Could your surgery program be accused of fraud? Recent cases raise question

Recent federal and state cases involving accusations of fraud against outpatient surgery providers have gotten the attention of managers who wonder, could my program fall under similar scrutiny?

These cases have raised questions about waiving out-of-pocket expenses, among other issues. "Providers think that by doing certain things, they think it is helpful to the patient," says Jan Crocker, MSA, RHIA, CCS, CHP, senior manager of the performance group of Crowe, Chizek, and Co., a South Bend, IN-based CPA and consulting firm.

Four surgery centers in New York are being accused of submitting an insurance claim with false information, which might be considered insurance fraud there and has implications for providers nationwide.1 "If you 'willfully and knowingly' do that, or if you are actually making up information — which is an intentional and willful event also — in most states, that is considered fraud," she says.

The four providers in New York were targeted by the insurance plan for the state's employees. Such audits are routine, Crocker warns. The New York civil service commissioner, Nancy G. Groenwegen, labeled the surgery centers as "sophisticated providers" who were willing to break the rules.

Auditors examined medical claims for four of the state's largest ambulatory surgery centers for January 2001 through December 2006. They found that these providers routinely waived out-of-pocket costs for state employees who used the Empire Plan and inappropriately billed United HealthCare, the state's insurance administrator, for these costs, which totaled $8 million. The claims did not reflect the fact that the providers had waived out-of-pocket costs, according to the state comptroller.

"The abuse identified in these audits is particularly insidious and difficult to detect because each instance appears on the surface to show a physician merely agreeing to accept what the insurance company pays," Groenwegen said in a released statement. She referred to "systemic abuse" and said such activity necessitates "increased audit activity to ensure that taxpayer dollars are not wasted." The auditors recommended that United HealthCare recover the $8 million from these providers and work with the Department of Civil Service to develop action to prevent providers from inappropriately waving patients' out-of-pocket costs.

NJ: Owners can't refer to their surgery centers

In New Jersey, a court recently ruled that referral of a patient to a surgery center in which the referring physician owns an interest violates the New Jersey anti-self-referral law (the Codey Act), according to The Philadelphia Inquirer.2

"We're looking at appealing that decision," says John D. Fanburg, JD, chairman of the health law practice group at WolfBlock Brach law firm in Roseland, NJ, which represents the New Jersey Association of Ambulatory Surgery Centers, Orthopedic Surgeons of New Jersey, Orthopedic Surgery Center of Northwest Jersey, and other groups in the case.

Could New Jersey become the only state to bar physician ownership of and referrals to surgery centers? Yes, according to Fanburg.

Health Net of New Jersey, the insurance company, said the surgery center had committed insurance fraud and should not be paid, the newspaper reports. The Codey law specifically exempts centers that treat patients who need certain kidney stone, dialysis, or radiation oncology treatments, but not centers performing surgery. The legal defense for the surgery center maintains that federal law allows physicians ownership of and self-referral to surgery centers, the newspaper says. The state Board of Medical Examiners proposed rules in 2007 to allow surgeons to refer patients to centers they own, with restrictions; for example, surgeons must tell patients about the ownership interest.

Association supports NJ ASCs

In the meantime, New Jersey has the support of the Ambulatory Surgery Center (ASC) Association, says Kathy Bryant, president. The ASC Association was encouraged by the language in the judge's opinion that indicated he found no evidence of insurance fraud or unnecessary care, Bryant says. "The New Jersey law is unique, when compared to the laws in other states," she says. "Nonetheless, it's important to not just defend physician ownership, but to extol the benefits of physician ownership."

The association is having ongoing talks with legislators and the state board of medicine, she says. "The case hasn't finally been resolved, but we don't think it's wise to wait to fix the problem," Bryant says.

In a December meeting, the New Jersey Board of Medical Examiners reviewed the recent decision and received an application from the Medical Society of New Jersey and other physician organizations seeking a special advisory opinion. Thomas J. Pliura, MD, JD, physician and attorney at law in LeRoy, IL, says, "The medical board in NJ is quickly moving to specifically write a law that will protect these surgery centers and physicians in this particular type of arena."

