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DRG Down-Grades



PART IV – DRG Downgrading: Is it auditing or racketeering?

Edward M. Roche, Ph.D., J.D.
Prior to joining the California Bar, Dr. Roche served as the Chief Research Officer of the Research Board (Gartner Group), and Chief Scientist of the Concours Group, both leading IT consulting and research organizations.

Interviews with hospitals facing a tsunami of DRG downgrades reveal that auditors are engaging in a pattern of abuse and intimidation that resembles the type of scams usually prosecuted by the Racketeer Influenced and Corrupt Organizations Act (RICO). Here are some of the facts; you judge for yourself.

Unilateral Re-Diagnosis of Patients

It is very common the the auditor to re-diagnose a patient. The result of this usually is a substantial cut in the revenue paid to the hospital.

For example, in one case a patient had pneumonia plus a cardio problem. The auditor said that it would pay for treatment of the pneumonia, but that the cardio problem was merely “incidental”. When the hospital pointed out that the heart condition was so bad it required installation of a pacemaker, the auditor then said it would pay for the cardio treatment, but that the pneumonia was incidental, and thus would receive no payment. This was the same pneumonia that in the first round had been approved. When asked to explain, the auditor didn’t answer.

In one case, the patient had streptococcus pharyngitis and also sepsis. Sepsis is a “life-threatening organ dysfunction caused by a dysregulated host response to infection.” (*) It is a very dangerous condition that can lead to death, and frequently occurs in conjunction with other conditions. The patient presented five (5) of the American Medical Association (AMA) diagnostic criteria for sepsis (e.g., Fever, tachycardia, etc.), even though the AMA requires only two be present for a sepsis diagnosis. The auditor wrote that although “the patient presented symptoms that warranted consideration of sepsis” it was not there, and only the pharyngitis would be paid for. Of course, sepsis is more expensive to treat.

(*) See Singer, M. et al., The Third International Consensus Definitions for Sepsis and Septic Shock (Sepsis-3) , J. of the Am. Med. Assoc., (2016) 315(8):801-10, doi:10.1001/jama.2016.0287. (Soon a new criteria “Sepsis-3” will replace the current criteria “Sepsis-2”.)

What is the hospital to do?  If they rely on the AMA diagnostic criteria which is used by CMS, and these criteria are followed, and consequently the diagnosis is valid, then how can the auditor simply ignore it? To put it another way, of the hospital and coders are unable to rely on the AMA diagnostic criteria, then what are they supposed to do?

In another case, the hospital was treating a functional quadriplegic who had dementia. In particular, the patient was treated so as to avoid Stage 4 decubitus (bed sores and ulcers). The auditor said that the decubitus was “clinically insignificant”, so the hospital would not be paid. In addition, the patient was not considered to be a “real” quadriplegic.

“Flavor of the Month”

The auditors seem to roam from one area to another in their targeting. According to the interviewee, “Sepsis is the current flavor of the month”.

These examples show the general pattern. If the patient is treated for more than two major problems, the auditor will always ignore the more expensive DRG and pay for only the cheaper DRG.

Cheap Tricks to Cheat the Hospital

One of the must alarming practices by the auditors is the continued use of a number of cheap tricks. For example, appeals have a cut-off time of 30 days from the date of the demand letter from the auditor, but letters routinely are mailed as much as a week or more after the letter date, usually leaving the provider with only a few days to appeal.

The auditor refuses to use trackable mail, and fully one-third of appeals are lost because the provider never even receives the demand letter.

The auditor refuses to accept any electronic records, leaving the provider hospital with a requirement to send physical copies of all the documentation by certified mail.

Unlike most correspondence, the time of submission of an appeal is counted from when the documentation is received, not when it is mailed. This tends to take another week out of the 30-day time window for an appeal.

No Transparency

When the auditor is asked to explain their opinion, they refuse. When asked about the credentials of the person(s) making the decision, the auditors point out that they are not required to provide this information. When shown how a claim meets the criteria set forth by the American Hospital Association, the auditor simply says it disagrees.

How much money is seized?

We asked for specific examples of DRG downgrading to get a picture of the amounts of money involved. In the pharyngitis/sepsis case, the billing was $23,000 and this was downgraded to $3,000 dollars. In the cardio case, the billing of $53,000 was downgraded to $35,000 dollars.

Administrative Cost to the Hospital

To give an example of the costs involved, we spoke with one hospital that is a 600 bed facility. Since the wave of DRG downgrading started, it has been forced to hire two RN who possess AHIMA certification in coding, one physician advisor, and two certified coding specialists acting as consultants, plus administrative support just to keep up.

