GI - Health Care Compliance Association

ASKL E A D E R S H I PONT H EC A L E N D A RJohn FalcetanoJohn asks the leadershipyour questionsEditors note: John Falcetano is ChiefAudit/Compliance Officer for UniversityHealth Systems of Eastern Carolinaand a long-time member of HCCA.This column has been created to givemembers the opportunity to submit their questions by e-mail toJfalcetano@cox.net and have John contact members of HCCAleadership for their response.I am new to compliance. How do you decide what to educate yourstaff on during the upcoming year? I looked at the 2007 OIG WorkPlan, but there are so many topics on it that I could never educatethe staff on all of them.The answer was provided by HCCA Board Member Sheryl Vacca,Director, National Health Care Regulatory Practice, Deloitte & Touche.The OIG Work Plan is a great resource, but it can be difficult to sortthrough when prioritizing what is important to your organization.The following steps can assist you with this prioritization and help youdecide on your educational priorities.1) Identify key areas/themes that are applicable (e.g., medical necessity,billing and coding, etc).2) Inventory the resources who might be doing education on any ofyour identified priority areas (e.g., coders might have regular educationthrough their staff meetings, planned CEU events, etc).3) Determine if there are any other subject matter resources availableto assist with any of the key risk areas you have prioritized for yourorganization.4) Develop your education plan based on the information identifiedabove.5) Document all education activities that have occurred around thehigh-risk priority areas you identified in your organization.The compliance officer cannot be the only education resource in anorganization. Involve business owners in prioritizing the work plan,so you can jointly decide key risks and education needs. Remember tofocus on your highest priorities of risk and develop an education planthat is scaleable to your organization’s resources. n2007 Conferences:Anchorage, AK■ Alaska Local Area ConferenceJuly 12–13Scottsdale, AZ■ Compliance AcademyJune 4–7Los Angeles, CA■ West Coast Local Area ConferenceJune 29San Diego, CA■ Compliance AcademyDecember 10–13San Francisco, CA■ Advanced Compliance AcademyJune 25–28Denver, CO■ Mountain Local Area ConferenceOctober 26Orlando, FL■ Compliance AcademyNovember 5–8Honolulu, HI■ Hawaii Local Area ConferenceOctober 18–19Chicago, IL■ Compliance InstituteApril 22–25■ Compliance AcademyAugust 20–23■ North Central Local Area ConferenceOctober 5■ Research Compliance ConferenceOctober 31–November 2Louisville, KY■ Mid Central Local Area ConferenceNovember 2Baltimore, MD■ Fraud & Compliance ForumSeptember 23–25■ Advanced Compliance AcademyOctober 22–25■ Medicare Part D ConferenceDecember 9–11Boston, MA■ New England Local Area ConferenceSeptember 7Detroit, MI■ Upper North Central Local AreaConference, June 15Minneapolis, MN■ Upper Midwest Local Area ConferenceSeptember 14Kansas City, MO■ Midwest Local Area ConferenceSeptember 28New York, NY■ Mid Atlantic Local Area ConferenceMay 18Philadelphia, PA■ Quality of Care Compliance ConferenceSeptember 30–October 2■ Physician’s Practice ComplianceConference, October 3-5Pittsburgh, PA■ East Central Local Area ConferenceOctober 12Nashville, TN■ South Central Local Area ConferenceNovember 9Seattle, WA■ Pacific Northwest Local Area ConferenceJune 1■ National Corporate Compliance WeekMay 20–26, 2007INSIDE3 Ask Leadership4 Providing effective health carein your patients’ languages11 Proposed changes toclinical trial NationalCoverage Determinations14 Feature Interview18 CEO Letter19 Focus on Auditing & Monitoring20 Feature Focus – ExecutiveCompensation29 South Atlantic Local AreaConference Report38 Criminal enforcement liability:Quality of care, medicalnecessity, and reasonablenessof health care services42 Compliance samplingwithout tears44 Compliance 10146 Compliance programeffectiveness53 OIG Publishes report on prescriptiondrug plan sponsors’compliance plans55 HCCA Staff56 New MembersHealth Care Compliance Association888-580-8373 • www.hcca-info.orgApril 2007

4) Have methods for notifying persons oftheir right to language services5) Monitor the policies 3The Health Care Financing Administration,now called the Centers for Medicare andMedicaid Services (CMS), issued an August2000 letter to all state Medicaid directorsregarding interpreter and translation services.This letter explained Title VI responsibilitiesand included a copy of HHS guidelines. Italso emphasized that federal matching fundsare available for state expenditures related toproviding and administering oral interpretationand written translation services for theState Children’s Health Insurance Programand Medicaid beneficiaries.HHS’s Office of Minority Health then cameout with its 14 standards on Culturally andLinguistically Appropriate Services (CLAS)in December 2000. The CLAS standards areprimarily directed at health care organizations;however, individual providers are encouraged touse the standards in their practices as well. Ofthese national standards, four directly addresslanguage barriers to care. Standards 4-7 coverlanguage access services. 