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U.S. v. Stokes: Compliance Implications for the Average Physician

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  • In Compliance
  • October 1, 2010
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Failure to take corrective action can be perceived as admission of guilt.
By Michael D. Miscoe, JD, CPC, CASCC, CUC, CCPC, CHCC, CRA
In a recent unpublished Sixth Circuit opinion, United States v. Stokes, 2010 WL 3245536 (6th Cir. 2010), the court affirmed the conviction of a health care provider on 31 counts of health care fraud. Dr. Robert W. Stokes, a licensed, board certified dermatologist, became the target of a federal investigation in 2001. Federal agents looked at Stokes’ billing practices to determine whether he up-coded certain outpatient surgical procedures. In particular, it was alleged that Stokes frequently billed shaved excisions as more costly full-thickness excisions, and billed less complex closure techniques as expensive adjacent tissue transfers. Stokes also was alleged to have billed for both an office visit and a surgical procedure on the same day by indicating he treated surgical patients for impetigo. Stokes defended the charges on the basis of mistake; that is, he was unaware he did anything wrong and, in fact, believed his billing to be accurate.
Prior to trial, the government notified Stokes of its intention to use as evidence correspondence and audit notifications he received prior and subsequent to the start of the government’s investigation. This evidence fell into two general categories:
(1) letters from insurance providers addressing relevant billing rules and questioning Stokes’ above-average surgical billings; and
(2) documents and testimony concerning audit notifications that Blue Cross Blue Shield of Michigan (BCBSM) sent to Stokes in 2000 and 2002.
This evidence was meant to show Stokes was aware of relevant billing rules and, as such, his intent was to defraud.
Although Stokes attempted to exclude this evidence, the trial court rejected his motion by concluding the “evidence of prior warnings is relevant to the defendant’s knowledge and intent.” The court, in affirming the conviction, determined the admission of this evidence (which normally would be excluded as hearsay) was proper because it was not presented as proof that his billing was wrong or fraudulent, but instead was offered to prove the physician had known about the false Medicare claims at issue. The underlying assumption was the communications and audit notices from BCBSM contained sufficient information to notify Stokes that he was doing something wrong, that the carrier’s conclusions were accurate, and that the billing rules for BCBSM and Medicare were the same. It also assumed that Stokes actually saw these notices.
Be Aware of Carrier Notifications
If the government’s theory about the case and the assumptions drawn above are accurate, this decision is significant to providers in the current post-payment audit climate. Consider the following scenarios as a means of demonstrating how Stokes may affect the average physician:
Scenario No. 1
You receive a request for records on a single patient or a small number of patients. The carrier concludes that services were miscoded. The services were coded correctly and the reason for the determination was a misunderstanding about the contents of the documentation. Although you disagree with the result, the refund amount demanded is small, the decision is made that it is not worth arguing about, and the money is refunded. Because you are a mid-size physician group, the issue is handled through the compliance/billing department—the physicians don’t like to be bothered with these things, are not advised, and, therefore, have no knowledge of the issue.
Scenario No. 2
Your office receives written correspondence about use of a certain code. The correspondence includes coding policies that are unique to that carrier. They are reviewed by your billing/compliance staff. After review, the information is filed and the physician never sees it.
Scenario No. 3
A carrier posts a provider alert on its website identifying potential errors pertaining to a service you bill. According to the provider alert, you are billing incorrectly, but neither the provider nor the staff sees the alert.
Determine the Risks
Now let’s apply the court’s reasoning in Stokes to determine what kind of risk is created in each scenario:
Compliance Risk No. 1
Your acceptance of the audit result and its conclusions without objection or appeal would be construed in a subsequent matter as agreement with the carrier’s conclusions. Even though the physician had no actual knowledge of the issue, the physician would be charged with knowledge of the error (the legal term is “constructive knowledge”). Based on the holding in Stokes, the government could then demonstrate knowledge of the error in a subsequent investigation, making the chances of being accused of similar, future fraud allegations more likely.
Compliance Risk No. 2
