Appeal reverses claims rejections

The company gets paid only if it finds fraud or waste.

MCCLATCHY NEWSPAPERS

WASHINGTON — U.S. taxpayers will end up paying millions of dollars in commissions to an Atlanta-based auditor even though the firm’s wholesale rejections of Medicare claims from California rehabilitation hospitals are being reversed on appeal.

The rulings by administrative law judges for the Office of Medicare Hearings and Appeals will restore money withdrawn from California hospitals, some of which are suffering financial hardships and have trimmed services to Medicare patients as a result of the reviews.

But PRG-Schultz International, which is paid as much as 25 to 30 cents for each dollar of Medicare spending it identifies as wrongly paid, can keep its bounty as long as its findings are sustained through the first two levels of administrative review. The reversals are coming in the third level, the first time PRG-Schultz’s decisions are being looked at through independent eyes in trial-like settings.

The rulings are turning an experimental federal program to root out waste, fraud and abuse in Medicare into a costly fiasco. But they also could undermine the basis for a congressional decision to permanently expand the Centers for Medicare and Medicaid Services auditing program to all 50 states by 2010.

Medicare officials are worried.

“CMS is watching the . . . rulings very closely and they will be one of the factors used when making future policy decisions concerning the program,” said program spokesman Dan McLeod.

A spokesman for PRG-Schultz said the firm is deferring to the Centers for Medicare and Medicaid Services for comment.

Cases rejected

But lawyers representing California hospitals think the end is near for the controversial program. PRG-Schultz began its work by looking at the state’s 74 rehabilitation hospitals, swamping them with reviews of cases dating back to 2002.

Its auditors have rejected almost all of the claims for patients admitted after knee and hip replacement surgery, saying in essence that the highly focused therapy the patients received was medically unnecessary and that they should have been treated through outpatient services or sent to nursing homes.

As of Sept. 30, 2006, according to a CMS report, $105 million in charges had been rejected by PRG-Schultz under the program. The company’s commission could be as high as $29 million. But since that report, the hospital association said thousands of additional claims have been rejected and that auditors are now starting to deny rehabilitation hospital services for stroke victims.

According to opinions trickling out from the administrative judges, auditors have no authority under Department of Health and Human Services rules to review cases older than a year without good cause, which PRG-Schultz has not shown. The rulings point to a fundamental flaw in the audit program, which according to a 2005 CMS press release, was designed to look at cases at least a year old.

The audit program was established as a demonstration project in three states — California, Florida and New York — in 2005. Auditors were chosen for each state to review Medicare records for mistakes and overcharges. Their only compensation is the commissions, which critics see as a powerful incentive to find problems where there may be none.