will review Hurricane Sandy-affected hospitals’ participation in the Public Health Emergency Preparedness Cooperative Agreements program and the Hospital Preparedness Program. Second, the OIG will determine how hospitals assess medical staff candidates prior to granting initial privileges. The OIG intends to complete this review because robust hospital privileging programs have been found to contribute to patient safety.

5. Hospital Cost Control Reviews. The OIG also intends to review contractor employee salaries charged to Medicare to determine whether contractors applied a regulatory required senior executive compensation benchmark. A “senior executive” is defined as the top five compensated employees of each organizational segment. The OIG aims to determine the potential cost savings if contractors were required to apply the same benchmark to all employee compensation.

6. Review of Long-Term Care Hospital (LTCH) Interrupted Stay Payments. The OIG will continue its investigation of readmission patterns in LTCHs to determine the extent to which Medicare has overpaid LTCHs for higher-paying new stay cases when they should have instead been paid as interrupted stays. An interrupted stay occurs when a patient is discharged from an LTCH for treatment and services that are not available at the LTCH (e.g., at a skilled nursing facility, inpatient rehabilitation facility, general acute care hospital) and is subsequently readmitted within a specific number of days. If patients are readmitted to the LTCH after a specific number of days, the stays are billed as new admissions rather than interrupted stays and the LTCHs will receive two Medicare payments. The OIG will also evaluate the extent to which co-located LTCHs readmit patients from the providers with which they are co-located in an effort to determine the extent to which CMS made improper payments. This investigation stems from CMS’s acknowledged difficulty in detecting readmissions so that it can appropriately pay the readmissions as interrupted stays instead of as higher-paying new admissions.

Part 2 of the series will be released shortly. Please contact one of the authors if you have questions regarding the 2014 OIG Work Plan or the information contained in this client alert.