Under PDPM, reimbursement will be driven by coding and documentation.

South Florida has historically been a hotbed of healthcare fraud, and there is a long list of those responsible other than Philip Esformes, who was sentenced to 20 years in prison on Thursday for fraud committed in connection with billings for his assisted living operations and skilled nursing facilities (SNFs).

Making it potentially more difficult to catch such fraudsters will be Medicare’s new, more complicated reimbursement system, called the Patient-Driven Payment Model or PDPM, effective Oct. 1, 2019.

The old system was driven by hours of therapy and the number of activities of daily living (ADLs) the patient required help to accomplish. It is easy for auditors to check therapy hours, but it is much harder drilling down into the much larger number of diagnosis codes driving the new system. 

In addition, most nursing homes don’t maintain good medical records. Nursing homes were not coaxed with incentive payments, as hospitals and physicians were, to install electronic medical records. 

The nursing homes that survive and thrive will start continuous documentation improvement programs, and look at the documentation at the level of the attending physician to check for poor performers. 

Prosecutors said that Esformes had overbilled $1 billion to Medicare and Medicaid over the span of more than a decade. At sentencing, they estimated the government’s loss at more than $550 million, and prosecutors asked the judge to give Esformes 30 years in prison.

Esformes’s lawyers said the loss was as low as $690,000 and argued for a 10-year sentence.

So, how can these numbers be so wildly different? Well, it has to do with gross charges, contractual allowance, and base payments. The government took the gross charges of all claims that included inflated or fraudulent charges. The first problem is that Medicare and Medicaid do not pay on gross charges. Medicare payment rates usually average around $500 per day. Medicaid rates in Florida run from, say, $190 to maybe as high as $280 per day. 

Then we really get into the details. Medicare at this time paid a base rate per day, adjusted mostly for the number of physical, occupational, and speech therapy minutes. A mix of this would determine the Resource Utilization Group (or RUG) score used to compute the payment per day. 

Let’s look at a claim to see how this would all work. Here are the specifics:

Patient Name:   John Smith
Admit date:  1/1/2010
Discharge date:  1/20/2010
Gross Charges:    $17,000
RUG Score paid:   RUX
RUG Score provided:     RLA
Medicare Paid:     $5,515
Medicare Should Pay:    $1,695

Prosecutors argued that the entire $17,000 was the amount of the fraud, even though Medicare only paid $5,515. Esformes’s attorneys argued the fraud was the amount of the overbilling, had the claim been billed properly, $5,515 less $1,695, or $3,820. 

While I can see both perspectives, I doubt Mr. Esformes’s lavish lifestyle was provided by $690,000 in overbilling. 

Welcome to the new world.

Programming Note:

Listen to Timothy Powell report live from the Talk Ten Tuesday News Desk every Tuesday, 10-10:30 a.m. EST.


Timothy Powell, CPA

Timothy Powell is a nationally recognized expert on regulatory matters, including the False Claims Act, Zone Program Integrity Contractor (ZPIC) audits, and U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) compliance. He is a member of the RACmonitor editorial board and a national correspondent for Monitor Mondays.

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