5 tips to help avoid liability

To avoid winding up as the target of an investigation of fraud, consider these suggestions:

• Be familiar with your state laws.

While federal laws affect certain situations, you also must follow specific state laws, Crocker warns. This information is particularly important for ambulatory surgery providers that have locations in more than one state, she says. "Because of state laws, they could be treated differently."

• Have a well-defined policy on how you will qualify patients to waive out-of-pocket expenses.

You can't routinely waive deductibles and copayments under federal Medicare law and many state laws, Pliura says. If you do, the insurance company will maintain that the bill to them was too high, he warns.

"Insurance companies encourage providers to always make a good-faith effort to collect copays and deductibles," Pliura says. Otherwise, "it's the same thing as me running an ad in the paper and saying, 'I'll pay you $20 to come to me.'" The federal government will maintain that you're bribing the patient, he says. Providers, on the other hand, complain that it cost more to pursue collections of smaller bills than the copay or deductible is worth, Pliura says.

There may be some legitimate, legal reasons for waiving out-of-pocket expenses, Crocker says. "Most generally, those good reasons may be that the patient is indigent, or the patient falls below a certain [line] of the federal poverty level," she says. Their income may not be low enough to qualify for Medicaid, yet they may not be able to pay out-of-pocket expenses, Crocker says. "Indigent care is a true exception," she says. Your policy should spell out such exceptions, she says.

• Take steps to ensure claims are correct.

False claims can result from a variety of causes, Crocker says. "Surgeons and their billing and coding staff must be knowledgeable of Medicare and Medicaid billing requirements and know how to stay up to date with new requirements as they are developed," she says. Providers can stay updated through provider manuals on their web sites, Medicare and Medicaid listservs, and provider representatives, Crocker says. Diagnoses and procedure codes are updated at least annually, she points out.

Ensure that your staff are coding diagnoses and services correctly, complying with medical necessity guidelines, and following correct coding initiatives at all times, Crockett suggests. "When billing questions regarding these payers arise, Medicare and Medicaid provider representatives should be contacted for guidance," she says. "Any interactions with the provider representatives should be thoroughly documented for future reference."

Ensure that your training is ongoing, and monitor the coding and billing, Crocker advises.

• Have a strong compliance program in place.

Document your compliance program in a written plan, Crocker advises. "One of the steps is to identify high-risk areas that can affect the appropriate functioning of billing or any aspect of their business," she says. Once you've identified the risk areas, including insurance fraud, take steps to determine how to provide "ongoing, continuous monitoring," Crocker says.

For example, when a surgeon starts performing a new procedure, you may be at a high-risk area for coding and billing appropriately, she says. "Therefore, claims generated for the surgeries performed by that surgeon should be monitored regularly for correct coding and billing," Crocker says. "In addition, remittances for those services should be monitored to watch for appropriate reimbursement or for claim denials that could indicate issues with the accuracy of the claims."

Regularly track and monitor any claim denials that you receive, she advises. Ensure physicians are listing the correct place of service code, Crocker suggests.

• Use your legal counsel.

Always involve your legal counsel when you are developing policies and procedures that have legal questions, Crocker says. "I can't stress enough the importance of not just doing these things because they've read this might work, or they know of another organization doing this, and we don't know of the arrangements made through attorneys," she says. And don't hire just any attorney, Crocker warns. "You can have attorneys that deal with tax issues, manufacturing, and overseas interactions," she says. "You would want attorneys that do have health care expertise involved in this."


  1. Office of the New York State Comptroller. DiNapoli: Audits Find More Abusive Practices in New York State Health Insurance Program — Medical Facilities Inflated Bills, Costing Taxpayers $8 Million. Dec. 3, 2007. Accessed at
  2. Burling S. N.J. ruling threatens surgery centers. The Philadelphia Inquirer. Dec. 13, 2007. Accessed at