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Forensic and Valuation Issues in Healthcare
The document discusses forensic and valuation issues in the healthcare sector, primarily focusing on regulatory frameworks, compliance challenges, and the implications of the False Claims Act. It emphasizes the importance of financial advisors in navigating false claims investigations and assessing damages, while outlining the significant risks and penalties associated with violations of healthcare laws. The content also explores the factors influencing the valuation of physician practices, providing insights into patient demographics and potential referral sources.
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Forensic and Valuation Issues in Healthcare
- 1. #AICPAfvs Forensic andValuation Issues in Healthcare November 10, 2014
- 2. #AICPAfvs Agenda andLearning Objectives Section 1 Regulatory Framework, OIG Investigative Focus, and Recent Cases Against Healthcare Providers 4 Section 2 Calculating Damages and Methodology Issues for Healthcare Companies 24 Section 3 Role of Financial Advisors 30 Section 4 Valuation Drivers in Acquiring Physician Practices 43 Appendix Speaker Biographies 49 2
- 3. #AICPAfvs Key Take-Aways This session will assist in understanding the current regulatory environment and areas of focus by regulators in monitoring payments of healthcare claims and enforcement of laws. This session will assist in understanding healthcare claim payment and valuation issues unique to the healthcare industry and will cover how advisors can assist counsel and clients in assessing false claim investigations, addressing complex valuation issues, assessing ability to pay and providing analysis assistance and expert testimony. 3
- 4. Section 1: RegulatoryFramework, OIG Investigative Focus, and Recent Cases Against Healthcare Providers #AICPAfvs 4
- 5. Anti-Kickback Statute, StarkLaw and False Claims Anti-kickback statute is designed to prevent: #AICPAfvs - Over-utilization - Increased costs - Corruption of medical decision-making - Patient steering - Unfair competition 5
- 6. #AICPAfvs Anti-Kickback Statute The Anti-Kickback Statute • Prohibits - Knowingly and willfully, directly or indirectly offering, paying, soliciting, or receiving remuneration in order to induce or reward the referral or purchase of items or services to be paid for by federal healthcare benefit program Violation is a felony: • Criminal fines up to $25,000; prison up to 5 years • Civil penalties, fines, exclusion Statutory Exceptions Regulatory Safe Harbors 6
- 7. #AICPAfvs Stark Law Stark Law (physician self-referral law) Unless an exception applies, the physician self-referral law prohibits: • A physician from making referrals for certain designated health services payable by Medicare to an entity with which he or she (or an immediate family member) has a financial relationship. • The entity from presenting or causing to be presented claims to Medicare (or billing another individual, entity, or third party payer) for those referred services. 7
- 8. #AICPAfvs Sanctions andPenalties A strict liability statute: • Denial of payment for DHS provided in violation of the prohibition • Refund of money collected for DHS provided in violation of the prohibition Other penalties include: • Civil monetary penalties (for knowing violations only) • Exclusion from Medicare/Medicaid • Potential civil False Claims Act liability 8
- 9. #AICPAfvs Physician Self-ReferralAnalysis: Three Questions 1. Is there a referral by a physician for a designated health service (DHS) payable by Medicare? 2. If yes, does the physician (or an immediate family member of the physician) have a financial relationship with the entity furnishing the DHS? 3. If yes, does the financial relationship fit in an exception? • If the answer to the third question is “no,” then there is a violation. 9
- 10. Stark Exceptions: Afinancial relationship exists. Now what? Stark exceptions v. Anti-Kickback “safe harbors” Three major categories of Stark exceptions • General exceptions: both ownership/compensation • Ownership exceptions • Compensation exceptions #AICPAfvs 10