No Due Process

Some of the most egregious abuse takes place in cases where state medicaid services are sub-contracted to a private insurance company. In these cases, there frequently is not appeal possible at all. Or if there is, then is is limited to a one-level appeal (to be reviewed by the same company). Most contracts have not external appeals process at all. What this really means, is that the auditor can simply remove money from payment to the hospital, and there is no due process to review to see if it is justified.

From a legal standpoint, this is insanity. It is un-American, and goes against every concept of due process known in our legal system.

Application of RICO

Under 18 U.S. Code § 1961(1) “racketeering activity” has a very broad meaning and includes “any act . . . involving . . .  robbery [or] extortion.” It perhaps would be a stretch to apply RICO to what is happening with DRG downgrades. But lets ask a simple question: Do you know of any other legal process in the United States where an organization can simply take more than $50,000 dollars from a party with no due process, no explanation, and no serious review? And if that is happening, then how would it be characterized? The reality is that the auditors are in a position where they can act this way because there are no constraints on them. They can simply take the money from the hospital, but without any clear explanation, and with no meaningful medical analysis. How would you characterize this?

Tyranny of Algorithms


Edward M. Roche, Ph.D.,J.D. — Barraclough NY LLC

Part II — Defending Against the Tyranny of Algorithms

In Part I of this series, we reviewed how the number of Medicare audits has increased by almost 1,000% in the past five (5) years, and how virtually no decisions by ALJs are being handed back within the statutory time frame.

We discussed also how RACs have started to rely on big data mining of hospital claims to generate large numbers of Diagnosis-Related Group (DRG) downgrades. This is costing hospitals plenty, not only in the reduction in payment revenue, but also in the constantly increasing cost of defending against audits.

The use of computer algorithms has drastically reduced the cost of conducting audits, but there has been no corresponding reduction in defensive costs for hospitals, and this is an example of what military people call “asymmetric warfare”, where the cost of defense is always disproportionately greater than the cost of offense. It is an impossible game to win.

We will now examine a few of the legal issues that are presented by the need to defend against not an audit, but against an algorithm.

The MPIM specifies that the decision to conduct an audit is “not reviewable” in a hearing. This means that even if a provider is being profiled or targeted through an artificial intelligence algorithm, they are fair game, no matter what the reason.

This lack of review-ability does not extend to the review itself. That is handled by the appeal system. The typical appeal has little success in the first two levels — reconsideration, redetermination — so the grass gets mowed with the Administrative Law Judge (ALJ). Appeals generally are based on a claim-by-claim argument regarding each patient or procedure, combined with a refutation of the statistical extrapolation, which is almost always based on shoddy work.

This litigation profile will change. Why? Rather than challenging the expertise or judgment of the audit reviewer who rejected a claim, the argument instead will be aimed at dis-crediting the algorithm responsible for the claim rejection.

But since these algorithms do not make decisions based on medical logic, but only on a pattern of statistical probabilities, the arguments against them will by necessity be couched in quasi-mathematical terms. To do so will require resort to an entirely different type of expert, and understanding of what we might call “algorithm law”. Yet, for the most part, many of today’s health law attorneys are ill-prepared to litigate this type of case.

This article appeared also in RACmonitor.

DRG Downcoding


Edward M. Roche, Ph.D.,J.D. — Barraclough NY LLC

Part I – DRG Downcoding in Hospitals

The number of Medicare audits is increasing. In the last 5 years, audits have grown by 936%.  As reported previously in RACmonitor, this increase is overwhelming the appeals system. Less than three percent (3%) of appeal decisions are given on time within the statutory framework.

It is peculiar that the number of audits has grown rapidly, but without a corresponding growth in the number of employees for RACs. How can this be? Have the RAC workers become more than 900% more efficient? Well, in a way they have. They have learned to harness the power of Big Data.

Since 1986, the world’s ability to store digital data has grown from 0.02 exabytes to 500 exabytes today. An exabyte is one quintillion bytes or 10e+18 bytes. Every day the equivalent 30,000 Library of Congresses is put into storage. Lots of data.

Auditing by RACs has morphed into using computerized techniques to pick targets for audits. An entire industry has grown up that specializes in processing Medicare claims data and finding “sweet spots” on which the RACs may focus their attention. In a recent audit, the provider was told that a “Focused Provider Analysis Report” had been obtained from a subcontractor. Based on that report, the auditor was able to target the provider.

A number of hospitals have been hit with a slew of Diagnosis-Related Group (DRG) downgrades from Internal Hospital RAC Teams camping out in their offices, continually combing through their claims data. DRG is a system that classifies any inpatient stay into groups for purposes of payment.

The question then becomes: How is this work done? How is so much data analyzed? Obviously these audits are not manual. They are Cyber Audits. But how?

