Regulatory & Billing E&O Exposure: Real Claim Scenarios

As David detailed in his article, Medical Billing E&O – The First Thing Retail Agents Need to Know, there are several different entities that can audit healthcare professionals for billing errors or omissions.  These may bring about several types of proceedings falling under the “Billing E&O” umbrella.

This is a potentially confusing issue that can affect any insured, so let’s dive a little deeper to get a bit more clarity.

When we use the term “Billing E&O,” it may not always be clear that the insurance product that can cover those “billing” exposures can also cover other types of regulatory proceedings that may have less to do with insured billing practices.  Because the policies we sell often provide these additional areas of coverage, it’s good to note that the exposure is not just confined to billing errors and omissions.

Frequently, we hear about insureds who deem purchasing Billing E&O coverage for these audits unnecessary.  Some say it’s because they are small organizations; others say it’s because they outsource their billing to a third party. For whatever reason, they assume they’re not at risk for an audit, even given the additional regulatory exposures.  Recent claims have shown that this is not the case, and the exposure is broader than generally recognized.

Here, we’ll go through five claims scenarios as seen by NAS, one of our leading markets for this type of insurance coverage. These stories illustrate the point that Billing E&O exposures can be far greater than what clients initially believe. Suitable coverage could have helped protect these insureds’ time, money and reputations.

Qui Tam Plaintiff Proceedings (Federal False Claim Act)

Example 1:

• Duration: 22 Months
• Nature of Risk: Urology Group
• State: Nevada

The Insured was served with a qui tam action by the U.S. Department of Justice alleging $2,067,042 in erroneous or overcharged billings in connection with approximately 120 patient encounters in violation of the False Claims Act. More specifically, the complaint alleged, among other things, that the Insured charged for pelvic ultrasounds, when the patient had, in fact, only received a bladder scan. The case eventually settled for $1 million, $500,000 of which was fines and penalties. In addition to paying the fines and penalties, Underwriters paid $92,000 in legal expenses.

Example 2:

• Duration: 22 Months and still pending
• Nature of Risk: Senior Psychological Care
• State: Texas

The Insured received notice of a U.S. Non-Intervention Order that was filed as part of a sealed qui tam complaint filed in 2010 alleging multiple violations of the Federal False Claims Act relative to Medicare Claims. More specifically, the complaint alleged, among other things, that in addition for charging for the services rendered by clinical psychologists, the Insured also charged for services provided by nurses, technicians and other therapists even when such services were not “incident to” the clinical psychologist’s professional services. This upcoding resulted in the Insured being reimbursed at a higher rate. The complaint sought damages of no less than $5,500 and no more $11,000 for each violation of the False Claims Act. The matter is still pending. Projected legal/expert expenses: $320,000.

EMTALA Proceedings (Emergency Medical Treatment and Active Labor Act)

• Duration: 6 Months
• Nature of Risk: Emergency Medicine
• State: Kansas

The Insured received a letter from a Quality Improvement Organization (“QIO”) authorized by Medicare to review medical services provided to Medicare patients alleging that the Insured did not meet recognized standards of care in treating a patient in the emergency department of the hospital at which the Insured had privileges.  More specifically, the patient presented with an obvious act of self-harm, but the Insured failed to recognize or act on the patient’s psychiatric emergency medical condition.  The QIO alleged that this constituted a violation of EMTALA (Emergency Medical Treatment and Labor Act). The Insured incurred $18,800 in legal expenses in responding to the QIO investigation.

Stark Proceedings (physician self-referral violations)

• Duration: 20 Months and still pending
• Nature of Risk: Orthopedic Hospitals, Outpatient Centers, etc.
• State: Georgia

The Insured was served with two subpoenas by the Department of Health and Human Services/Office of the Inspector General requesting extensive and unrestricted production of paper and electronic records related to an investigation of Anti-Kickback and Stark violations.  More specifically, the OIG is alleging that the Insured improperly referred hospital patients to MRI or outpatient centers owned by the Insured or owners of the Insured. It is also alleged that the Insured entered into improper lease arrangements with the owners of such centers. The Insured retained counsel to assist with responding to the subpoenas. The DHHS/OIG investigation is still pending, but Underwriters have already paid more than $820,000 in legal expenses and vendor fees.

HIPAA Proceedings (patient privacy violations)

• Duration: 13 Months and still pending
• Nature of Risk: Orthopedic Surgeons
• State: Arizona

The Insured received notice of a Department of Health and Human Services, Office for Civil Rights complaint alleging that the Insured was not in compliance with the Federal Standards for Privacy of Individually Identifiable Health Information. It appears that the OCR complaint originated from a privacy breach reported by the Insured to the OCR in compliance with HIPAA. The underlying privacy breach involved the theft of medical records for 12,000 patients from a storage shed.  While the records were recovered by the police within 48 hours, the Insured was required to notify the affected patients. Furthermore, given the number of affected patients, the Insured was required to issue a press release and to report the matter to the OCR within 60 days. The OCR investigation is pending. To date, the Insured has incurred approximately $97,000 in legal expenses, PR expenses and notification costs as a result of the underlying privacy breach.  We anticipate that the Insured will incur an additional $25,000 in legal fees as a result of the OCR investigation.

Whether your insured is a large physician group or small clinic, they can be at risk for Billing E&O claims.  These claims are expensive, invasive and can turn into serious proceedings on several types of platforms.  Make sure to discuss the possible repercussions of not purchasing Billing E&O with your clients, and explain the different exposures they may have based on their specific risk profiles.

Not an expert and need help?  Call Ethos, and we can walk you through the different coverage options to match your insureds’ needs.

Ethos Insights

1. Regulatory bodies are auditing for more than just billing errors and omissions now.
2. Coverage is available not only for billing errors and omissions, but for regulatory penalties as well. This can generally be placed on the same policy.
3. The costs associated with covering regulatory risks are a fraction of what it can take to clean up after an audit.