4, 5 These four linguisticstandards are mandated instead of stronglyrecommended, as the other CLAS standards are,because of their derivation from Title VI.Standards 4-7Standard 4: Health care organizations must offerand provide language assistance services, includingbilingual staff and interpreter services, atno cost to each patient/consumer with LimitedEnglish Proficiency at all points of contact, in atimely manner during all hours of operation.Standard 5: Health care organizationsmust provide to patients/consumers in theirpreferred language both verbal offers andwritten notices informing them of their rightto receive language assistance services.Standard 6: Health care organizations mustassure the competence of language assistanceprovided to Limited English Proficient patients/consumersby interpreters and bilingualstaff. Family and friends should not be usedto provide interpretation services (except onrequest by the patient/consumer).Standard 7: Health care organizations mustmake available easily understood patientrelatedmaterials and post signage in the languagesof the commonly encountered groupsand/or groups represented in the service area.The Joint Commission supports the CLASstandards as a key factor in the safety andquality of patient care. In its “Hospitals,Language and Culture” cross-sectional study,the Joint Commission recommends languageservices be provided beyond just the patient/practitioner encounter, that all hospital staffshould be trained in how to access languageservices, and that there be monitoring andreporting of LEP situations. 6Where the Health Insurance Portability andAccountability Act (HIPAA) is concerned, theprivacy of patient information does includeinterpreted conversations. Interpreters may bea member of the workforce (on staff) or a businessassociate (telephonic services or contractedinterpreters), but they are bound to uphold theHIPAA privacy rule. Generally, monitoringof interpreting for quality assurance purposesdoes not violate HIPAA. Effective interpretationservices must keep this information confidentialand destroy any notes made during thecall for best practice purposes.Hospitals are subject to fines and can losetheir federal funding if they are found to benoncompliant with OCR’s regulations, notto mention the negative media attentionthat can arise from OCR complaints about ahospital. Local activist health organizations,citing the legal guidance for lawsuits, havealso filed lawsuits against hospitals. 7The HHS Policy Guidelines on LEP regulationsunder title VI provide numerous “safeharbors.” To be in compliance with Title VI, anentity needs to provide written materials in non-English languages with the following provisions:a. The HHS recipient provides written translationsof vital documents for each eligibleLEP language group that constitutes 5%or 1,000 individuals, whichever is the less,of the population of persons eligible to beserved or likely to be affected or encountered.Translation of other documents, ifneeded, can be provided orally, or:b. If there are fewer than 50 persons in alanguage group that reaches the 5% triggerin (a), the recipient does not translate vitalwritten materials but provides writtennotice in the primary language of the LEPlanguage group of the right to receivecompetent oral interpretation of thosewritten materials, free of cost.Unfortunately, these are guidelines insteadof requirements. Compliance officers shouldconsider the best practice of implementingthese benchmarks within their organizations.Compliance is based also on balancing fourfactors:n the number or proportion of LEP personseligible to be served or encountered;n the frequency with which LEP individualscome in contact with the program;n the nature or importance of the program,activity, or service provided by the programto people’s lives; andn the resources available to the grantee/recipientor agency, and costs.In these “safe harbors,” perhaps the key wordis that LEP patients deserve the right to“competent” oral translation. This necessitatesContinued on page Health Care Compliance Association • 888-580-8373 • www.hcca-info.orgApril 2007

Take a closer lookat the issues,laws and cases thataffect you most.The Health Law & ComplianceIntegrated Library—the latestinformation, faster and easier.Nothing covers the changes affecting healthcare like the CCH Health Law & ComplianceIntegrated Library. In one comprehensivesource, you will find the information you needto stay compliant with rules related to clinicalresearch; antitrust; antikickback/self-referral;fraud & abuse, false claims and qui tam issues.Delivered in a Web-based format that putsthe answers you need at your fingertips, thislibrary has been written and compiled bysome of the industry’s most respected experts.For more information call 888-224-7377or visit health.cch.com.Wolters Kluwer Law & Business is the new identity for all CCH & Aspen Publishers health care products. We will continue tobe the premier provider of authoritative, timely and comprehensive health care compliance and reimbursement information.April 2007Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