- 11. #AICPAfvs False ClaimsAct Federal statute imposes civil liability for submitting false claims for payment to United States • Submitting a claim for payment, or causing claim to be submitted for payment by government funds • Making or using, or causing to be made or used, false records or statements material to a false claim • Making or using, or causing to be made or used, false records or statements material to an obligation to pay money or property to the Government, or knowingly concealing or improperly avoiding or decreasing an obligation to pay money to the Government • Conspiring to defraud the Government by getting a false or fraudulent claim paid • All require “knowledge” of falsity/fraud 11
- 12. #AICPAfvs Types offalse claims Direct False Claims: liability for submitting false claims to the Government, or making false statements to get false claims paid by the Government Reverse False Claims: liability for making false statements to avoid paying money owed to the Government 12
- 13. Liability Based onViolation of Other Laws The violation of a separate statute or regulation can provide the basis for liability under the False Claims Act The underlying violation renders the claim false or fraudulent, thus giving rise to the False Claims Act violation Three basic categories: • Items or services were defective • Claimant falsely expressly certified compliance with #AICPAfvs statute/regulation • Compliance was a condition of payment 13
- 14. Risks & Liabilitiesfor Violations of False Claims Act #AICPAfvs Treble damages Civil penalties of $5,500 to $11,000 per claim Likely that provider will be subject to a Corporate Integrity Agreement Risk of exclusion from federal healthcare programs 14
- 15. Increased stakes withrecent amendments False Claims Act remained unchanged for almost thirty years: • Two recent major amendments to False Claims Act, expanding #AICPAfvs reach of False Claims Act • Fraud Enforcement and Recovery Act of 2009 (FERA). - Biggest impact on healthcare providers – amendment of reverse false claims provision • Patient Protection and Affordable Care Act of 2010 (Affordable Care Act) 15
- 16. #AICPAfvs Enforcement Trends Civil enforcement through False Claims Act Focused areas of enforcement • Pharmaceutical manufacturers, especially off-label promotion and kickbacks • Devices, especially kickbacks • Inpatient/outpatient hospital • Hospice (patients’ medical eligibility) • Financial relationships with physicians (kickbacks and Stark Law, especially in Medicaid) • Individuals Increased enforcement by states 16
- 17. #AICPAfvs Enforcement Trends Recent amendments indicating support from the legislature The perfect storm for healthcare fraud enforcement • Law Enforcement / Regulatory Agencies • Fighting fraud and abuse is a priority • More aggressive, coordinated, and successful • HEAT: Health Care Fraud Prevention and Enforcement Action Team • Whistleblowers 17
- 18. #AICPAfvs Enforcement Trends Healthcare Investigations Origination of Cases • Qui Tam Lawsuits • Proactive Investigations • Referrals from HHS/OIG or Contractors • Criminal prosecutions Parallel Proceedings • DOJ directive to pursue parallel civil and criminal 18
- 19. #AICPAfvs What Doesit All Mean? What Does All of this Mean for the Healthcare industry? • Increased likelihood of facing enforcement actions. • Increased likelihood of facing whistleblower complaints. • Increased likelihood companies will undertake internal investigations. • Be proactive and stay off the radar. • Compliance, compliance, compliance. 19
- 20. #AICPAfvs Recent Cases 2014 on track to be a record-breaking year for government recoveries in healthcare, alleging in many cases violations of: • False Claims Act • Stark Law • Anti-Kickback Statue Justice Department recovered $3.8 billion from False Claims Act cases in fiscal year 2013 Source: Becker’s Hospital Review & Department of Justice websites 20
- 21. Section 2: CalculatingDamages and Methodology Issues for Healthcare Companies #AICPAfvs 21
- 22. Damages Analysis –Physician Practices Claims for lost profits in connection with physician practices are typically defined in terms of loss of compensation. • For a small practice, lost profits analysis is similar to a physician’s claim #AICPAfvs for lost earnings in a personal injury case. Large practices and/or those with ancillary testing capability (e.g., imaging and laboratory) have more traditional lost profits damages claims such as violation of non-compete/non-solicitation agreements • Possible damages: - Lost profits related to ancillary testing revenues, from losing the violator’s patients, and/or overhead costs previously allocated to former employee - Recruiting and training costs to replace the lost employee 22
