California LHRH case holds lessons for all urologists

California is one of three states currently participating in a RAC pilot project, which was initiated by the Centers for Medicare & Medicaid Services in 2005. Under the program, private contractors are paid on a contingency basis to identify Medicare underpayments and overpayments to health care providers and to recoup overpayments. New York and Florida are the other states participating in the demonstration project.

Beginning in June 2007, a number of California urologists and oncologists received remittance notices from National Heritage Insurance Co. (NHIC), the state's Medicare carrier. Demand letters from PRG-Schultz, the RAC with jurisdiction over California, followed. The letters requested thousands of dollars in overpayments for injectable or implantable drugs administered during a specified period between 2002 and 2003. In urologists' cases, the drugs in question were luteinizing hormone-releasing hormone agonists administered to men with prostate cancer.

The demand letters left urologists searching for years-old claims and questioning whether the overpayments should, in fact, be repaid. AUA, the California Medical Association, the California Urological Association, and the American Medical Association intervened, and, in August, they were successful in having the RAC demands adjusted in the urologists' favor. The medical associations successfully argued that PRG-Schultz overstepped its authority and that a number of its repayment requests fell outside of a 4-year look-back window established in the company's contract with CMS.

Subsequently, NHIC agreed to rescind all requests for overpayment for claims that fell outside of the 4-year window. PRG-Schultz agreed to shorten its look-back period to 3 years to avoid running afoul of the 4-year limit, Rutherford said.

RACs are here to stay

Although events in California ended on a generally positive note, they do not close the book on the RAC program. In fact, the program will become permanent and expand to include all states, as required by a provision of the Tax Relief and Health Care Act of 2006. It will be rolled out gradually beginning next spring and will become effective nationwide by 2010.

"We were very aggressive about this particular case," Rutherford said of the situation in California. "If this were allowed to stand, it's low-hanging fruit that we could envision every single RAC contractor going after, and urologists would be inundated with these requests for repayment for very old claims. They don't have the staff to dig up the records and defend themselves.

"The lessons that have been learned in this event may likely apply in other states."

Flawed payment system

What transpired in California exposes serious flaws in the payment system for injectable drugs, which is governed by CMS's least costly alternative (LCA) policy, Rutherford said. Under the policy, CMS considers a number of LHRH agonists to be clinically equivalent, and thus provides reimbursement based on the drug that is least expensive. If a urologist fails to administer the least costly drug, the carrier is required to adjust the reimbursement accordingly. NHIC, the California carrier, failed to make such an adjustment in a number of cases, according to Rutherford. Of 25,000 claims for LHRH agonists made in California during this period, CMS said that about 3,000 were improperly paid, he said.

The LCA policy is now in effect across the country, but the intricacies of its provisions vary from state to state. Prices for Medicare Part B injectable drugs are subject to change every quarter under the current payment rules (average sales price plus 6%), creating challenges for carriers to re-program their computers and accurately process claims, Rutherford pointed out. At the same time, the fluctuating drug prices may leave urologists uncertain whether they have been properly reimbursed.