Undergoing Regular Ethical Check-ups?Organizational environments change asorganizations grow and evolve. So, howcan you ensure attitudes and behaviorsare consistent with core values? Look toGlobal Compliance, the single provideroffering a comprehensive framework toprotect your organization from financial,legal, and reputational harm.• Code of Conduct• Web-based Training• Awareness Campaigns• Hotline and Web Reporting• Case Management• Compliance Evaluations• Mystery Shopping• Exit Interviews• Sanction ScreensWith over 25 years of experience andunparalleled expertise, Global Compliancecan help you develop and maintain aculture that satisfies employees, patients,and stakeholders. So, contact the ethicsand compliance leader that is alreadyserving greater than 400 health careproviders, along with one-half of America'sFortune 100 and one-third of America'sFortune 1000 corporations.Making the world a better workplace TMApril 200713950 Ballantyne Corporate Place • Charlotte, NC, USA 28277800-876-5998 • contactus@globalcompliance.comwww.globalcompliance.comHealth Care Compliance Association • 888-580-8373 • www.hcca-info.org© 2007 Global Compliance. All Rights Reserved.

effective health care in your patients’ languages ...continued from page greatest percentage increase in the number oflanguages needing interpretation in hospitalsand health care facilities. The South, however,is close behind in this trend. 12Diverse populations are no longer foundalmost exclusively in larger cities. Many LEPpopulations are also migrating to smaller citiesthroughout the country, such as Chattanooga,Tennessee; Raleigh-Durham, North Carolina;Richmond, Virginia; and Syracuse, New York.As a result, hospitals and health care facilitiesare finding they need to boost their languageservice offerings to accommodate LEP patientsseeking medical treatment at their facilities.The data show that nationwide the top fivelanguages needing interpretation are Spanish,Russian, Vietnamese, Korean and Arabic.Emerging languages (those being asked forwith more frequency) include Burmese, Turkishand Amharic (Ethiopian).The real costDifferent hospitals have different LEP patientpopulations and varying organizational resources.Many times it’s not practical to hire trainedmedical interpreters for a given language.While cost is always a consideration, the cost ofnoncompliance can be greater when a lack ofinterpreters increases the costs of care as well aslost productivity. Compliance officers can factorin the ramifications. For example, a five-minutecall with a telephonic interpreter to explainmedication directions can cost less than $10.Contrast this to the dramatic increase in costwhen a visit to the emergency room is neededbecause the patient took an incorrect dosage.ConclusionA study by the National Health Law Programagrees that “one size does not fit all” whenproviding language services. The future holdspromising programs and activities that arenow in progress to address language accessconcerns such as cost, high quality, effectiveinterpretation, and needs measurement. 13In the Community Access Monitoring Survey,sponsored by The Access Project, morethan 25% of uninsured respondents whoneeded, but did not receive, an interpreterreported leaving the hospital without understandinghow to take prescribed medications(compared to 2% of other respondents). 14Health risks resulting from incorrect medicationusage emphasize the need for oral andwritten instructions in languages of thepatient population. On the other hand,more than 90% of LEP patients who did getinterpretation said they would return to theirpresent facility if they became insured.Hospitals need a real, implementable programfor compliance to language services. TestingContinued on page 13Relevant Federal Regulations for LanguageServicesTitle VI of the Civil Rights Act of 1964:“No person in the United States shall, onthe ground of race, color or national origin,be excluded from participation in, be deniedthe benefits of, or be subjected to discriminationunder any program or activity receivingfederal financial assistance.”Executive Order 13166:Improving Access to Services for Personswith Limited English Proficiency (65 FR50121, August 16, 2000): Every federalagency that provides financial assistance tonon-federal entities must publish guidanceon how their recipients can providemeaningful access to LEP persons and thuscomply with Title VI regulations.Health and Human Services Office ofCivil Rights:1) Assess the language needs of their patientpopulation2) Develop written policies on how thesepopulations can obtain competent languageservices, including both oral interpretationand written translation services3) Have methods for notifying persons oftheir right to language services4) Train staff for effective implementation ofthese policies5) Monitor the policiesOffice of Minority Health CLASStandards 4-7:Standard 4) Health care organizations mustoffer and provide language assistance services,including bilingual staff and interpreterservices at no cost to each patient/consumerwith LEP at all points of contact, in a timelymanner during all hours of operation.Standard 5) Health care organizations mustprovide to patients/consumers in theirpreferred language both verbal offers andwritten notices informing them of their rightto receive language assistance.Standard 6) Health care organizations mustassure the competence of language assistanceprovided to LEP patients/consumersby interpreters and bilingual staff. Familyand friends should not be used to provideinterpretation services (except on request bythe patient/consumer).Standard 7) Health care organizations mustmake available easily understood patientrelated materials and post signage in the languagesof the commonly encountered groupsor groups represented in the services area. nHealth Care Compliance Association • 888-580-8373 • www.hcca-info.orgApril 2007