An examination of patent data begins to shed light on the answer. For example, Optum, Inc. of Minnesota (associated with United Healthcare) has applied for a patent on “Computer implemented systems and methods of health care claim analysis.” (Application Number 14/449,461, Feb. 5, 2015) These are complex processes, but what they do is analyze claims based on a Diagnosis-Related Group (DRG).

The information system envisaged in this patent appears to be specifically designed to downgrade codes. It works by running a simulation that switches out billed codes with cheaper codes, and then measures if the resulting code configuration is within the statistical range averaged from other claims.

If it is, then the DRG can be down-coded so that the revenue for the hospital correspondingly is reduced. This same algorithm can be applied to hundreds of thousands of claims in only minutes.  And the same algorithm can be adjusted to work with different DRGs. This is only one of many patents in this area.

When this happens, the hospital may face many thousands of down-graded claims.  If it doesn’t like it, then it must appeal.

Medicare Audits as Asymmetric “Warfare”

Here, there is a severe danger for the hospital.  The problem is that the cost of the RAC running the audit is thousands of time less expensive that what the hospital must spend to refute the DRG coding downgrade.

This is the nature of asymmetric warfare.  In military terms, the cost of your enemy’s offense is always much smaller than the cost of your defense. That is why guerrilla warfare is successful against nation states. That is why the Soviet Union and United States decided to stop building Anti-Ballistic Missile (ABM) systems — the cost of defense is disproportionately greater than the cost of offense.

Hospitals face the same problem. Their claims data files are a giant forest in which these big data algorithms can wander around down-coding and picking up a substantial revenue stream for the auditor.

By using Artificial Intelligence (advanced statistical) methods of reviewing Medicare claims, the RACs can bombard hospitals with so many DRG downgrades (or other claim rejections) that it quickly will overwhelm the provider’s defenses.

We should note that the use of these algorithms is not really an “audit”.  It is a statistical analysis, but not done by any doctor or health care professional. The algorithm could just as well be counting how many bags of potato chips are sold with cans of beer. It doesn’t care.

If the patient is not an average patient, and the disease is not an average disease, and the treatment is not an average treatment, and if everything else is not “average”, then the algorithm will try to throw out the claim for the hospital to defend. This has everything to do with statistics and correlation of variables and very little to do with understanding whether the patient was treated properly.

And that is the essence of the problem with Big Data audits. They are not what they say they are because they substitute mathematical algorithms for medical judgment.

In Part II we will examine the changing appeals landscape and what Big Data will mean for defense against these audits. In Part III we will look at future scenarios for the auditing industry and the corresponding Public Policy agenda that will face lawmakers.

Originally published in RACmonitor.

Medicare and Medicaid Abbreviations

A number of abbreviations are useful to know to read 42 CFR Parts 401, 405, 422, 423 and 478.

Act – The Social Security Act

ALJ – Administrative Law Judge

APA – Administrative Procedures Act

BIPA – Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554)

CMS – Centers for Medicare & Medicaid Services

Council – Medicare Appeals Council

DAB – Departmental Appeals Board

HHS – U.S. Department of Health and Human Services

IRE – Independent Review Entity

IRMAA – Income Related Monthly Adjustment Amount

MA – Medicare Advantage

MAO – Medicare Advantage Organization

MMA – Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (pub. L. 108-173)

OIG – HHS Office of Inspector General

OMHA – Office of Medicare Hearings and Appeals

QIC – Qualified Independent Contractor

QIO – Quality Improvement Organization

SSA – Social Security Administration


Medicare Appeals System Crashing

A new report(*) by the U.S. Government Accountability Office (GAO), shows that the Medicare Appeals system is crashing because the number of appeals filed exceeds the capacity of the Administrative Law system.  The number of cases filed has exploded, but there has been inadequate improvement in capacity.

Levels of Appeals

There are four levels of appeals.

Level 1 – Medicare Administrative Contractors (MACs)

Level 2 – Qualified Independent contractors (QICs)

Level 3 – Administrative Law Judges (ALJs)

Level 4 – Medicare Appeals Council (MAC)

Number Appeals Rising

For the period 2010 -2014, there has been a substantial growth in appeals.  Here is the data:

Level 1     +62%

Level 2    +238%

Level 3    +936% <— look at that number!

Level 4    +267%

The greatest increase in appeals has taken place in that place where the appeal is the most complicated: Appeals to Administrative Law Judges (ALJs) increased by almost 1,000 percent.

This data indicates that providers increasing are dis-satisfied with the results of their audit. They are more likely to appeal. Also, they are considerably less satisfied with the decisions of the QICs.

So this places an incredible burden at the ALJ level. The +936% increase at Level 3 (ALJ) represents a change from 41,733 appeals in 2010 to 432,534 appeals filed in 2014.

ALJ Time/Appeal

An Administrative Law Judge (ALJ) gets the same benefits as other Federal Employees. Each year they get 26 vacation days, and 10 holidays. This leaves 329 working days per year for them to do their work.

