Government payment suspension threatens providers

Fourth Circuit ruling lays the groundwork for major reimbursement frays

Health care providers should brace for a surge in payment suspensions as the Health Care Financing Administration (HCFA) ratchets up the pressure on its fiscal intermediaries and Medicare Part B carriers to tighten their scrutiny of claims processing, warn several health care attorneys who specialize in this area.

Worse yet, the attorneys point out that under the Health Insurance Portability and Account ability Act (HIPAA), the government is now em powered under certain circumstances to freeze defendants’ assets before any decision is reached in suspected health care fraud cases.

"It is a very frightening development," asserts William Sarraille, JD, with Arent Fox in Wash ington, DC. "It is hard to imagine a new element in the imbalance of power in False Claims Act cases, but this really does do that because it creates an immediate threat to the financial viability of the organization."

"It is a very powerful tool," agrees Tom Crane, JD, with the Washington, DC-based Mintz Levin. "If anything, I think providers should expect this to be a tool that will be used more and more in the future."

Sarraille says the government can use suspension of payments to put health care providers under investigation on the brink of collapse. "Although the penalties under the False Claims Act itself are overwhelming in and of themselves," he says, "this gives tremendous immediacy to the government’s demands and really forces settlement at the point of a gun."

Health care attorney John Boese of Fried, Frank, Harris, Shriver & Jacobson in Washington, DC, says suspension of Medicare payments and asset freezes can be devastating to a provider’s ability to conduct business on a day-to-day basis and pay for legal representation in the underlying litigation. Boese warns that the government’s increasingly aggressive posture in cases of suspected health care fraud is finding support in federal courts. He points to two recent appellate decisions where courts granted government requests for pre-judgment injunctions, freezing defendants’ assets in health care fraud cases. "In one case," he says, "the government was not even required to link the assets to the alleged fraud."

That case involves a qui tam relator who claims the government was overbilled for radiation oncology services. But even before the qui tam suit was initiated, Boese says HCFA had directed the carrier to suspend payments for more than $2 million in services because of the suspected fraud.

Crane says HCFA has significant regulatory authority to suspend payment when there is suspicion of fraud. He adds that while the HIPAA regulations are relatively new, prosecutors are becoming more familiar with them and more comfortable using them. "Health care providers should expect those to be used more extensively down the road," he warns, "and those also are very powerful."

According to Boese, Medicare regulations require carriers to take "timely action" to obtain evidence that may be needed to make a determination about an overpayment and to make "all reasonable efforts" to expedite that determination. The regulations give carriers 180 days, although a one-time 180-day extension may be granted.

However, the regulations also allow those time limits to be waived at the request of the U.S. Department of Justice based on fraud investigation and pending criminal or civil actions.

In a decision issued earlier this month, Boese says, the Fourth Circuit reviewed a finding by a district court that halted the trend. In that case, the Fourth Circuit upheld a decision by a district court requiring HCFA to complete Medicare overpayment determinations within 20 days regardless of a pending False Claims Act complaint.

The court rejected the government’s argument that the administrative mechanisms available to HCFA were inadequate because of the complexity of the alleged fraud. It also rejected the government’s assertion that the administrative decision should be deferred until a decision was reached in the False Claims Act litigation and should be based on the outcome of that case.

"The Fourth Circuit’s decision is important because it highlights the increasingly aggressive posture taken by the government in cases of suspected health care fraud," asserts Boese. But he adds that the court then gutted the effect of its own decision by allowing HCFA to delay its determination indefinitely.

"Although the practical effect of this decision may be negligible for defendants in this case," he says, "the ruling is significant because it holds that the government’s investigation in a civil False Claims Act case does not eliminate defendants’ rights under parallel administrative regimes."

According to Sarraille, the Fourth Circuit has become increasingly conservative and critical of the government in the last several years. Providers should not assume, however, the Fourth Circuit’s apparent deference to procedural safeguards will carry the day across the country, he adds. "We continue to see a situation where, in most federal courts, the federal government in these fraud and abuse cases is given significant deference by the courts and significant latitude."