- 23. #AICPAfvs Basic CompensationAnalysis A method for determining lost profits for a physician Individual productivity and the rate per unit-of-service paid for the various services are large drivers of physician profits and compensation • Productivity can be measured a number of ways such as work RVUs, collections, encounters, etc. • Trends in payer reimbursement should be considered. Large concentrations in governmental payers will limit ability to grow rate per unit-of-service Any claim for lost profits should consider the historical pattern of work by physician(s) and the local market area 23
- 24. #AICPAfvs Physician Supplyand Demand Relevance of local vs. national data used to benchmark physician compensation is dependent upon supply and demand and the recruiting market Nationwide shortage of specialty and the relative equivalence in compensation by area Other factors • Rates paid by insurers for services • Cost of living differentials • Relationship between physician with significant influence and specialized training such as robotically trained surgeons 24
- 25. Damages Analysis –Other Healthcare Organizations Larger healthcare organizations have more traditional lost profits analyses based on loss of cash flow to investors • Examples include hospitals, surgery centers, dialysis clinics, cancer #AICPAfvs centers etc. • Traditional “but for” analysis • Also consider other contributing factors such as: - Shifts in payer concentration - Barriers to entry (i.e. Certificates of Need) - Changes in technology - Changes in governmental payer philosophy such as Medicare changes in coverage decisions or payment rates 25
- 26. #AICPAfvs Potential LostEarnings Analysis Experts should focus on the following areas to analyze potential lost earnings: Productivity Trends Physician Supply and Demand Barriers to Entry Medicare Changes Payer Mix Other Factors Capacity Constraints 26
- 27. #AICPAfvs Section 3: Role of a Financial Advisor 27
- 28. A financial advisorcan assist a Client and its Counsel navigate and address alleged false claims, other violations and related damage matters #AICPAfvs 28 The Role of a Financial Advisor
- 29. Roles for CPAsand FAs in Chapter 11 Bankruptcy Assistance to Legal Counsel and Clients related to false claims allegations, other asserted violations and judgments may include: Evaluation and Calculation of the Alleged Damages and Penalty Assessment and Testing of Claims Evaluation of the Ability to Pay Evaluation of Alternatives (Negotiation, Appeal, Bankruptcy, etc.) #AICPAfvs The Role of a Financial Advisor Negotiation Assistance and Support Expert Report and Testimony 29
- 30. Evaluation and Calculationof the Alleged Damages and Penalty Review the asserted claim, underlying support of the claim and the methodology to calculate the total claim • Size of the claim • Asserted actual vs. estimated claim amount • Procedural testing issues Review the nature of the claim and testing performed related to the medical record and respective billing statement • Improper payments to physicians for referrals – all referrals from physicians #AICPAfvs may be disallowed • Review of medical necessity (e.g., treatment was deemed not medically necessary) • Improper characterization of patient status – billed as ‘inpatient,’ but should have been ‘observation’ (e.g. one-day stay) • Alleged up-coding of care • Missing physician order for admission or certain ancillary procedures 30
- 31. Evaluation and Calculationof the Alleged Damages and Penalty (cont.) Financial advisor may need to work with clinical and medical record professionals in assessing the alleged claim Per The Health Insurance Portability and Accountability Act of 1996 (HIPAA) requirements, a Business Associate Agreement is required for a consultant to review detailed patient medical and billing records Financial advisor will work closely with legal counsel to determine the assistance needed and may be engaged directly by counsel to protect the confidentiality of work product and findings After understanding the nature and size of the claim and consultation with client and counsel, the next step is to: • Determine how the government calculated the alleged total claim amount • Conduct detail testing of claims the government (and its contractor) reviewed and potentially expand the testing of claims to defend against asserted claims and mitigate claim payment due #AICPAfvs 31