The maximum number of cases recommended per month for an ALJ is 60, but the average is much lower.

At 60 hearings/month, taking into account the number of holidays, that is approximately 2.2 hearings per day for an ALJ.

There are 77 ALJs and this should lead to a total of 168 hearings/day; and 55,474 hearings/year.

If the number of appeals has risen to 432,534 hearings per year, and each gets a hearing, and the ALJs are working at the unrealistic maximum rate of 60 hearings per month, then in order to meet this new load, a minimum of 599 ALJs need to be on the job.

That is ten times the number of ALJs needed.

But this number assumes a sustained rate of 60 hearings per month, and that is unrealistic.  A better number is 45 hearings per month.

If this number is used, then 821 ALJs are needed, based only only the 2014 data, which already is obsolete, as the number is increasing.



(*) See U.S. Government Accountability Office, Medicare Fee-for-Service: Opportunities Remain to Improve Appeals Process, May, 2016, 88 pps., Document number GAO-16-366.

Extrapolate to Calculate Overpayments

This article concerns the use of self-audits. –Ed.

Written by Marla Durben Hirsch

If practices uncover large or systemic billing problems that led them to receive overpayments, they should conduct statistical sampling to quantify the total potential amount of overpayments received.

Doing so will reduce the time and resources some practices will need to spend dealing with overpayments in the wake of the final rule HHS released Feb. 11 (MPCA 3/16). Practices that conduct statistical sampling won’t have to review every claim that may have been overpaid, says attorney Ross Burris with Polsinelli in Atlanta.

Statistical sampling — also known as extrapolation — can be particularly helpful when complying with the rule because failing to meet the deadline to return overpayments is a violation of the False Claims Act. Penalties currently include fines of $5,500-$11,000 per claim, treble damages (damages times three) and/or exclusion from the Medicare and Medicaid programs.

The Accountable Care Act requires overpayments to be returned within 60 days of being identified. The rule clarifies how providers go about doing so.

Now that HHS issued the rule, providers are likely to see an increase in enforcement of the requirement that overpayments must be returned, Burris says.

Industry experts didn’t want to speculate on what percentage of providers might be receiving overpayments and might fall into the category of having large or systemic billing problems. However, all types of providers have at least some overpayments — many of which occur without bad intent.

Statistical sampling is a methodology to apply the rate of billing errors found in a sample of claims to a similar total population of claims. It is frequently used by the HHS Office of Inspector General (OIG), the Department of Justice, zone program integrity contractors (ZPICs), recovery audit contractors and other auditors to calculate providers’ overpayments.

The final rule specifically allows providers to use extrapolation proactively to quantify the amount to be returned, using “sound and accepted principles” that include randomly selecting claims from the applicable population of similar claims and extrapolating only within the time frame covered by the population from which the sample was drawn.

Statistical sampling is very accurate if performed correctly, experts contend.

How to apply statistical sampling

To determine whether your practice should use statistical sampling, first conduct a probe sample or audit. Do so after you receive credible information that there may have been an overpayment.

You’ll probably need to tailor the audit, say to particular years or a particular identified coding issue, Burris says.

If the probe audit reveals a larger, more systemic problem, extrapolation may be appropriate. Several decisions need to be made, in large part depending on the circumstances.

Most overpayments merely involve billing errors — say by a new coding employee — and will be returned to your Medicare administrative contactor (MAC). In these cases, you typically can (but don’t have to) conduct your own extrapolation following CMS’ program integrity manual section 8.4, which outlines what CMS is looking for in extrapolation and using a statistical sampling tool.

One of the most popular statistical sampling tools for this purpose is called RAT-STATS, which was created by the OIG and is available free on its website along with an instruction guide.

“It’s pretty easy to use and you don’t need to be a statistician,” says Gary Keilty with FTI consulting in Washington, D.C. RAT-STATS even allows users to utilize different “confidence” levels (the degree of certainty that the sample correctly depicts the total population) and “precision” levels (the estimated range of accuracy) percentages, he adds.

CMS accepts RAT-STATS as a statistical sampling tool for extrapolation calculation purposes, although its use is not required and a MAC may not have a preferred method.

Once your calculation is complete, go to the refund form from the MAC and submit the overpayment, Burris says.

“Most of the time the MAC will simply say ‘Thank you,’ and that’s the end of it,” he says.

If you’ve uncovered more than a simple error, the fraud and abuse or Stark laws(*) may be implicated. If the government is already involved, you’ll need more manpower and will want to engage an experienced attorney to handle the issue, including hiring an expert statistician, determining which government entity is involved to return the overpayment to (and what else that may involve), what the statistical sampling will entail and how best to approach the government.

