Medicare audit likely to cost U.S. taxpayers

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The rulings by administrative-law judges for the Office of Medicare Hearings and Appeals will restore money withdrawn from California hospitals, some of which trimmed services to Medicare patients as a result of the reviews.

But PRG-Schultz International, which is paid up to 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 triallike 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 (CMS) auditing program to all 50 states by 2010.

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

PRG-Schultz began by looking at the state's 74 rehabilitation hospitals, swamping them with reviews of cases dating back to 2002.

Its auditors rejected almost all the claims for patients admitted after knee- or hip-replacement surgery, saying in essence that the 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 reach $29 million. But since then, the hospital association said thousands more claims have been rejected and auditors are 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.

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.

While congressional aides said complaints are on the rise in Florida and New York, there has been an avalanche California. The California Hospital Association has asked for an investigation, and the powerful California congressional delegation demanded CMS amend the program or face legislation.

The first cases headed into administrative courtrooms last month, shifting from an internal paperwork review within the department into adversarial trials, with witnesses called and other evidence submitted.

One case involved a 77-year-old woman admitted to the rehabilitation unit at Glendale Adventist Medical Hospital in 2002 after knee-replacement surgery. She had heart problems and lived alone.

When transferred to the rehabilitation unit, she could not stand without help, antibiotics were being given to her intravenously and she was in extreme pain. After eight days in the undergoing therapy, she returned home.

Even though Medicare had paid the claim in November 2002, PRG-Schultz sent a letter in June 2006 saying it was reopening the case "due to a recent review and discovery of potential overpayment."