- 32. Calculation of ClaimDamages/Overpayments Statistical sampling has been used by Centers for Medicare & Medicaid Services (CMS) for over 40 years as an accepted method of estimating overpayments • CMS adopted this process due to the enormous administrative burden and costs of auditing on an individual claim-by-claim basis • CMS utilizes contractors to performs a detailed review of the medical records and respective billing statements to identify any potential inaccurate and false claims and related overpayments • CMS and its contractor use an extrapolation methodology to #AICPAfvs calculate its estimated claim overpayment amount 32
- 33. Calculation of Damages/Overpayments(cont.) The methodology for statistical extrapolation has many issues which include: • A sample of as few as 30 Medicare claims may be statistically valid, but may not be representative of the entire claims population; a larger sample size, identification of proper claim population or actual testing of the full claims population will likely have a different outcome (precision of overpayment estimate may be questionable) • Provider bears the burden of providing sufficient and timely information, otherwise claim may be deemed inaccurate and is counted as an actual claim error and is included in the extrapolation estimate for the total claim amount • During the appeals process, if an initial determination is reversed, the #AICPAfvs extrapolation needs to be adjusted • The sample tested may have unreliable results if the sample is not stratified - Service line/service (e.g. cardiology, orthopedics, inpatient, outpatient, etc.) - Nature of the claim (e.g., patient file missing the physician order for admission to hospital differs from the file missing an order for a lab test – partial incompletion of file may lead to disallowance of the entire claim) 33
- 34. #AICPAfvs Assessment andTesting of Claims On August 22, 2013, the Government Accountability Office (GAO) released a report to Congress noting several issues with the CMS review process, including: • Varying post-payment review requirements across the different contractors in claims selection, timeframes for provision of documentation, communications to providers about the reviews, and quality assurance processes • Inaccurate claims determinations • Concerns that the contingency fee payment structure creates incentives for Recovery Audit Contractors (RAC) to be too aggressive in determining improper claims, resulting in a significant provider burden 34
- 35. #AICPAfvs Overturning CMSRulings Challenging a CMS determination can be beneficial as financial advisors may determine inaccuracies in CMS findings RAC Region # of Claims With Identified Overpayments # of Overpayment Identifications Appealed* % of Overpayment Identifications Appealed # of Appealed Overpayment Identifications Overturned % of Appealed Overpayment Identifications Overturned % of Appealed Overpayment Identifications Overturned out of Claims Identified with Overpayments A 131,037 3,588 3% 955 27% 1% B 110,468 15,726 14% 6,303 40% 6% C 335,338 9,928 3% 3,612 36% 1% D 490,168 35,956 7% 17,945 50% 4% Total 1,067,011 65,198 6% 28,815 44% 3% Source: OIG analysis of CMS appeals data, 2012, see http://oig.hhs.gov/oei/reports/oei-04-11-00680.pdf *Because the outcomes could not be linked to specific RAC regions, these numbers exclude 3,968 unspecified appeals that were adjudicated by Administrative Law Judges. 35
- 36. Ability to PayAlleged Claim and Settlements CMS expects corrective action and payment of claim and penalty Financial settlements on False Claims Act allegations can be negotiated and alleviate some financial burden; however, ability to pay and liquidity issues may still exist Financial advisors can assist providers with determining the ability to pay the alleged claim or a potential settlement amount – How much can a provider pay and still be viable? • Identify excess cash on hand and cash needed to be maintained for current #AICPAfvs and future operations • Forecast excess future cash flow • Identify unencumbered assets for potential collateral for debt or possible asset sale to generate cash for payment of alleged claim or settlement • Determine debt capacity and ability to borrow (e.g., issue bonds, bank loan) 36