Often the provider representative and the government will agree to negotiate smaller claims populations or timeframes subject to extrapolation, look at the sample together or use a statistician to provide a report, and then the parties come to a settlement based on those discussions, Burris says.

Using an attorney also will keep your investigation protected under attorney-client privilege, Keilty says.

It’s important to identify which government agency is involved, since different agencies prefer different methods of statistical sampling. For example, the OIG, which handles repayments under its self-disclosure protocol for issues involving the antikickback statute, prefers extrapolation using a 90% confidence level and a 25% precision level, Keilty says.

Consider 6 extrapolation tips

1. Don’t automatically assume that a discovered error requires extrapolation. A small error involving one or a few claims does not rise to a systemic issue that lends itself to extrapolation, Burris says.

2. If you’re handling your own extrapolation, make sure it’s a method the government accepts. This includes utilizing RAT-STATS as a statistical sampling tool and utilizing preferred confidence and precision levels. If you hire an outside statistician, ask what method he/she uses and whether the government finds that method acceptable. The government may be more likely to challenge your sampling — and overpayment amount — if it’s less accepting of the method being used.

3. Make sure you choose the right type of sample and sample size. For example, the sample needs to be randomly generated. RAT-STATS and even Microsoft Excel contain random generators, Keilty says.

4. Be careful about what you’re including in the extrapolation. For example, extrapolation assumes the total population it’s being applied to is very similar. If it isn’t, you may be including too many claims and triggering a higher overpayment than you should be repaying.

5. Note that if you use extrapolation, you don’t need to make two repayments — one for the errors uncovered during the probe audit and another covering the extrapolated amount. You can include them in just one payment, Burris says.

6. Include documentation explaining how the extrapolation was conducted and what method was used. The final 60-day overpayment rule requires this information be included when reporting and returning the overpayment, Burris says.


(*) Stark Law: 42 U.S.C. § 1395nn – Limitation on certain physician referrals.

“This article was printed with permission of  Medical Practice Compliance Alert. To subscribe, visit [ or]”.

Original Title: “Save time and money — extrapolate to calculate overpayments”

Suicide, Starvation Drugs Alcohol

This blog is a written by Herbert O’Yardley.  We present it here because it is interesting reading, but it contains controversial views on the healthcare situation in the United States.

By Herbert O. Yardley, Guest contributor.


I always like to start my commentaries with a warning. It’s always the same thing…..”I would NOT read this if I were You”. And there’s always the same Good reason (or so I like to tell myself). I’m usually Right; or at least Right enough to leave you with that sinking feeling somewhere inside. And, after writing all sorts of things over 3-4 decades, I have developed a style which is beguiling and (potentially) entertaining, but unfortunately plants the seeds that tend to sprout over time to the “discomfiture” of the reader. (As in waking up in the middle of the night in a cold sweat with heart palpitations.) (But I’m sure we’re all used to that by now…..) So, don’t blame Roche for anything in here. In fact. he may be the answer to your problem. (At least if you’re a doctor being hounded by the Feds for doing whatever you do.)

Let’s just say it up front……It sucks getting Old. We’re all going to Die. No arguments, doubts or prayers are going to change that. This leads to 2 major conclusions: (unfortunately, my B.S. is in Math, so I tend to think that way….) 1) You better do whatever it is you want to do RIGHT NOW……because there is no Tomorrow; and 2) If you have any desire, idea or opportunity to make things better, YOU BETTER GET MOVING….because there is no Tomorrow (unless you consider being a vegetable on life-support, sucking the financial lifeblood out of your insurance company or government as an acceptable alternative)…..( which I guess most people do).

And that explains (to a limited extent) the title of this piece. Oh Yeah. Did I mention that I’m over 60, have no Health Insurance, and haven’t been to a Doctor in over 40 years? So clearly, “Healthcare” is not a big priority – at least not in the common sense of the word. I’m dead already.


It all started a very long time age, but I only have detailed knowledge from maybe the Late Middle Ages when the nascent Global Economy began to take shape. Of course in our time there is always the (in-) famous calculation by a respected global institution which concluded that since the “Potential Economic Life-Value” (and that is my term) of a person in the Third World is significantly less than that of one in the First or Second, it makes (“Economic”) sense to dump nuclear and other industrial wastes and perform possibly life-threatening activities in those less developed regions. Although this is just the “MBA mentality” run a muck, look around… is everything. (Thank you Ivy League.) Once you start putting a numerical value on human life, those who produce more or have a greater “economic potential” are necessarily more valuable to Society and should be given better treatment to extend their lives as long as possible – provided of course they remain productive. The major problem with this logic is that it is extremely difficult to judge the true (economic or other) value of an individual, particularly in the early stages of life.

