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Four steps to minimize successor liability
Acquiring a health care organization means acquiring its fraud and abuse liabilities, and limiting that risk is no easy task, says Joseph Truhe, general counsel at Eisenhower Medical Center in Rancho Mirage, CA. He says the distinction between ordinary business conduct and fraud and abuse often is too subtle to be detected by the type of due diligence that typically would take place in other industries.
"A review of basic corporate documents is not going to tell you that there is a coding problem or that there are subtle arrangements to induce referral," Truhe remarked at a Practising Law Institute conference in Washington DC, when he was corporate counsel for Children’s National Medical Center in Washington, DC.
His first caution is not to let the lawyers perform due diligence alone. "Attorneys have the tendency to take the biggest due-diligence checklist that is floating around the office and then take all of the checklists they have acquired and add them all together," he warns. "That is a bad sign if that is how it is being done."
Instead, he says attorneys should sit down with senior and middle managers who have a working knowledge of the corporate, clinical, and financial details of the target entity and plan due diligence thoroughly. "Your client and counsel are going to have entirely different resources and competencies in trying to identify what needs to be examined," he warns. "Counsels are not qualified to detect problematic claims profiles."
Truhe also recommends designing the initial request for information in a way that maintains the flexibility to ask for several rounds of documents as the process unfolds. "It is a process, and you have to listen to the answers you get to figure out where to go next," he says. "Just like litigation, you can’t follow a predetermined script."
Truhe recommends that providers work backwards. "Ask yourself what would you have to look at and who would you have to talk to in order to find out that they were upcoding pneumonia," he says. "You will be surprised as you go through that mental process how far beyond ordinary due diligence material staff will get you."
Truhe also suggests these four steps:
I. Look in nontraditional places. Focus your attention on department-level policy, not corporate-level policy, because the information needed usually is found in the day-to-day policy sitting in front an accounts receivable person. Truhe says that review should include summary financial data, credit balances, cash balances, volumes of late charge, delayed credits, and re-billings, as well as department performance reviews.
II. Probe the information services department. Truhe says it is important to examine the target’s information services department, including logs with corrections and modifications in software, Truhe says. "Look for software conversions and correspondence with software vendors and you will find all the problems with the software that have been detected," he says. "My experience is that about half of all billing errors are buried somewhere in the software, and you don’t discover them until somebody questions why they are getting all these denials."
III. Don’t overlook human resources. According to Truhe, it is important to scrutinize human resources, including recent personnel changes that look out of the ordinary, training materials for the compliance program, financial policies, as well as the qualifications of the people who handle coding and billing and other sensitive processing. "Look at their human resource folders as if you were a Joint Commission on Accreditation of Healthcare Organizations (JCAHO) examiner coming in to look at documents and competence," he says. "If those qualifications look suspect, the likelihood that something is being done wrong is that much greater."
IV. Examine the compliance plans. Truhe says it is important to pay close attention to the compliance plan of the target. "The longer an effective and vigorous plan has been in effect, the more likely it is going to be that anything you discover after the acquisition will be defended as an innocent mistake that escaped the efforts of a vigorous compliance program," he says. "That way, your exposure will only be repayment or a voluntary disclosure and not treble damages."
Truhe says it’s important to look beyond the compliance plan and code of conduct. "Those can be purchased off the shelf and put right back on the shelf."
In addition, he says it is important to review the audit schedule as well. "Even if they successfully keep you from looking at the compliance report itself, they can certainly tell you what their audit schedule has been since their original baseline audit and what they have looked at," says Truhe. He says that will show how vigorous their compliance plan has been and help assess its credibility.
Due diligence does not end after the acquisition, Truhe cautions. "Do a baseline audit immediately after the acquisition so that you can cut short the exposure from the prior activity, and if you find anything that is a problem, go to the government while you are still innocent," he advises.
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