How to minimize successor liability for fraud and abuse
August 23, 1999 4 minutes read
How to minimize successor liability for fraud and abuse
When you acquire a health care organization, you also acquire its fraud and abuse liabilities — and limiting that risk is no easy task, warns Joseph Truhe Jr., corporate counsel at Children’s National Medical Center in Washington, DC.
"The distinction between ordinary business conduct and fraud and abuse is too subtle to be caught by the sort of due diligence that would take place in other industries," says Truhe. "A review of basic corporate documents is not going to tell you that there is a coding problem or that there are subtle arrangements set up to induce referrals."
Truhe cautions providers not to let the lawyers perform due diligence alone. "Attorneys have the tendency to take the biggest due diligence checklist that is floating around the office and then take all of the checklists they have acquired and add them all together," he warns. "That is a bad sign if that is how it is being done."
Instead, he says attorneys should sit down with senior and middle management that have a working knowledge of the corporate, clinical, and financial details of the target entity and plan due diligence thoroughly.
"Your client and counsel are going to have entirely different resources and competencies in trying to identify what needs to be examined," he adds. "Counsels are not qualified to detect problematic claims profiles."
Truhe recommends designing your initial request for information in a way that maintains the flexibility to ask for several rounds of documents as the process unfolds. "It is a process and you have to listen to the answers you get to figure out where to go next," he says. "Just like litigation, you can’t follow a predetermined script."
"Work backwards," Truhe recommends. "Ask yourself what would you have to look at and who would you have to talk to to find out that they were upcoding pneumonia," he says. "You will be surprised as you go through that mental process how far that will get you beyond ordinary due diligence material."
Truhe also offers these observations based on his years of experience in this area:
- Look in non-traditional places. Focus your attention on department level policy, not corporate level policy, Truhe urges. The information you need is not usually found in corporate policy but in the day-to-day policy sitting in front of an accounts receivable person. He says that review should include summary financial data, credit and cash balances, volumes of late charges, delayed credits, re-billings, as well as department performance reviews.
- Probe the information services department. Examine the target’s information services department, including logs with corrections and modifications in software, says Truhe. "Look for software conversions and correspondence with software vendors and you will find all the problems with the software that have been detected," says Truhe. "My experience is that about half of all billing errors are buried somewhere in the software and you don’t discover them until somebody questions why they are getting all these denials."
Truhe also recommends that you review charge master revisions, denial patterns, collection ratios, accounts receivable (and work plans for correcting them) as well as the contract correspondence files with payers that reflect trends in denials, he adds.
- Don’t overlook human resources. Scrutinize human resources including recent personnel changes that look out of the ordinary,training materials for the compliance program, financial policies, as well as the qualifications of the people who handle coding, billing, and other sensitive processing, says Truhe.
"Look at their human resource folders as if you were a Joint Commission examiner coming in to look at documents and competence," he advises. "If those qualifications look suspect, the likelihood that something is being done wrong is that much greater."
- Examine the compliance plans. Pay close attention to the compliance plan of target, says Truhe.
"The longer an effective and vigorous plan has been in effect, the more likely it is going to be that anything you discover after the acquisition will be defended as an innocent mistake that escaped the efforts of a vigorous compliance program," he says. "That way, your exposure will only be repayment or a voluntary disclosure, and not treble damages."
"Don’t just look at the compliance plan and code of conduct," he adds. "Those can be purchased off the shelf and put right back on the shelf." Also, review the audit schedule in the compliance plan.
"Even if they successfully keep you from looking at the compliance report itself, they can certainly tell you what their audit schedule has been since their original baseline audit and what they have looked at," he says. "That will tell you how vigorous their compliance plan has been and give you an idea of its credibility if you ever have to invoke the credibility of your target’s plan post-acquisition."
Due diligence does not end after the acquisition, Truhe cautions. "There is a very short window of opportunity to figure out how they have really been doing business.
"Do a baseline audit immediately after the acquisition so that you can cut short the exposure from the prior activity; and if you find anything that is a problem, go to the government while you are still innocent.
"The longer you wait," he says, "the harder it will be to say, You will never believe what we discovered they were doing,’" he concludes. "It may have may have been an innocent mistake while they were doing it, but once you have discovered it it becomes knowing and willfull."
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