Rehab Hospital Takes on HHS Over RAC Appeal Delays

Saying he fears "no retaliation from anyone," the CEO of a small California hospital has filed suit in U.S. District Court claiming that $1.1 million in Medicare claims flagged by recovery audit contractors have been in limbo "for years."

California's only non-profit independent rehabilitation hospital has filed suit to force the federal government to resolve disputed Medicare billing appeals within its mandated 90-day window.

Felice Loverso, president and CEO of the 68-bed Casa Colina Hospital and Centers for Healthcare in Pomona, says the federal government has "for years, years" been holding about $1.1 million in claims that were flagged by recovery audit contractors. Casa Colina has appealed the claims denials, but, he says, HHS hasn't come close to providing a hearing in front of an administrative law judge within the 90-day window mandated by Medicare law.

So, Casa Colina has filed suit in U.S. District Court in Central California, and Loverso seems to relish the fight. He says the rehab hospital runs at 100% occupancy, even with stringent screening requirements for the patients they admit.

"We just want to be paid for what we have already delivered," Loverso says. "We welcome audit[s]. We want audit[s], but a fair audit, a calculated audit where the rules of engagement are adhered to by us and by them."

The Casa Colina suit says that Medicare appeals are delayed, even as RACs were allowed to review and deny hundreds of thousands of claims, creating a backlog so severe that HHS has stopped assigning new ALJ appeals for 28 months.

Even though Casa Colina claims that it wins more than 80% of its RAC appeals, the delayed process means that the $1.2 million in care reimbursements remain in limbo. The rehab hospital has also set aside $2.1 million in reserves to account for more RAC audits, which began again recently after an 18-month moratorium expired.

'Chasing a System that Seems to be Broken'
"We have saved for 15 years to now to better serve the patients who are here, with an ICU and things like that," Loverso says. "The RAC audits, because they hold on to your money, challenges all of our bonds, all of our savings. Thank God Casa Colina right now is capable of covering the audit with reserves, but at some point those reserves will run out and we still have our bonds and loans and we still have patient who need to be seen."

Casa Colina generates about $11 million in net revenue each year, Loverso says, so the $1.2 million in deferred claims and the $2.1 million in reserves represent "a big chunk of money."
"When you run a small hospital and you have to reserve $2.1 million, there is a lot of children with autism who could be treated with that money, there is a lot of free care I could be doing, prostheses I could be putting on people. There are a lot of things I could do with that $2.1 million rather than chasing a system that seems to be broken."

David v. Goliath
During an interview with HealthLeaders Media, Loverso repeatedly likened Casa Colina's fight to that of David v. Goliath. As such, he has no desire to find other hospitals that might be willing to bump the suit into class-action status.

"Our Congressional leaders from California and around the U.S. need to know the true impact and it gets diluted when you go to the trade organizations," he says. "I met with a CEO at a fundraiser of a hospital close by here and we talked about this very thing. I said you ought to be doing what I am doing, taking an individual suit. He said 'I can't afford it and I don't want retaliation from Medicare.'"

"I fear no retaliation from anyone," Loverso says. "I believe individual lawsuits are just as strong, if not stronger for our Congressional representatives. They need to hear this. They need to see it. They need to know that Medicare beneficiaries are being denied this level of care based on medical necessities and technical denials and an audit process that is absolutely ridiculous."
Loverso says Medicare has one standard for providers and another standard for itself.

"For me, if I don't comply with a Medicare guideline I lose immediately," he says. "It seems to me that Medicare should lose every one of these RAC findings if they don't comply with the very criteria that they have been mandated to follow. It seems like an inequity, and I believe we represent thousands of hospitals that can't afford nor have the nerve to look at Medicare in the eye. We do and we are proud to represent thousands of not only rehab but acute hospitals alike."

If the suit is successful, Loverso says he'd at least like to see HHS at least pay interest on the $1.1 million it's withheld.

"A lot of CEOs are saying they should cover expenses but I don't think that is a fight that can be won," he says. "If you welcome audit then you have to pay for audit, you have to be audit ready. We do not mind being audited, but when the auditors are not compliant that there should be a penalty on the private companies that are doing the audits, that are being rewarded for every denial. That is a conflict that needs to be addressed by Congress and Medicare."

"Somebody needs to take a good look at this," Loverso says. "I guarantee you that if my hospital paid an outside company to bill for unbilled services and gave them a percentage of what they collected, OIG would be in my hospital tomorrow. But when Congress allows this to happen there are no penalties."

"We are a speck of dust on people's screen. Well, this speck is going to stay here until someone hears us."