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The PATH audit - a case study

In mid-1996, the feds adopted a new set of regulations governing how physicians should bill Medicare for services performed in conjunction with medical residents (i.e., medical trainees) in teaching hospitals.  These new regulations stipulated that, in order to legally bill Medicare for a service provided to a patient, an attending physician must either provide that service directly, or must be physically present when the resident physician performs the service.  Furthermore, the new regulations spelled out strict requirements for how the attending physician must document in writing that such physical presence had occurred.  

Almost at the same time, the OIG announced a series of nationwide audits of how well physicians at teaching hospitals complied with those rules - the Physicians at Teaching Hospitals (PATH) audit.  The PATH audit would cover the six-year period (i.e., the entire statute of limitation period) from 1990 through 1995.

Alert readers will spot the problem right away - the audit was to be conducted to check compliance with rules that had not yet been promulgated.

Prior to 1996, the rules governing when a teaching physician could bill Medicare for patient services were extremely ambiguous.  The most authoritative document prior to the new rules was Intermediary Letter 372 (IL372), written in 1969.  IL372 appeared to require the physical presence of the attending physician for billable services only "when a major surgical procedure or a complex or dangerous medical procedure is performed."  Regarding the required documentation of billable services, IL372 was ambiguous.  One paragraph states that adequate notes documenting these billable services could be "either written or countersigned by the supervising physician."  However a different paragraph in the same letter says that billable services must be "substantiated by appropriate and adequate recordings entered personally by the physician. . .  " (This apparent discrepancy is just one example of how even a single regulatory document can give conflicting advice on a key issue.)

Over the years the ambiguous nature of these documentation requirements was acknowledged by teaching physicians, medical schools, and the government, all of which talked about (some day) initiating clarification efforts. But life must go on, so a de facto standard of behavior was established.  In most teaching institutions that standard was as follows: for routine (i.e., non-surgical and non-complex) services performed by residents, it was okay to bill as long as those services were clearly overseen by an attending physician.  Further, the attending physician's countersignature of the resident's note was considered adequate evidence of such oversight (and of acceptance of legal responsibility for the resident's actions).

This de facto standard was adopted not only as a matter of convenience, but also as a vital part of the teaching process.  In training good physicians, it is important to allow trainees some degree of independence - with oversight, of course, by an experienced clinician.  A resident must learn to assess patients' problems and to reach tentative clinical decisions on his own. Committing those assessments and decisions to writing (in the form of a "progress note" in the patient's medical record) forces him to carefully consider all the important clinical parameters, and to concisely summarize the patient's clinical problems, the objective findings, the assessment, and the plan for diagnosis and therapy. The attending physician, after performing her own assessment of the patient, then discusses the case with the resident and reviews the resident's progress note.  If there is a deficiency in the resident's analysis, it is corrected.  If there is a discrepancy of opinion regarding the diagnosis or the management of the patient, the discrepancy is discussed and a resolution negotiated (keeping in mind that the attending physician has the last word). The attending physician's countersignature of the resident's note (most often with an addendum that makes corrections or underscores issues of importance) indicates that all of the above has occurred.

For decades this had proved to be an effective method for both patient care and for optimizing the training of physicians. Thus, the de facto standard was adopted not only because it appeared to comply with IL372, but also because it was philosophically the right thing to do.

When the new "clarified" regulations became effective in June, 1996, the resident's independence was significantly reduced.  Under the new guidelines, the attending physician now has to be present for even routine patient services. Further, only the attending physician's own progress note can legally describe those services.  The need for the attending physician to write her own extensive progress note (essentially duplicating the resident's note) automatically devalues the efforts of the resident, and also reduces the attending physician's motivation (and time) to carefully critique the resident's efforts.  This requirement dilutes the opportunity for teaching and learning. But rules are rules, especially when violating them constitutes a felony of the federal variety.  So, while most teaching physicians viscerally disagreed with these new regulations, at least they were clear enough.

The obvious problem with the PATH audit was that not only did it apply these newly "clarified" regulations retrospectively, to events that took place during a time when the existing rules were ambiguous and unclear, but also the new rules require actions that stand in clear and marked distinction to the de facto standards that had been used in the nation's best teaching institutions for decades prior to 1996.

The audit "model" used by the feds in their PATH initiative, therefore, was none other than the Regulatory Speed Trap.  The first four steps of the Speed Trap were successfully completed with the publication of the new 1996 regulations, as follows: 1) formulation of ambiguous regulations; 2) over decades, establishment of de facto standards; 3) long-term tacit acceptance of those de facto standards by the feds; and 4) sudden reinterpretation (i.e., "clarification") of the ambiguous regulations.  

