WASHINGTON, D.C. – Florida and New York hospitals are leaping onto legislation sponsored by San Luis Obispo County Rep. Lois Capps and another California lawmaker that would temporarily halt a controversial Medicare auditing program.

The commission-based auditing program has been operating for more than two years on an experimental basis in the three states and is set to expand permanently to 20 more in March.

But because of the California experience — in which rehabilitation hospitals have been forced to surrender tens of millions of dollars for past services deemed by auditors to be medically unnecessary — Capps, D-Santa Barbara, and Devin Nunes, R-Visalia, recently introduced a bill that puts the program on a one-year moratorium so the problems can be investigated.

New York and Florida have not had the depth of problems that has the California Hospital Association screaming, but officials there said the program has not gone smoothly, either.

The increasing hospital anxiety has elevated the auditing program to a top agenda item of the American Hospital Association. Don May, the association’s vice president for policy, said its lobbyists are actively pressing for passage of the Capps-Nunes bill.

“We’d like to see this (program) scaled back substantially,” May said in a phone interview.

Among the biggest concerns is that the congressionally created program relies on “recovery auditing.” That’s when auditors are paid a percentage of the money they recoup from hospitals through claims denials.

“This contingency fee, or bounty mechanism, sets some incentives for these auditors to be overly aggressive and to make questionable decisions in their favor by denying claims,” May said.

Capps said she has been hearing more from Florida and New York lawmakers about program auditors in their states and they are showing increasing interest in the bill she and Nunes introduced.

“Everyone is very concerned that this program, and the Center for Medicare and Medicaid Service’s mismanagement of it, could be compromising the quality of health care for our seniors,” Capps said.

“We all want to do everything we can to rein in Medicare overpayments and fraud, but that shouldn’t mean seniors’ health should suffer.”

Summer of complaints

The California Hospital Association raised the ire of California lawmakers this summer after complaining that PRGSchultz International — the Atlanta-based auditing company reviewing old Medicare payments in California — was targeting claims submitted for care of elderly patients who had undergone knee and hip replacement surgery.

The denial rates have been more than 90 percent of the claims the company has reviewed.

The auditors said the expensive services of rehabilitation hospitals were medically unnecessary.

But the hospital association said PRG-Schultz has an incentive to deny the claims because it gets to keep a commission of as much as 30 percent on every dollar it recovers.

The denials, on cases as old as three or four years, have forced hospitals to return millions of dollars, placing some of them in financial jeopardy, the CHA said.

PRG-Schultz said it is following the rules laid out by Congress and Medicare/Medicaid officials. While the hospital association disputes how strictly those rules have been complied with, rehabilitation hospitals said the auditing is forcing them to rethink their acceptance of Medicare patients, who are referred by doctors.

Because of the rising congressional concerns in California, the Center for Medicare Services — the overseer of the auditing program — announced a “pause” in PRGSchultz review of rehabilitation hospital cases. It also has made changes to the program before it goes national in March, including halting review of cases decided before October.

Kathy Reep, vice president for financial services at the Florida Hospital Association, said hospitals there haven’t been hit with the same severity of problems as in California.

“The process hasn’t put any of our hospitals at the point of closure,” she said.

But she added that internal auditors are starting to demand that hospital administrators adjust their budgeting forecasts in anticipation of future claims denials.

Elisabeth Wynn, assistant vice president of finance for the Greater New York Hospital Association, said its concerns about the auditing program “are aligned with California’s,” even though its experience also has not been so dramatic.

In addition to objections to the way the auditors are paid, Wynn said New York hospitals would like to see Congress eliminate PRG-Schultz’s ability to reject claims based on medical necessity, which she and others said should be the province of patients’ doctors.

Despite burgeoning support for the Capps-Nunes bill, most think that it has a poor chance of passing as stand-alone legislation before the auditing program is set to expand nationally in March.

But with Congress under pressure to enact legislation before Jan. 1 to stop an automatic cut in Medicare fees paid to physicians, advocates want to see an opportunity for the bill to be merged into a larger package.

“We’d like to see this attached to any train that is moving,” said May, of the American Hospital Association.

All the Capps-Nunes bill would do, however, is set a moratorium on the national rollout of the auditing program while the pilot program, more recently expanded to Massachusetts and South Carolina, is studied.

Congress would have to tackle the broader questions, such as the controversial way the auditors are compensated.

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