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November 1999

OIG Issues Nursing Home Draft Compliance

The Health and Human Services Office of Inspector General has issued draft compliance program guidelines for nursing facilities participating in federal health care programs, including Medicare and Medicaid.

Like the guidelines OIG previously issued to other provider groups, OIG has labeled the nursing home guidelines as “voluntary.” The guidelines are based on seven elements: implementation of written policies, designation of a compliance officer, development of training and education programs, creation of a hotline or other measures for receiving complaints and procedures for protecting callers from retaliation, performance of internal audits to monitor compliance, enforcement of standards through well-publicized disciplinary directives and prompt corrective action in response to detected offenses.

Despite the operational differences among different types of nursing facilities, the draft guidance is intended for all nursing facilities, whether for profit or nonprofit, large or small, urban or rural, with the exception that each nursing facility should tailor its compliance program to fit its particular needs.

The draft guidance also identifies specific areas OIG will be targeting, including quality of care, residents’ rights, employee screening, vendor relationships, billing and cost reporting, and record keeping documentation.

The draft guidance also provides several recommendations to nursing homes for avoiding inappropriate practices.

The draft guidance appears in the October 29, 1999 Federal Register. Written comments will be accepted through November 28, after which a final guidance will be published.

For more information, contact HLB Attorney Bob Lundy at (310) 551-8180.

DHS Fraud Bureau Targets Labs, Pharmacies, DME Providers

Over the next several months the Department of Health Services new Medi-Cal Fraud Prevention Bureau (MFPB) will be taking a three-pronged approach to uncovering fraud within the Medi-Cal program, according to a letter sent to current Medi-Cal providers from the bureau’s newly-appointed chief, J. Alan Cates.

In his letter, which followed a DHS announcement that all durable medical equipment providers will be required to submit new applications for participation in the Medi-Cal program, Cates outlined the three stages DHS plans to take in assessing DME and other noninstitutional fee-for-service providers, such as pharmacies and clinical laboratories:

  • Medi-Cal Fraud Prevention Survey: During the next six to nine months, fraud prevention specialists will visit all covered providers for site observations and to have management complete questionnaires.
  • Medi-Cal Fraud Prevention Follow-up Review: When surveyors identify a business as “high risk” in their preliminary assessments, DHS will conduct “immediate” follow-up field reviews. At this stage, surveyors will schedule appointments to explain the basis for the assessments and advise the provider of the documentation that will be necessary to enhance and resolve issues. Surveyors will generally require one to three days to complete field work and will conduct quantity variance tests of inventory purchase invoices and sources, and in some cases, prescription and/or service external confirmations.
  • Elimination of Provider Fraud Via Administrative Actions: According to the letter, documented findings involving materially deficient Medi-Cal business practices may result in administrative actions, which may include a formal demand for repayment, assessment of fines and penalties, current and future payment withholds and/or program suspension.

As a result of these efforts, non-institutional Medi-Cal contractors should closely examine their relationships with vendors, pay particular attention to their recordkeeping and inventories, and not take shortcuts, according to HLB Attorney Patric Hooper, who represents a number of non-institutional providers engaged in Medi-Cal litigation.

For more information, contact Mr. Hooper at (310) 551-8165.

Expert Witness Opinion Evidence of Operating Efficiency

The opinion of an expert witness regarding the relative efficiency and economy with which a hospital operates constitutes competent evidence of the hospital’s efficiency and economy for purposes of obtaining administrative relief from the imposition of a Medicaid peer group limit, a state appellate court has ruled, reversing a lower court opinion.

Glendale Adventist Medical Center had sought reimbursement in excess of the 60th percentile peer group limit imposed by the Medi-Cal program on the hospital’s Medi-Cal reimbursement for the 1983 fiscal year. The Department of Health Services (DHS) refused reimbursement in excess of the 60th percentile limit on the grounds that the hospital had failed to prove at an administrative hearing that it was efficiently and economically operated. The trial court upheld the DHS decision, concluding that Glendale Adventist had failed to present any evidence in support of its position that it was efficiently and economically operated.

In an unpublished decision, the Court of Appeal disagreed with this conclusion and remanded the matter to the trial court. The trial court must now issue a new decision in light of the Court of Appeal’s conclusion that the testimony of an expert witness regarding the efficiency and economy issue was “some evidence” of the hospital’s relative efficiency and economy.