Up to this point, of course, the motives of the feds might still have been viewed as being essentially benign. It was only the aggressiveness of the retrospective application of the new regulations (the fifth and most telling step of the Regulatory Speed Trap), that revealed the true motivation of the OIG.  

That level of aggressiveness became apparent immediately. The first audits occurred at the University of Pennsylvania and Thomas Jefferson University.  After conducting these audits, the OIG extracted settlements from these two prestigious institutions of $30 million and $12 million, respectively. While these universities paid a lot of money to settle, they did so - as they themselves made clear - only because they faced hundreds of millions of dollars in fines, having submitted millions of claims over the 6 years in question, that were subject to fines of up to $11,000 per each, plus triple damages.  Settling, even at extortionate rates, was their only real option.

The amount of these settlements grabbed the attention of the medical academic community, which then listened in stunned silence as the OIG explained its plan for the broader PATH audit (both in writing, and in a particularly chilling videotape, dutifully viewed by your humble author, that was distributed to academic medical centers).  Those plans were, to say the least, extremely intimidating:

In this menacing video, the OIG intoned the following: All academic centers in the U.S. would be audited during the next year or so under the PATH initiative. Medical centers would have a choice between two methods of conducting the audit, neither of which was attractive. "PATH 1" would involve the office of the OIG itself conducting an on-site audit.  The potential danger here, the OIG pointedly warned, was that many times federal auditors will notice things - peripheral issues aside from the main event - that will cause one thing to lead to another.  Once a federal auditor arrives at an institution, the OIG implied, no telling what other Medicare violations he/she will find, or when he/she will leave. "PATH 2" would allow the teaching hospital, at its own expense, to engage an external auditing firm that is acceptable to the OIG.  However, the hospital electing this method would surrender certain legal and accounting privileges (including the attorney-client privilege), and would be required to see that a representative of the OIG be present at all meetings related to the audit.  

Whether a hospital elected to be persecuted under PATH 1 or PATH 2, only approximately 100 patients' charts would actually be audited from each hospital.  The "error rates" in billing (based on the new standards retrospectively applied) would be determined from this sample, and extrapolated across all the billing that the hospital had done during the six-year period in question, in order to calculate the total amount "overbilled."  (Any underbilling that might be discovered during the audit, of course, would not be taken into account.)  The False Claims Act would then be invoked to allow the OIG to recover up to three times the calculated amount the hospital had overbilled during this six-year period.  Because the total amount a hospital would likely owe the government, under this process, could easily run to the hundreds of millions of dollars, many institutions, the OIG suggested, may want to consider an early settlement, just as the two index institutions had wisely decided to do. (In the OIG's defense, he did not, for emphasis, crush anybody's skull from behind with a baseball bat during the video.)

Step five of the Regulatory Speed Trap thus was clearly fulfilled.

The Association of American Medical Colleges and other organized groups appealed to reason, and asked the OIG to desist. Two former Secretaries of HHS (Bowen and Sullivan) wrote in a letter to Congressman John Porter (R-IL) about the unfairness of the PATH audit, that, "Really since the inception of the Medicare program HHS has had a difficult time in setting forth a bright line standard that could be used to separate the services provided by an attending physician that are strictly teaching in nature and those that involve care to a specific patient. . . . Given the contorted history of [IL372] through the years, it would appear to be an unlikely candidate for an OIG investigation."   

In a 1997 response to the president of the AAMC, even Harriet Rabb herself, General Counsel of HHS, said that "the standards for paying teaching physicians under Part B of Medicare have not been consistently and clearly articulated by HCFA (Health Care Financing Administration) over a period of decades."   However, she then went on to defend the PATH audit, which continued unabated.

If anyone working in a teaching institution at the time had any doubt about the Wonkonians' ultimate intentions regarding their pursuit of healthcare fraud, the PATH audit should have clarified those doubts.  The feds were not fooling around.  They went out and got themselves the weapons, as well as the public support to use those weapons, and then they set about using them, brazenly, arrogantly, and to the fullest extent possible.  Their goals seemed to be a) to extract as much money as they could from providers, and b) to coldly intimidate as many doctors and hospitals as possible. The Wonkonians were saying, to great effect, "You think the Gekkonians are running things? Think again."

It was becoming increasingly difficult for physicians to know exactly to whom they were supposed to sell their patients out.