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Update #2
Department of Jusice/Office of the Inspector General
DRG Three-Day "Window" Project

TO: Allied Association Legal Counsel and V.P. Finance
FROM: John E. Steiner, Jr.
American Hospital Association
Office of General Counsel
DATE: February 27, 1996

Contractor Advice to Providers May be Confusing

The enclosed February 27, 1996 letter from our office to the Department of Justice and the Office of Inspector General highlights the problems our members are likely to encounter as fiscal intermediaries attempt to guide providers through interpretive issues related to the DRG "72 Hour" Rule (Rule).

In addition to our recent letter, the enclosures include a memorandum, dated January 31, 1996, from a Pennsylvania contractor to chief financial officers addressing Rule questions and compliance aspects of the Settlement Agreement. I also include for your reference the December 11, 1996 Legal Alert on this topic. The enclosures emphasize that there are interpretive complexities with the Rule that may not be solvable by providers or the Department of Justice, yet providers need reliable guidance to interpret the Rule and comply with the terms of the Settlement Agreement.

A consistent response from the provider field regarding interpretive Rule issues may lead the DoJ and the OIG to seek further clarification from the HCFA of several of these important issues.

Settlement Approach May Vary by State

I also restate below self-explanatory language from recent correspondence from our office to the Department of Justice that also was shared with the Office of Inspector General regarding the settlements:

We have been advised that hospitals in areas other than the original Western Pennsylvania region are now negotiating settlements with the U. S. Attorneys in Harrisburg. Variations in edits and policies between fiscal intermediaries over the relevant time period are now evident, and raise the prospect of obvious arbitrariness and unfairness. Because some intermediaries were better at identifying "window" problems than others, the volume of inappropriate claims is variable from region to region. However, there appears to be some insistence on maintaining an equal distribution of hospitals in the three penalty tiers regardless of the relative volume of claims. Thus, a hospital in eastern Pennsylvania is liable for a higher tier assignment with correspondingly higher penalties than a hospital in Western Pennsylvania. This approach is arbitrary and illogical as it bears no relationship to the degree of allegedly improper conduct. We strongly urge you to discuss this with the Harrisburg office and revise the approach as the project spreads across the country.

February 26, 1996

Larry Selkowitz
United States Attorneys Office
228 Walnut Street
Federal Building, 8th floor
Harrisburg, PA 17108

Patrick Marion
Department of Health and Human Services
Office of Audit Services
P.O. Box 13716
Mail Stop 9
Philadelphia, PA 19101

Robert Yevitz
United States Attorneys Office
Federal Building, Suite 309
Washington and Linden Streets
Scranton, PA 18501

RE: DRG 72 Hour Window Project/AHA Legal Alert/Contractor Guidance


Per our recent conversation, I attach a December 11, 1995, AHA Legal Alert ("Alert") on this project that we sent to our allied hospital associations and members. This Alert covers many issues that we have discussed over the past several months, including the December 5, 1995 agreement on a revised definition of a Claim for purposes of calculating penalties and implementing compliance plans pursuant to the Settlement Agreement. The Alert includes earlier correspondence from our office to the Department of Justice, with copies to HCFA, that highlights the interpretive problems the field is encountering with the terms "whollyowned or operated by the hospital" or "under arrangements with the hospital" (See page 3 of our attached September 19, 1995 letter).

AHA is concerned that our members and their counsel continue to struggle with interpretive issues and Settlement Agreement compliance requirements in light of recent written guidance, from at least one contractor in Pennsylvania, on several "72 Hour Rule"(Rule) issues. As discussed below, the contractor distributed the attached memorandum to chief financial officers, presumably only in Pennsylvania, in response to questions related to the Rule. Health care providers and their counsel are concerned that contractor guidance on the Rule may not be consistent with the definitions and compliance requirements in the Settlement Agreement. As you are aware, we included the following language in Paragraph 8 of the Settlement Agreement in structuring a pre and post submission claims process. Paragraph 8 of the Settlement Agreement states:

The parties acknowledge that because the volume of Medicare Claims submitted and the variety of clinical circumstances to which the rule for billing outpatient services may be applicable, in all likelihood erroneous Claims will be submitted by the Hospital subsequent to the effective date of this Agreement.

The probability of provider error in attempting to comply with the Rule will be exacerbated by problematic responses to questions about the Rule, such as those in the contractor's memorandum highlighted below:

Page #

Question #



The "wholly owned entity" phrase is quoted in the question, indicating use of a legal term of art that the questioner may not know how to interpret. The response does not remotely address the meaning of the quoted language. Moreover, there is no mention of the definition of a Claim as set forth in Paragraph 2 of the Settlement Agreement.



This response is closer to the Claim definition of the Settlement agreement, i.e., one provider number, but only refers to "servicesby the same admitting hospital."



Again, the Settlement Agreement links a "Claim" to a precise definition, yet this response restates, without amplification, the "wholly owned or operated entity or under arrangements"phrase from the Rule. Providers do not want to revisit with the Department of Justice or Office of Inspector General the issue of good faith compliance with the Settlement Agreement. That is why it is critical for written guidance from the contractors to be consistent with the government's expectations of providers under the terms of the Settlement Agreement.



The point made immediately above also applies to the response to this question. The contractor is sending a message that there is a zero tolerance for errors in complying with the Rule. Yet, the next sentence indicates that a good faith effort to adopt and maintain pre and post submission claim processes should protect providers from future allegations and prosecutions for False Claims.



This response does not mirror the definition of a Claim in the Settlement Agreement.



I would assume that by now contractors would have a fairly uniform "default" position in response to this question. Otherwise, the current practices of some providers to hold all outpatient claims for 3 days and/or some contractors to reject all outpatient claims submitted within 3 days are likely to continue.



I am aware of a working group of reimbursement experts from the private and public sector that have initiated a comprehensive analysis of the numerous combinations of the "relate to"test under the Rule. I have seen early drafts of their work product and find it incredibly complicated. I will try to obtain the consent of this group to release a copy of their document to you.

The complexities of the Rule and the practical obstacles to attaining error free implementation are very likely to create a continuing pattern of erroneous claims data that will appear on subsequent OIG audits. That is one of the main reasons that we agreed to define the term "Claim" as clearly as possible for purposes of the Settlement Agreement.

The responses in the contractor's memorandum that refer to the Settlement Agreement uniformly recommend that the provider consult with legal counsel. As you and I have discussed, legal counsel are contacting our respective offices for further interpretation of issues that either have been addressed in the Settlement Agreement or that may be beyond our authority to interpret. I understand that many inquiries about the Rule also are being directed to HCFA Central. At this point, it may be necessary to ask HCFA to clarify and interpret the content in the attached Pennsylvania contractor's memorandum.

I would be happy to discuss with you any of the issues and comments raised in this letter and hope that your offices raise our concerns expressed in this letter and the attachments with HCFA.

Truly yours,

John E. Steiner, Jr.
Assistant General Counsel

cc: Fredric J. Entin



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