HLB Attorney Patric Hooper represented the hospital in this action. He may be reached at (310) 551-8165.

Hospital’s TEFRA Request Was Timely

The Department of Health and Human Services (HHS) violated the basic notions of due process and fair notice by applying an ambiguous regulation when it rejected a hospital’s TEFRA exception re-quest, a federal district court has ruled.

In Catholic Healthcare West Southern California v. Shalala (No. 98-10030), the hospital mailed out the TEFRA exception request on the 180th day after the date on the intermediary’s Notice of Amount of Program Reimbursement (NPR) but the government contended that the regulation required that it must have been received by the 180th day.

The regulation only specifically stated that the TEFRA exception request “must be made” by the 180th day.

At issue in the case was whether the government’s interpretation and application of the regulation was arbitrary and capricious or otherwise unfair.

The U.S. District Court for the Central District of California held that the government’s interpretation that “made” means “received” was reasonable. However, the court also found that the hospital’s interpretation that “made” means “mailed” was just as reasonable. The court ordered HHS to process the hospital’s request as timely.

HLB represented the hospital in this case. For more information contact Jon Neustadter at (310) 551-8151.

OIG Issues Special Advisory Bulletin on Exclusion

The Health and Human Services Office of Inspector General (OIG) has issued a Special Advisory Bulletin warning health care providers to ensure that their potential and current employees and contractors have not been excluded from participation in federal health care programs, including Medicare and Medicaid.

Federal law prohibits federal health care program payments to be made for any items or services furnished directly or indirectly by an excluded individual or entity. While the bulletin does not change any aspect of the law, it does send a message that HHS will be paying closer enforcement attention to employment and contracting records in the future.

The bulletin outlines several examples of situations that may put providers at risk for penalties, as well as what providers can do to find out if they are dealing with excluded contractors and employees. The bulletin also provides information to the individuals who have been excluded. The bulletin may be found at the OIG web site at:

For more information, Contact HLB Attorney Brad Tully at (310) 551-8160.


Q: The area served by our hospital suffers from a shortage of primary care physicians. We would like to assist in the recruitment of a primary care physician by providing her with a loan that will enable her to relocate and cover the start-up costs of her practice, but we do not want to run afoul of the Stark law. How can our hospital legally provide such a loan?

A: In general, a physician who has a financial relationship (such as a loan) with a hospital is prohibited from making referrals to that hospital for Medicare or Medi-Cal covered services unless the financial relationship qualifies for one of the exceptions to the Stark law. Fortunately, the Stark law contains an exception for certain physician recruitment arrangements. This exception only applies, however, if (a) the payment is made to the physician to induce the physician to relocate to the geographic area served by the hospital in order to become a member of the hospital’s medical staff, (b) the payment is not conditioned upon the physician’s referral of patients to the hospital, (c) the amount or other terms of the payment are not based on the value or volume of referrals the physician generates for the hospital, (d) the physician is not precluded from establishing staff privileges at, or referring business to, another hospital, and (e) the payment arrangement is in writing signed by both parties.

Under the first requirement, the physician must actually relocate her residence. Thus, this exception will not apply if the physician already resides in the hospital’s service area. The remaining requirements are relatively straightforward. In essence, the loan cannot be connected in any way to referrals and the physician cannot be precluded from joining the medical staff of, or referring patients to, other hospitals. Finally, the loan must be documented in writing and signed by the hospital and the physician.

Clients often inquire about recruitment arrangements involving income guaranties and loans to medical groups. Such arrangements are also subject to the Stark Law and may not be covered by the recruitment exception.

The Stark law is very complicated and regulations implementing many of its provisions have yet to be finalized. In addition, many other federal and state laws apply to physician recruitment arrangements, such as state physician self-referral laws, antikickback laws, and requirements related to tax exemption. Legal counsel should always be consulted before making any physician recruitment payments.

Q&A is a regular feature of Health Law Perspectives. If you have a question you would like addressed in a future column, please send your query to HLB attorney Robert Valencia by e-mail at, or send your question to Mr. Valencia at : Hooper, Lundy & Bookman, Inc., 1875 Century Park East, Suite 1600, Los Angeles, CA 90067.

For media assistance, please contact Maura Fisher at 202-580-7714.