There is an unfortunate presumption in the holding of Stokes that coding and documentation rules are universal. Once again, because you did not respond to the correspondence, the conclusion would be that you agreed with the carrier’s concerns. Based on the outcome of Stokes, those policies may be applied to billings to another carrier (even though that carrier may not have a similar coding policy). The failure to take corrective action could be construed as willful conduct from that point forward. The physician could be charged with knowledge of this correspondence, whether or not it was seen.
Compliance Risk No. 3
The physician could be charged with knowledge of information in provider bulletins, in carrier e-newsletters, and in carrier medical policies even though they are only published on the carrier’s website. As an example, the government requires you to be familiar with the Centers for Medicare & Medicaid Services (CMS) Internet-only manuals and local coverage determinations (LCDs), which generally are available only on the web. Regardless of whether you saw or read these materials, you are responsible for doing so. The government need not prove actual knowledge of the contents of such documents. Constructive knowledge exists when you had an opportunity to know what these materials contained.
Knowledge is a key element of demonstrating fraudulent conduct and is often the most difficult element of fraud for the government to prove. Unfortunately, the holding in Stokes, as illustrated in the aforementioned scenarios, clearly demonstrates how knowledge can be attributed to you.
Providers, billing staff, and compliance personnel are encouraged to:
1.  Pay attention to all carrier correspondence, provider bulletins, and medical policies addressing your services, especially for Medicare and carriers with which you participate.
2.  Document receipt and review of the information, object in writing if you disagree, and identify and document any limitations to the instructions (i.e., only applicable to BCBSM).
3.  Document the corrective steps taken to ensure future compliance.
4.  Re-think refunding money where the amount is small and underlying assertion of error is believed to be inaccurate.
Take Action and Document Your Efforts
Specific to the scenarios presented, the following suggestions are provided to mitigate further risk:
Mitigation Technique No. 1
Submit a written objection to the audit result, even if you agree to refund the money because it isn’t enough to fight over. Your objection should detail why, under the relevant contract, medical policy, etc., the carrier’s audit conclusion is inaccurate. Always discuss and evaluate the issue with the billing/compliance staff and the physician. If something in the documentation led the carrier to the wrong conclusion, the physician is in the best position to correct and apply to future cases.
Mitigation Technique No. 2
There are a number of ways to mitigate this problem. Circulate the correspondence and require each staff member, including physicians, to initial when they have read and reviewed the material. A more effective approach is to have a staff member review the policy in detail and present during a periodic compliance meeting the issue, its impact, and recommended solutions. Not only will everyone be apprised of the issue, but documenting compliance-oriented education will reduce your risk of being subject to fraud allegations.
Mitigation Technique No. 3
Similar to the issue above, circulate the information throughout the billing department and the physicians. For this to occur, the practice first must be aware there is information to circulate. Assign a member of the billing or compliance staff with the responsibility of periodically reviewing changes to your contracted and billed carriers’ websites/newsletters/medical policies. Raise any identified changes during a staff meeting or compliance meeting, or circulate a copy of the notice or policy for individual review. If addressed in a meeting, record the identity of those attending and the issues addressed in your compliance binder. Be sure to follow up with any staff members who were absent from the meeting. When circulating a copy of the notice or policy, make sure each individual verifies by initials or other means that he or she reviewed the material, and place the returned copy in your compliance binder.
The holding in Stokes makes it clear that physicians can no longer remain aloof to billing policies or billing issues, especially when alleged coding and medical necessity errors are based on documentation defects. Unfortunately, compliance plans and compliance personnel will not solve the problem entirely. At the end of the day, all providers must make a personal effort to understand and comply with carrier documentation and coding rules. To mitigate the potential of becoming a fraud target, providers must challenge inaccurate determinations when they occur, or take immediate corrective action when concerns are legitimate.

John Verhovshek
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John Verhovshek, MA, CPC, is a contributing editor at AAPC. He has been covering medical coding and billing, healthcare policy, and the business of medicine since 1999. He is an alumnus of York College of Pennsylvania and Clemson University.

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