Prepared by: Carlos Arce, Esq.
Florida Healthcare Law Firm
Private equity and venture capital firms engaged in health care acquisitions over the last dozen years could be facing monetary penalties in the millions via clawbacks coming from CMS focused all the way back to 2011! CMS representatives have released statements to the Wall Street Journal that the agency will be recovering an estimate of $479 million dollars for over payments in 2018, and approximately $4.7 billion over the next 10 years.[1]
Healthcare business transactions always include financial due diligence on both sides. It’s routine, especially for large firms with dedicated accounting departments. One of the components of due diligence includes the calculation of the EBITDA through profit and loss statements, tax returns, and projected future profits. However, the due diligence that is often lacking is the deeper regulatory compliance due diligence that reveals whether the funds projected and reported are clean. In healthcare, compliance is essentially the foundation of revenue. Ignoring compliance is the foundation of fraud.
Coding and billing practices have for many years been under scrutiny for providers engaged in fee for service billing. In the last ten years, however, the government has focused massive audit efforts on whether upcoding has occurred in the Medicare Advantage space. Enter, “MRA gaming”. MRA stands for Medicare Risk Adjustment codes, which are codes demonstrating to CMS the expected healthcare costs of treating certain enrollees (Medicare beneficiaries) based on the disease factors and demographic characteristics. Providers who use MRA codes are mostly primary care providers because they receive additional funds when they contract with the Medicare Advantage Plans under a “risk” model. The issue arises when those codes do not have corroborating documentation to prove the necessity for use of the codes on behalf of those patients.
MRA codes make the difference between reimbursement to a provider for solely receiving a monthly per member per month (“PMPM”) capitation payments, and the surplus they receive based on the MRA codes and HEDIS measures. Providers are more likely to make higher returns per patient based on the surplus payments linked to MRA codes. Higher returns = higher transaction values. Higher transaction values = more risk in the eyes of CMS.
If the regulatory compliance overlay of due diligence on past transactions covered pre-closing audits as it relates to billing and coding practices, private equity and venture capital firms can rest easy. If it wasn’t handled at the time, there is still time to conduct a post-closing audit to diagnose any previous issues and proceed accordingly. It is better to get in front of this type of issue through self-disclosure, as opposed to having the government find out which could cause for a larger claw back amount. The government’s remedy for false claims is treble damages, and each claim has a penalty associated with it, therefore, it could be very costly once the bell has been rung.
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Attorney Carlos Arce works with the Florida Healthcare Law Firm in Delray Beach, FL. He has deep experience with bodily injury trial work and in health law. Carlos has handled multi-million-dollar
[1] In blow to payers, CMS implements tougher Medicare Advantage audit rule, Rylee Wilson, Becker’s ASC Review: https://www.beckerspayer.com/policy-updates/in-blow-to-payers-cms-implements-tougher-medicare-advantage-audits.html?origin=PayerE&utm_source=PayerE&utm_medium=email&utm_content=newsletter&oly_enc_id=1148G2743801I3V