Opinion ID: 3012795
Heading Depth: 2
Heading Rank: 3

Heading: The PATH Audits.

Text: The HHS inspector general’s auditing of teaching hospitals for overbilling began with an audit of the University of Pennsylvania Health System’s Medicare billing records from 1989 to 1994. The audit disclosed three purported deficiencies in the University of Pennsylvania Health System’s billing. First, the inspector general reported a substantial amount of billing by physicians for work performed by residents. Second, the audit revealed a certain amount of “upcoding”—billing for procedures more complex than were actually performed. And finally, the inspector general contended that documentation was inadequate for many of the billed items. The University of Pennsylvania Health System paid $30 million to settle any potential False Claims Act charges. Following that audit, the inspector general (then June Gibbs Brown) decided to expand the investigation to determine if these practices were widespread. The result was the Physicians at Teaching Hospitals (“PATH”) initiative, under which the inspector general selected a large number of teaching hospitals nationwide for audits looking for the alleged problems discovered in the University of Pennsylvania audit. The PATH initiative was launched in 1996, the same year the new HHS regulations expressly adopted a physical presence requirement. PATH audits—including the one now challenged—were directed at billing in the years before the rule change. The operative rules for these audits, therefore, are primarily the rules as amended in 1992, which spoke of “personal and identifiable direction,” but did not expressly state that a physician’s presence was required. 42 C.F.R. § 404.521(b)(1) (1992). PATH audits are of two types. “PATH I” audits are those performed by the Office of Inspector General at its expense. A healthcare provider can choose, however, to hire an independent auditor to perform the audit, reporting the results to the inspector general. This is a “PATH II” audit. A number of healthcare providers and medical professional organizations objected to the initiative, claiming the PATH audits amounted to retroactive 8 application of the 1996 rules. The inspector general contended instead that the rules had always required the physical presence of the physician for Part B payments, even though it was not stated as clearly as under the new rule. HHS responded to the controversy by issuing the socalled “Rabb letter.” Harriet Rabb, the general counsel of HHS, issued a letter clarifying her views concerning the PATH audits. Rabb, of course, worked for HHS, not the independent Office of Inspector General. Accordingly, her letter is not a policy statement from the Office of Inspector General. Rather, it expressed Rabb’s understanding of the standards the Office of Inspector General would apply in determining when a PATH audit would be conducted. In the letter, Rabb acknowledged that “the standards for paying teaching physicians under Part B of Medicare have not been consistently and clearly articulated by [the Health Care Financing Administration, now the Centers for Medicine and Medicaid Services] over a period of decades.” Letter of Harriet S. Rabb, HHS General Counsel, at 4 (July 11, 1997). Nevertheless, Rabb concluded that the inspector general’s interpretation, even if not clearly stated before 1996, was the correct one. Because of the ambiguity, Rabb stated that clear statements by the carriers “would be controlling.” Id. Thus, if the carriers had issued materials clearly stating a physical presence requirement, the providers would bound by it. Rabb concluded that many, though not all, carriers had expressly stated that physical presence was required for teaching physicians to receive compensation under Medicare Part B. Given this, Rabb stated her understanding that carrier notification would be a necessary requirement for initiation of a PATH audit: “[T]he OIG will undertake PATH audits only where carriers, before December 30, 1992, issued clear explanations” that Part B payments would be made only “when the teaching physicians either personally furnished services to Medicare beneficiaries or were physically present when the services were furnished by interns or residents.” Id. at 5. An audit would go forward only after the Office of Inspector General had “obtained carrier materials showing that clear instructions on the need for teaching physicians 9 to be physically present were given to the institutions or physicians served by that carrier.” Id. at 5-6. If the Office of Inspector General obtained such materials, a hospital would “have the opportunity to show, as a matter of fact, that it or the teaching physicians at the institution received guidance from the carrier which the hospital views as contradictory to the standard referenced above.” Id. at 6. Importantly, the letter states, “The decision whether clear guidance was given by carriers to teaching hospitals and physicians will be made by OIG. That determination is, necessarily, a fact bound one and will have to be made particularly and in each instance.” Id. In short, Rabb—speaking on behalf of HHS, not the inspector general—stated the Office of Inspector General would begin a PATH audit only if it was convinced, after a hospital had an opportunity to respond, that the hospital had received clear instructions from its carrier of the physical presence requirement.