As repugnant as this approach may be, it does have a certain steeled, Malthusian logic which most people can understand even as they reject it. What is not so easy to understand, is the current numeric calculus – performed by Doctors and the Healthcare Industry – which matches treatment options to the potential paying power of the patient or his Insurance Company. This sentence goes a long way toward explaining why the Government declined to provide Americans with Universal Healthcare or Insurance, since publicly financed Healthcare would allow doctors and hospitals to spend virtually unlimited funds keeping people alive.But the reality is clear; Healthcare, like almost everything else, is a limited resources, and as such some means must be developed to “ration” it. The system simply cannot provide everyone with unlimited access to the latest, most expensive treatments or drugs (at least not given its present structure), and as a result some individuals – perhaps even the majority – will always be under-served.

But it’s too late to turn back now. The geniuses at Harvard and similar institutions have decided that Healthcare is the “Economic Engine” of the future. And Why not? America (and the rest of the First World) is getting older. We’ve abused or bodies with (over-) work – and play, drugs and alcohol and hyper-competition, and destroyed our minds with CNBC, Fox News and (more than likely) Internet Porn. Every day 3750 Baby Boomers turn 65 – or whatever the real number is. Tell me this is not a “No-Brainer” for the Industry of Tomorrow? And, with good Healthcare, we should all live to be 100, requiring even more Healthcare, Medical Insurance and (untested and unreliable) Pharmaceuticals. Suicide is looking better and better.


The title of this piece refers to the options available to those “economically un-viable”, often elderly individuals who no longer contribute to Society – at least in monetary terms. The formula was perfected during the “Velvet” Revolutions which followed the disintegration of the Soviet Union and the fall of the Berlin Wall in the late 1980s. An interesting phenomenon – unparalleled in Modern History – accompanied these event.  Life expectancies began to decline – and decline rapidly – in the effected areas as Global (Radical) Capitalism replaced “outdated” Communist/Socialist Economic and Social institutions and values. The reason of course was that older individuals – often retired and on a fixed pension – and those unable to generate income in new – often highly inflated – monetary units were literally forced into starvation and death. (At least younger females could always become Prostitutes or Mail-Order Brides.)

In addition to mounting economic pressures, the psychological effects of the overnight change in Social and Economic values took a heavy toll on those who spent their lives believing (or at least pretending to believe) in the former structures. At least the good news is that the 3 options form a “virtuous cycle” whereby spending the majority of your meager pension on alcohol leaves that much less for food which ultimately leads to starvation and death. Either way, you are no longer a burden to Society. And for those of you who think it can’t happen here, Think again.


A few years ago, my sister and I began to notice that people we knew – or friends of friends – were being told by their doctors that there was nothing they could do for them and they had (basically) 17 days to live. After a little thought we realized that this would give them just enough time to find a lawyer, draft a will and settle their affairs. We know between 10-12 individuals of all ages that have received this diagnosis, with diseases ranging from various forms of cancer to advanced liver failure. The interesting thing about these people is that many of them seemed in reasonable health before going to the doctor. Our favorite story involves a young woman (late teens) who was told she had advanced ovarian cancer and that there was nothing they could do, giving her about a month to live. She told them she didn’t believe it, that they were wrong and went about her business. She lived almost two more decades, had children and a full life. Another friend of mine was told he had pancreatic cancer and could die any day. They wouldn’t even admit him into the hospital, and sent him straight to Hospice. He went home and started drinking. A year later he finally succumbed, but it had as much to do with a fall he took while drunk which displaced his hip, making him unable to walk as anything else. I could go on, but the point is this: Life is fragile. Spend your time wisely. Oh Yea. And never go to the doctor.


I don’t know what Life is about; and I’m not happy about that. But I do know this. Living in constant mental, physical, or emotional pain and suffering is not the answer. I suppose we all have to die, so the point is NOT expending resources postponing the inevitable, but making the time leading up to the Final Curtain rich and fulfilling. This is where Healthcare (and Alternative Approaches) can truly add to the quality of life (and Economic Value for you MBA-types) of Individuals and Society. But also where only a fraction of most Healthcare dollars are spent (at least according to every study commonly sited by the Media). And as the Republicans like to point out, there is also Personal Responsibility – at least for those who have limited Economic Potential and few resources and alternatives. On the other hand, a former Master of the Universe gets a mechanical heart that according to the media doesn’t beat and can run for decades. So go figure.

What can I say. Life sucks. It’s a bad ride on a downhill slope that cost too much and has few rewards. So as one with limited Economic Value I am well on the way to implementing the preferred strategy. Cheap Beer and (Fukashima-tainted) Cat Food, a damn good start. DNR.

Exclusion Law

Exclusion from Medicare and Medicaid (and all Federally funded health programs) is a serious penalty.

