One of the legacies of healthcare reform has been not only an increased focus on costs and access but also stepped-up enforcement against healthcare fraud and abuse. And while all providers have been put on notice, the investor-owned chains—some of the largest and most profitable systems in the country—have offered a glimpse into the way the scrutiny has changed the operating environment.
“What you're seeing is everyone has put a renewed emphasis on their compliance efforts,” says Scott Becker, a partner at law firm McGuireWoods, who counsels healthcare providers on regulatory and transactional issues.
When HMA previewed its 2012 earnings results for investors this year, it revealed that legal expenses ran $15 million over budget, largely attributable to outside attorney fees in the fourth quarter. In total, its legal expenses for the year amounted to $64.5 million—more than double the $24.2 million it paid in 2011.
On a conference call, HMA President and CEO Gary Newsome described the company's in-house legal team as being at a “size and quality that we've not had historically.”
He noted that the costs are from ongoing investigations, which he said are still in the discovery phase.
Nearly all publicly traded systems list the government's heightened, and more well-coordinated, focus on policing healthcare fraud and abuse as a risk factor for their business. The Obama administration has targeted the return of Medicare overpayments through the recovery audit contractor (or RAC) program, which places four independent organizations in charge of identifying billing anomalies in their respective regions of the country.
The 2009 creation of the Health Care Fraud Prevention and Enforcement Action Team (also known as the HEAT task force) elevated the fight against Medicare fraud to a “cabinet-level priority,” with HHS Secretary Katherine Sebelius and Attorney General Eric Holder jointly directing the task force's efforts.
As a result, HHS and the Justice Department reported record recoveries of $4.1 billion for fiscal 2011—and then topped that number the following year with recoveries of $4.2 billion.
“These are issues on the front page of the newspaper, whereas perhaps years ago they may have been in the back page in the business section,” said Audrey Andrews, senior vice president and chief compliance officer at Tenet Healthcare Corp. She addressed compliance efforts at the 49-hospital system during a Dec. 18, 2012 Modern Healthcare webinar. “They have become intensely interesting to our patients, media and regulators.”
Lisa Estrada, a partner at law firm Arent Fox who counsels clients undergoing government investigations, notes that because cases can sometimes take two to three years to resolve, healthcare companies are only beginning to feel the impact of the increased enforcement efforts.
“I think we're probably lagging behind,” she says. “We're starting to really see the evidence of it in the settled cases.”
Attorneys who work on these cases—on both sides—are quick to point out that healthcare fraud enforcement is not an area where there's a for-profit/not-for-profit divide. Both types of systems are equally vulnerable to investigations, and all hospitals need to be on alert.
An August 2012 survey from the Health Care Compliance Association found that not-for-profit providers averaged more yearly audits than their for-profit counterparts, or just over six in a 12-month period compared to less than four in the investor-owned segment.
But publicly traded companies face unique challenges, including greater requirements to disclose investigations in filings with the Securities and Exchange Commission. Although investor-owned chains may represent only 20% of hospital beds, they rank among the largest healthcare organizations by net patient revenue—making them more likely to be targeted.
The HCCA survey, conducted in April, found that while 76% of organizations with 5,000 or more employees had faced at least one audit in the previous 12-month period, only 30% of groups with fewer than 250 employees could say the same.
“In a lot of these cases, the numbers are huge with the penalties,” Estrada says. Smaller cases are “less attractive, frankly—they're less attractive to the whistle-blowers and the government.”
In an analysis of recent healthcare fraud settlements, A.J. Rice, an analyst at UBS, found that almost every Medicare healthcare provider the investment bank covers is currently or has recently been the subject of a government probe.
Rice also compiled a list of the 28 largest Medicare settlements or recoveries, of which six were against hospital operators. Only one of those six settlements—against Barnabas Health in New Jersey—involved a not-for-profit system.
Yet in an interview, Rice notes that the numbers show that the largest payouts are still most likely to involve pharmaceutical companies, which represented 17 of the largest 28 fraud cases.
In addition, the largest settlement to date against a healthcare provider was in June 2006—nearly three years before the HEAT task force was established—and involved Tenet's $900 million expenditure to settle allegations involving manipulating outlier payments, upcoding and bill padding.
But the UBS analysis doesn't mean providers are out of the woods, since the number of cases and the size of the penalties have been increasing in recent years. Attorneys general in a number of districts also have been making healthcare fraud prosecution a top priority.
In Maryland, for instance, the FBI has added personnel just to handle whistle-blower cases, Estrada says.
And in Nashville, the de facto capital of the for-profit hospital industry, U.S. Attorney Jerry Martin is becoming a national figure by going after fraud and abuse cases. In a July interview with Modern Healthcare, Martin said his office had recovered $130 million in 2011 from healthcare fraud cases compared with only $3 million for all of 2010.