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This case arises out of efforts by the Secretary of Health and Human Services
(the "Secretary") to review Medicare Part B billings by teaching hospitals and
to recover potential overpayments for services rendered by such hospitals to
Medicare beneficiaries. The review is called the Physicians at Teaching Hospitals
("PATH") program, and is conducted in the form of audits by the HHS's Office
of the Inspector General ("OIG"). After a PATH audit of the billings submitted
by the University of Pennsylvania Health System produced a settlement of over
$30 million for the government for Medicare claims submitted between 1989 and
1994, the review was extended to teaching hospitals nationwide. The key findings
in the University of Pennsylvania PATH audit were (1) a lack of documentation
showing the physical presence of the teaching physician during a service performed
by a resident and subsequently billed for payment under Medicare Part B, and
(2) "upcoding" -- i.e., billing for a more complex level of care than that which
was provided.
The core issue of the PATH audits was whether the government was "double-billed"
for the care provided residents. The federal government, through Part A General
Medical Education (GME) grants and other programs, pays the training costs for
most of the medical residency training. This includes the salary of the residents
and additional monies to pay staff to train and supervise the residents. The
government had maintained for many years that since it has already paid for
the resident's salary, it would not pay for medical care provided by the residents.
(This is much more complex under Medicaid, where the states are free to pay
for resident care or not pay for it. This case only involves Medicare.) While
the government also pays to defer the cost of supervising staff, it has allowed
such staff to bill for their care that they provide. As with all audits of government
paid health care services, the auditors use the documentation in the patient
medical records to determine the appropriateness of the services providers.
At many medical schools this documentation was inadequate or non-existent, often
being little more than resident notes, countersigned hours to weeks later. The
medical schools claimed that the attending physicians had been there and rendered
the care. It was just a documentation problem and one they were not responsible
for because HCFA had not specifically spelled out the rules until 1995. The
heart of their claim of misunderstanding is a sort of latches defense - the
fiscal intermediaries paid the claims and thus implicitly endorsed the practice.
The Office of Inspector General (OIG), through the PATH audit process, rejected
these claims of misunderstanding and treated this claims as false claims since
there was no documentation that it was performed by the physician who billed
for it. (Despite the denials of the medical schools, it is clear that a lot
of the work was not supervised in any meaningful sense of the word.) The medical
schools and others are attempting to attack the PATH audit process under the
Administrative Procedures Act as an improper agency action. They argue that
HHS and Department of Justice are using the PATH process to coerce institutions
to settle these cases because the potential losses at trial are so large. The
district court dismissed the action for lack of subject matter jurisdiction
on defendant's motion to dismiss, ruling that the action is premature because
there has been no final agency action, plaintiffs have adequate alternative
remedies, and the issues are not ripe for adjudication.
This case is governed by Shalala v. Illinois Council on Long Term Care, Inc.,
120 S. Ct. 1084 (2000), which was decided after the oral arguments before the
appeals court. Illinois Council construed the statutory limitations on reviewing
actions taken under the Medicare Act, finding that judicial review is not available
unless there is no other avenue of review. The difficulty in this case is that
HHS does provide administrative review for some potential actions taken under
the PATH process, but not for others, forcing the court to determine if it can
sufficiently predict what type of review will be available, i.e., if the case
is ripe for decision. In other cases, Justice takes over the case and prosecutes
it as civil or criminal fraud, affording the defendant the full range of evidentiary
and procedural protections available at trial. Most difficultly, the agency
has made no final rules on the standards for PATH reviews nor does it seem to
be attempting to make such rules. Since these are just investigations, they
are clearly the type of preliminary agency action that is not subject to judicial
review.
The court upheld the district court's finding that the case is not ripe for
decision, but reversed its dismissal of the case with prejudice. The court ruled
that the case may be re-filed at such time as institutions have suffered specific,
remediable harm from improper agency action in the PATH process. The case is
important for institutions subject to the PATH process, but is an incomplete
picture of the process because, as an appeal of a dismissal, it assumes the
truth of plaintiff's position.
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