The Department of Health and Human Services, Departmental Appeals Board, Civil Remedies Division, publishes its decisions, and from these it is possible to ferret out a few rules of the road.

There is a great variety of cases leading to exclusion.  A surprising number involve fines against convenience stores that sell cigarettes to minors.  Many concern doctors or registered nurses who are excluded from Medicare and Medicaid because of loss or suspension of their license in the state where they work.  A number of cases involve health care providers who argue the number of years for exclusion is too great.

Sadly, there are all too many cases of Skilled Nursing Facilities being fined or shut down because of abuse of their patients, usually helpless elders.  It was a shock to see how many suppliers of medical equipment are kicked out of the program because on the day an inspector showed up, they were not open during their posted hours.

The harshest penalties come from those excluded because of being convicted of a felony.  These include actions such as “unlawful manufacture, distribution, prescription, or dispensing of a controlled substance” Baldwin Ihenacho, DAB CR4002 (2015); five years exclusion for “criminal sale of a prescription for a controlled substance” (the narcotic PercocetShaikh M. Hasan, M.D., DAB CR3663 (2015) or forging prescriptions for narcotics Marcie A. Conlon, DAB CR3338 (2014) or “unlawfully writing multiple prescriptions for Oxycodone in exchange for direct cash payments of $200 per prescription.” Jose C. Menendez Campos, M.D., DAB CR2923 (2013).

From these various cases, it is possible to derive a number of lessons regarding the administrative law and how it is applied to the facts.

Nolo Contendere

A plea and acceptance by the court of nolo contendere to an offense qualifies as “convicted” within the meaning of section 1128 of the Act, thus triggering mandatory exclusion.  Gustavo E. Borjas, DAB CR3334 (2014) (solicitation to purchase cocaine)

“Good Faith” Billing Mistakes or Reliance on Billing Expert

No excuse allowed.  Proof of culpability is not needed to justify revocation under 42 C.F.R. Sec 424.535(a)(8).  Louis J. Gaefke, D.P.M., DAB No. 24554 at 5-6 (2013).  “On its face 42 C.F.R. § 424.535(a)(8) does not distinguish between false claims that are filed accidentally and those that are fraudulent or filed with willful disregard of their truth.”  Access Foot Care, Inc./Robert Metnick, D.P.M., DAB CR4113, at 3, (2015).

Community Service and Character References

Some attempt to get their penalties reduced by showing they are well respected, or service special communities.  No go.  This information is irrelevant.  See George John Schulte, DAB CR3667 at 3, (2015) “The regulations require me to exclude irrelevant or immaterial evidence from the record.  . . .  the only issues I may decide in this case are whether the IG had a basis for excluding Petitioner and, if so, whether the length of exclusion imposed is not unreasonable. . . .  letters concerning Petitioner’s character, are not relevant.” See also Dinesh R. Patel, M.D., DAB CR3355, at 2, (2014) (community service of doctor is not relevant).

Payment of Restitution

Many bring up that they have paid restitution for the problem, and suggest this is a mitigating factor.  No go. “[R]egulations direct me to consider the entire amount of financial loss ‘regardless of whether full or partial restitution has been made.’ 42 C.F.R. § 1001.102(b)(1).”  Donald Kent Blaine, DAB CR3427, at 3, (2014).


Documents containing hearsay may be included in hearings, which are not bound by Federal Rules of Evidence.  There is no automatic hearsay exclusion rule. Karen R. Morgan, DAB CR3331, at 2, (2014).

Mitigating Factors

The wrong-doer has passed away; the company paid restitution; the company needs to continue operating in order to pay off the penalty.   None of these are considered mitigating factors. 42 C.F.R. § 1001.102(c).” Kirpa, LLC, DAB CR3247, at 4, (2014) (emphasis added) 

There are a number of interesting features in the litigation of the Departmental Appeals Board.   This blog post was meant to give you a taste of a few interesting features in this unique environment.


Connecticut does not seem to have specific  laws dedicated to Medicaid fraud.  Instead, it relies on the general laws regarding larceny and vendor fraud.

Note:  Connecticut General Statutes 53a-122 to 124 – Defines three larceny classes.

2013 Connecticut General Statutes
Title 53a – Penal Code
Chapter 952 – Penal Code: Offenses
Section 53a-290 – “Vendor fraud” defined.