- 37. Pay Claim Damages/Settlement Administrative Appeal Negotiate Settlement and Payments Sale/Merger/Closure #AICPAfvs Evaluate Strategic Alternatives Based on: (i) the nature and size of the claim, (ii) clinical, financial and legal findings from claim analyses, (iii) expanded testing and extrapolation review findings, and (iv) ability to pay and preliminary negotiation and appeal results- the alternatives may vary. 37 Current and Evolving Situation Court Proceeding and Appeal Chapter 7 or 11 Bankruptcy or Restructuring/Sale/Liquidation
- 38. #AICPAfvs Evaluation ofAlternatives Appeal Claim; Negotiate, Assess ability to pay Conduct testing & analyses Is there a capital/cash crisis? Is stabilization possible? Can Funds be Raised for Payment Negotiate/Appeal Claim; Consider stabilization activities Consider options Chapter 11 Chapter 7 Negotiate/Appeal Claim; Conduct business and financial analysis Consider options for Payment of Claim or Settlement Exit strategies: Merger/Sale Pay Claim or Settlement Chapter 11 Meet management & legal counsel Yes Yes Yes No No No Exit strategies: Merger/Sale Initial Diagnostic: Decision Tree Understand the alleged claim as well as client issues and objectives 38
- 39. Negotiation Assistance andSupport Financial advisors can help healthcare providers reach potential settlements and implement government required changes by: • Reviewing policies, internal process controls and payments made: payments to physicians, lease arrangements, bonus compensation and teaching arrangements to resolve and possibly prevent Stark Law and Anti-Kickback Statute allegations • Issuing recommendations for corrective action, changes in policies and assisting to implement proper controls and best practices • Conducting internal investigations to compare to agency findings • Conduct extensive cash flow forecasting and capital advisory #AICPAfvs assistance to determine ability to pay • Evaluate alternatives including filing for bankruptcy to restructure all obligations including government claim or financial settlement • Traditional negotiation assistance regarding terms of settlement 39
- 40. Section 4: ValuationDrivers in Acquiring Physician Practices #AICPAfvs 40
- 41. #AICPAfvs Value Drivers Patient Demographics Patient demographics form the core of the data for any medical institution: • Allow for the identification of a patient and his/her categorization into categories for the purpose of statistical analysis • Certain medical conditions are more prevalent for particular patient groups - For example, cardiology practices need a concentration of older patients where pediatrics need more families • Need to understand how far patients are willing to travel for medical care – as an example dialysis clinic patients 41
- 42. #AICPAfvs Value Driverscont. Referral Sources Healthcare professionals who may make a referral: • Physicians • Nurse practitioners (NP) • Physician assistants (PA) • Certified nurse midwives (Midwives) What are the ages of referral sources? Are referral sources concentrated? 42
- 43. Midlevel Providers (MLPs) #AICPAfvs Value Drivers cont. Healthcare professionals other than physicians who provide healthcare services to patients (NP, PA, & Midwives) Allows the organization to leverage the care model MLPs may provide services under the direct supervision of a physician If properly utilized, can result in additional margin to the organization 43
- 44. Payer Environment –Who is Footing the Bill? #AICPAfvs Value Drivers cont. Concentration in a market of commercial health insurers (e.g., Blue Cross, United, Aetna, Cigna) • The more concentrated the market in terms of health insurers, the less likely a healthcare services provider will be able to negotiate favorable contracts. - Market control over pricing is held by these few insurers, thus leading to an expectation of lower profits - In some markets, commercial payers are less than Medicare If rates are favorable, are they locked in for a number of years? Are there automatic inflators built in? 44
- 45. #AICPAfvs Value Driverscont. Ancillary Services Allows for revenues to be generated from something other than a physician’s personal effort • Technical Component (TC): - Paid in connection with ownership of equipment, provision of a technologist to operate the equipment, supplies and general overhead. • Professional Component (PC): - Paid to the physician specifically for personal efforts like reading a test If properly utilized, can drive additional value, otherwise can be a deterrent to value Can be barriers to entry here 45