OMIG Audits: Failure to Provide Comments Can Prove Costly

September 19, 2018 | James P. Lagios | Margarita Christoforou | Compliance Investigations & White Collar | Health Services

Healthcare providers must not only be knowledgeable in their respective specialties, they must also understand and comply with the multitude of regulations that not only directly affect their practice of medicine, but also their payment for the services rendered. After all, “those who deal with the government are expected to know the law, and cannot rely on the conduct of government agents to excuse legal obligations.”[1]

The case of West Midtown Management Group, Inc. v. State demonstrates that relying on one sentence of a notice without understanding the context of the applicable regulation can be a very costly mistake.

Background

The Office of Medicaid Inspector General (OMIG) is an independent office of the Department of Health charged with detecting, investigating and preventing fraud and abuse within the Medicaid Program. [2] As a mechanism to recover overpayment of claims made by providers, OMIG often utilizes on-site audits and statistical sampling.[3] During an audit, OMIG analyzes a sample of the provider’s Medicaid claims and then extrapolates its findings to the entire universe of the provider’s Medicaid claims to arrive at an estimate of the total overpayments to the provider during the audit period. An overpayment can result from inaccurate or improper cost reporting, improper claiming, unacceptable practices, fraud, abuse or even a mistake.[4]

At the conclusion of any audit, OMIG issues a draft audit report that identifies any alleged overpayment amounts, OMIG’s proposed action and its legal basis. The draft audit report will also include a proposal to settle the audit at a reduced amount that is something less than the fully extrapolated overpayments. This reduced amount is referred to as the “lower confidence limit.” Providers have the opportunity to comment on and challenge the findings of the draft audit report, and a failure to do so within 40 days from the issuance of the draft audit report results in the adoption of the proposed action in the final audit report.[5] A failure to provide comments also provides OMIG with the opportunity to take the position that any subsequently raised objections during an appeal were waived. Thus, it is imperative that providers timely submit to OMIG their comments on draft audit reports raising all known objections. OMIG has historically granted requests from providers to review the draft audit findings, submit supplemental information and to raise all manner of objections, and providers are well advised to take advantage of this opportunity.

Once the final audit report is issued, OMIG will begin to recoup overpayments in the amount of the lower confidence limit, even if the provider wishes to take advantage of the appeal process. If the provider prevails on the appeal, OMIG will refund its recoupments. On the other hand, if the provider loses on the appeal, OMIG reserves the right to recoup the fully extrapolated amount of overpayments based on the audit. Thus, it is imperative for providers to not be lulled into thinking that their downside risk to not appealing is limited to the lower confidence limit amount that is being recouped.

In order to settle an audit, a provider must either: (1) agree to pay the lower confidence limit amount within 20 days of the final audit report; or (2) enter into a repayment agreement within the same 20-day time frame.[6] In the alternative, a provider may request an administrative hearing within 60 days of issuance of the final audit report. If the provider fails to respond to the final audit report within the 60-day deadline, the final audit report is then filed with the County Clerk and becomes a fully enforceable judgement.[7]

Thus, to recap, providers should keep in mind two things about the process:

  1. When a provider requests an administrative hearing, OMIG then has the right to seek and defend the fully assessed extrapolated point estimate amount and is not limited to only seeking payment of the lower confidence limit; and
  2. Twenty days after the issuance of the final audit report, and upon five days’ prior notice, OMIG will generally begin withholding a percentage of Medicaid payments to which the provider would otherwise be entitled to, even before the expiration of the 60-day period for the provider to request a hearing.

The second point is important because, even if the previous notice from OMIG references only the lower confidence limit, OMIG may still recoup the full point estimate amount in the event the matter is not settled within the 20-day period or otherwise resolved in the provider’s favor during the appeal process. Unfortunately, West Midtown learned this lesson the hard way.

The West Midtown Decision

West Midtown is a Medicaid provider that operates two methadone clinics in Manhattan. After conducting a routine audit of West Midtown’s claims, OMIG found the extrapolated point estimate amount of Medicaid overpayments to be $1,857,401, and the lower confidence limit to be $1,460,914. Having concluded the audit, OMIG issued a draft audit report and a subsequent final audit report with an accompanying cover letter. The final audit report explained that if the provider did not settle within 20 days, OMIG would withhold 50% of the provider’s Medicaid billings to “recover payment and liquidate the lower confidence limit amount, interest and/or penalty, not barring any other remedy allowed by law.”[8]

After receiving no response from West Midtown, once the 20-day settlement period lapsed, OMIG issued its first notice of withholding, which referenced liquidation of the lower confidence limit and its right to take additional actions. Upon expiration of the 60-day period to request a hearing, and with West Midtown taking no action, the final audit report became an enforceable final judgement and sometime thereafter a second notice of withholding, again referencing the lower confidence limit, was sent to West Midtown. West Midtown mistakenly assumed that because the two previous notices from OMIG referenced only the lower confidence limit, OMIG would therefore not exercise its right to seek the higher point estimate amount. By that point, however, the appeal deadline had passed, and OMIG had no reason to engage in any further settlement discussions or make any audit concessions.

Subsequently, West Midtown learned that OMIG would in fact be seeking the full point estimate, and West Midtown then commenced an Article 78 proceeding arguing that the notice of withholding was insufficient because it specifically mentioned collection of only the lower confidence limit and did not reference collection of the higher point estimate.[9] However, the Court disagreed and held that despite repeated references to the lower confidence limit, the final audit report and the notices of withholding adequately informed West Midtown that OMIG was seeking and entitled to the full point estimate.[10] According to the Court, OMIG’s references to the lower confidence limit did not preclude it from recovering the full point estimate.

The Court also held that the notices to West Midtown not only referenced the lower confident limit but also OMIG was not barred from seeking “any other remedy allowed by the law.” As such, the notices satisfied regulatory requirements and also adequately informed West Midtown of its ultimate liability for the full $1,857,401.[11] In other words, the notices of withholding informed West Midtown that OMIG was prepared to defend the full extrapolated point estimate.

The moral of this story: When dealing with OMIG audits, unless and until a formal settlement is reached, providers must always provide comments on draft audit reports raising all objections and providing all supplemental records in support of their objections; and upon receiving final audit reports, providers must always file timely requests for hearings. In this case, the provider failed to settle the audit at the lower confidence limit (an exceedingly unfortunate situation given that recoupment of that amount was already taking place), and then the provider subsequently failed to file a timely request for a hearing. The result of this “unfortunate series of events” was that OMIG had no reason to negotiate. Nothing prevented OMIG from subsequently requiring payment of the full extrapolated amount set forth in the final audit report.

As this case demonstrates, providers can be sometimes lulled into equating OMIG’s automatic recoupment of the lower confidence limit with a conclusion that this is total amount that OMIG will be seeking. The lesson of West Midtown is to the contrary.

[1] Matter of New York State Med. Transporters Assn., 77 N.Y.2d at 131, 564 N.Y.S.2d 1007, 566 N.E.2d 134 as cited by West Midtown Management Group, Inc. v State, 2018 N.Y Slip Op. 04666.
[2] Public Health Law § 30-36.
[3] West Midtown Management Group, Inc., 2018 N.Y. Slip Op. 04666, at 1.
[4] 18 NYCRR § 518.
[5] 18 NYCRR § 517.6(a).
[6] 18 NYCRR §§ 518.7(b); 518.8(a).
[7] Social Services Law § 145-a(2).
[8] 2018 N.Y. Slip Op. 04666, at 2.
[9] Id. at 3. West Midtown argued the Notice was insufficient pursuant to 18 NYCRR § 517.6(b)
[10] Id.
[11] Id.

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