Zone Program Integrity Contractors aggressively audit Medicare hospice providers in complex post payment medical review.  In this post, Sheppard Mullin examines some useful arguments in responding to post-payment ZPIC denials.

ZPICs were established to detect fraud or improper utilization.  42 U.S.C. 1395ddd(b)(1).  ZPICs conduct pre- and post-payment audits of hospices, usually focusing on a small sample of patients.  ZPICs will review subjective eligibility decisions and then extrapolate sample overpayments across a provider’s entire population.  ZPIC demands can run to hundreds of thousands or even millions of dollars, even for relatively small hospice providers.

Providers need to be ready to defend against such an audit.  Sheppard Mullin has handled ZPIC administrative appeals for a number of providers, resulting in the substantial reduction of initial overpayment demands.  Here are some important concepts for hospices to consider:

(1)    Hindsight

ZPICs often target for post-payment review patients who received more than six months service.  Denials are often based, in part, upon the fact that the patient lived beyond six months.

In doing so, ZPICs utilize a form of hindsight that is unavailable to providers that must make real time determinations of eligibility without the benefit of the knowledge how long a particular patient will live.

CMS has long promised providers that there would be no punishment for patients living beyond six months.  In a letter dated September 12, 2000 Nancy Ann DeParle, then CMS Administrator, noted that hospices would not be punished for serving patients who have “the good fortune to live longer than predicted.”

Implicitly understanding the uncertainty of predicting life expectancy, Congress itself has provided for unlimited duration of hospice care services (2 x 90 day periods, followed by unlimited 60 day periods) for any particular patient.  See 42 U.S.C. §1395d(a)(4) (as amended).

(2)   Deference to Doctors

When a ZPIC denies eligibility, ZPICs often second guess the hospice medical director and/or the patient’s attending physician.

It is important to note that, “[c]ertification of terminal illness is based on the physician’s or medical director’s clinical judgment regarding the normal course of an individual’s illness.  It should be noted that predicting life expectancy is not always exact.”  See CMS Medicare Claims Processing Manual, Chapter 11, Section 10.

Courts have noted that the government must show deference to a doctor’s opinion.  U.S. ex rel Wall v. Vista Hospice Care, Inc., 778 F. Supp. 2d 709, 718 (N.D. Tex. 2011) (“physician must use his clinical judgment to determine hospice eligibility”; “an FCA complaint about the exercise of that judgment must be predicated on the presence of an objectively verifiable fact at odds with the exercise of that judgment, not a matter of subjective clinical analysis”).

(3)   Technical Denials

ZPICs often deny payment for technical reasons unrelated to whether the services were medically necessary.  For example, ZPICs often will concede medical necessity, but nonetheless then deny payment on the basis of something as minor as a late signature on a certification or a missing date on a form.  Such denials are improper.

Courts have noted that it is improper to deny payment on technical grounds unless the governing statute and/or regulations expressly condition payment on compliance.  See e.g., U.S. ex rel. Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001) (distinguishing “instances of regulatory noncompliance that are irrelevant to the government’s disbursement decisions”); see also U.S. ex rel. Gross v. AIDS Research Alliance-Chicago, 415 F.3d 601, 604 (7th Cir. 2005) (finding, in the context of the False Claims Act, that money could be recouped only where compliance is a condition of government payment).

Payment denials on mere technicalities are arguably beyond the authority of ZPICs, which are licensed to conduct post-payment review to see if payment was proper, but not authorized to police more technical compliance issues better suited for corrective action plans.  42 U.S.C. §1395ddd(b)(1).  If ZPICs find technical problems, they can report those back to MACs, but should not base denials upon such issues.

Where ZPICs maintain technical denial as a basis to refuse payment, the penalty is arguably an excessive and unlawful fine in violation of the 8th Amendment to the U.S. Constitution.  See United States v. Bajakajian, 524 U.S. 321 (1998) (setting aside as constitutionally excessive full forfeiture of $230,000 in cash as a civil fine for failure to report cash in excess of $10,000 to customs officials).

(4)   Denials Based on Nonbinding Manual Provisions

ZPICs often make denial on the basis of Medicare benefit policy manual provisions rather than a law or regulation.  For instance, ZPICs will often rely upon a claim that a physician failed to date a certification (citing XXXXXX).

As an initial matter, it’s important to determine if the relevant manual provision was even in effect at the time services were rendered.  The dated signature requirement was added for instance in 2011; many audits for 2010 services nonetheless cited this omission as a basis for denial.

More importantly, no rule, requirement, or statement of policy, other than a National Coverage Determination or regulation promulgated by CMS, can establish or change a substantive legal standard governing the scope of benefits or payment for services under the Medicare program.  42 U.S.C. § 1395hh(a)(2); 42 C.F.R. § 405.860.  And, courts have held that agency manuals, because they are not published for notice and comment are not binding law.  Christensen, et al. v. Harris County, et al., 529 U.S. 576, 587 (2000) (agency manuals “lack the force of law”).

(5)   Failure to Decline

ZPICs often argue that because a patient’s condition did not deteriorate during a particular benefit period, the patient was not eligible.

It is important to note that evidence of decline in each period is not in fact required, or even expected by CMS.  Local coverage determinations do not mention decline.

And in fact, CMS and its MACs have repeatedly acknowledged that decline is not required.  74 F.R. 39,384, 39,399 (Aug. 6. 2009) (“We also acknowledged that at recertification, not all patients may show measurable decline.”); and Palmetto GBA Hospice Coalition Questions and Answers, Q5 (Sept. 23, 2008) (“no requirement that significant documented decline must be included”).

Where a ZPIC relies on the failure to show “decline” it is an improper and insufficient explanation.  See 42 U.S.C. 1395ddd(f)(7)(B)(i) (provider entitled to “full review and explanation of findings”).

(6)        Cap Liability

Hospices with longer lengths of stay often face cap liability.  Cap liability occurs when total payments for a given fiscal year exceed cap allowances.  Payments in excess of allowances are required to be returned as overpayments.

ZPICs will often target these same hospices with longer than average lengths of stay.

But, critically, when ZPICs determine that certain payments in a given year were improper, the effect is to reduce the total payments for such year.  As a result, the ZPIC liability determination has a direct effect on the cap calculation.

If a hospice has been assessed cap liability of $100,000 for FY 10 and then receives a ZPIC demand for another $90,000, it is important to note that such hospices cap liability should be reduced by $90,000 (as total revenue is adjusted for the overpayment).

In some cases, ZPIC liability assessments can also affect cap allowances, but in most cases we have seen ZPIC liability tends to reduce cap liability on nearly a dollar for dollar basis.  If hospices overlook this offset, then they may be paying back the same dollar to CMS twice.