Universal Citation: CT Gen Stat § 53a-290 (2013)

A person commits vendor fraud when, with intent to defraud and acting on such person’s own behalf or on behalf of an entity, such person provides goods or services to a beneficiary under sections 17b-22, 17b-75 to 17b-77, inclusive, 17b-79 to 17b-103, inclusive, 17b-180a, 17b-183, 17b-260 to 17b-262, inclusive, 17b-264 to 17b-285, inclusive, 17b-357 to 17b-361, inclusive, 17b-600 to 17b-604, inclusive, 17b-749, 17b-807 and 17b-808 or provides services to a recipient under Title XIX of the Social Security Act, as amended, and, (1) presents for payment any false claim for goods or services performed; (2) accepts payment for goods or services performed, which exceeds either the amounts due for goods or services performed, or the amounts authorized by law for the cost of such goods or services; (3) solicits to perform services for or sell goods to any such beneficiary, knowing that such beneficiary is not in need of such goods or services; (4) sells goods to or performs services for any such beneficiary without prior authorization by the Department of Social Services, when prior authorization is required by said department for the buying of such goods or the performance of any service; or (5) accepts from any person or source other than the state an additional compensation in excess of the amount authorized by law.

See also:

Section 53a-290 – “Vendor fraud” defined.

Section 53a-291 – Vendor fraud in the first degree: Class B felony.

Section 53a-292 – Vendor fraud in the second degree: Class C felony.

Section 53a-293 – Vendor fraud in the third degree: Class D felony.

Section 53a-294 – Vendor fraud in the fourth degree: Class A misdemeanor.

Section 53a-295 – Vendor fraud in the fifth degree: Class B misdemeanor.

Section 53a-296 – Vendor fraud in the sixth degree: Class C misdemeanor.


California Welfare and Institutions Code Section 14107

14107.  (a) Any person, including any applicant or provider as
defined in Section 14043.1, or billing agent, as defined in Section
14040.1, who engages in any of the activities identified in
subdivision (b) is punishable by imprisonment as set forth in
subdivisions (c) , (d), and (e), by a fine not exceeding three times
the amount of the fraud or improper reimbursement or value of the
scheme or artifice, or by both this fine and imprisonment.
(b) The following activities are subject to subdivision (a):
(1) A person, with intent to defraud, presents for allowance or
payment any false or fraudulent claim for furnishing services or
merchandise under this chapter or Chapter 8 (commencing with Section 14200).
(2) A person knowingly submits false information for the purpose
of obtaining greater compensation than that to which he or she is
legally entitled for furnishing services or merchandise under this
chapter or Chapter 8 (commencing with Section 14200).
(3) A person knowingly submits false information for the purpose
of obtaining authorization for furnishing services or merchandise
under this chapter or Chapter 8 (commencing with Section 14200).
(4) A person knowingly and willfully executes, or attempts to
execute, a scheme or artifice to do either of the following:
(A) Defraud the Medi-Cal program or any other health care program administered by the department or its agents or contractors.
(B) Obtain, by means of false or fraudulent pretenses,
representations, or promises, any of the money or property owned by, or under the custody or control of, the Medi-Cal program or any other health care program administered by the department or its agents or contractors, in connection with the delivery of or payment for health care benefits, services, goods, supplies, or merchandise.
(c) A violation of subdivision (a) is punishable by imprisonment
in a county jail, or in the state prison for two, three, or five
(d) If the execution of a scheme or artifice to defraud as defined
in paragraph (4) of subdivision (b) is committed under circumstances
likely to cause or that do cause two or more persons great bodily
injury, as defined in Section 12022.7 of the Penal Code, or serious
bodily injury, as defined in paragraph (4) of subdivision (f) of
Section 243 of the Penal Code, a term of four years, in addition and
consecutive to the term of imprisonment imposed in subdivision (c),
shall be imposed for each person who suffers great bodily injury or
serious bodily injury.   The additional terms provided in this subdivision shall not be imposed unless the facts showing the circumstances that were likely to cause or that did cause great bodily injury or serious bodily injury to two or more persons are charged in the accusatory pleading and admitted or found to be true by the trier of fact.
(e) If the execution of a scheme or artifice to defraud, as
defined in paragraph (4) of subdivision (b) results in a death which
constitutes a second degree murder, as defined in Section 189 of the
Penal Code, the offense shall be punishable, upon conviction,
pursuant to subdivision (a) of Section 190 of the Penal Code.
(f) Any person, including an applicant or provider as defined in
Section 14043.1, or billing agent, as defined in Section 14040.1, who
has engaged in any of the activities subject to fine or imprisonment
under this section, shall be subject to the asset forfeiture
provisions for criminal profiteering.
(g) Pursuant to Section 923 of the Penal Code, the Attorney
General may convene a grand jury to investigate and indict for any of
the activities subject to fine, imprisonment, or asset forfeiture
under this section.
(h) The enforcement remedies provided under this section are not
exclusive and shall not preclude the use of any other criminal or
civil remedy. However, an act or omission punishable in different
ways by this section and other provisions of law shall not be
punished under more than one provision, but the penalty to be imposed shall be determined as set forth in Section 654 of the Penal Code.