Clinical Trial Coverage ...continued from page 11coverage/payment on CMS’ master file ofInvestigational Device Exemption (IDE)devices;n is reasonable and necessary for the individualpatient;n the device or services associated withthe use of a device were provided to thebeneficiary within the start and end datescontained in the master file; andn a national non-coverage policy does notprohibit Medicare coverage.Devices that may be covered under Medicareinclude the following categories:n devices approved by the FDA through thePre-Market Approval (PMA) process;n devices cleared by the FDA through the510(k) process;n FDA-approved Investigational DeviceExemption (IDE) Category B devices;n FDA-approved IDE Category A devices inan immediately life-threatening situation;n hospital Institutional Review Board (IRB)-approved IDE devices.Although this NCD was a major shift inCMS’ policy on clinical trial coverage, manystakeholders find the current clinical trialpolicy unclear and inadequate, and identifyseveral gaps within the policy. Numerousclinical trial sites have paid out millions ofdollars in fines to the federal governmentfor misbilling. For example, Rush UniversityMedical Center settled with the Office of theInspector General (OIG) for $1 million as aresult of billing clinical research services thatwere unreimbursable according to the clinicaltrial NCD. The University of Alabama atBirmingham agreed to pay the federal government$3.39 million in response to accusationsof over-billing the NIH and Medicarethrough its clinical research activities. 4CMS’ proposed changes 5 to the clinical trialpolicy are in three different areas:n The set of standards for qualified studies,n The processes through which a trial isdetermined to meet those standards, andn Medicare coverage for items and servicesprovided to Medicare beneficiaries inqualified studies.StandardsFrom the three different options given, theMCAC members decided to use the existingdefinition of the “seven highly desirablecharacteristics” for a good clinical trial asqualifying standards.The committee also voted to retain the currentMedicare-specific requirements that aclinical trial must meet to qualify for CMScoverage. The following new requirementswere voted to be removed from the revisedpolicy:n The study must not be designed primarilyto test toxicity or disease pathophysiology.Phase I trials may meet the standard onlyif the disease is chronic, life threatening,or debilitating.n Trials of therapeutic interventions mustenroll patients with a diagnosed diseaserather than healthy volunteers.n Trials of diagnostic interventions mayenroll healthy patients in order to have aproper control group.The majority of the committee voted infavor of the addition of the following newMedicare-specific standards to the clinicaltrial policy:n The study must be registered on theClinicalTrials.gov Web site prior to patientenrollment.n The study protocol must specify themethod and timing of public release ofpre-specified outcomes, regardless ofresults or completion of trial.n The study must have explicitly discussedconsideration of relevant subpopulations(as defined by age, gender, race/ethnicity,or other factors) in the study protocol.n The study must meet any standardrequired through an NCD using coveragewith evidence development (CED). 1ProcessesThe MCAC members agreed that the clinicaltrials should continue to be “deemed” to havemet the definition of a good clinical study ifthe study:n is reviewed and approved as scientificallysound and funded by a federal agency;n has been reviewed and approved as scientificallysound by centers or cooperativegroups that are funded by a federal agency;n is conducted under an FDA investigationalnew drug application (NDA);n has been required and reviewed by theFDA as a post-approval study. (This lastcriterion is a new addition).A majority of the committee members agreedwith the CMS’ proposal to require INDexemptstudies to follow the other processesallowed under the revised policy, because theself-certification process did not occur andCMS does not intend to include this in therevised policy.CoverageThe committee agreed to change the term“routine costs” to “routine clinical services” tobring more clarity to the NCD.The committee members also unanimouslyvoted for the adoption of the following definitionof “Administrative Services” as: all nonclinicalservices such as investigator salaries;protocol development; recruiting participants;data quality assurance activities; statisticalanalyses; dissemination of findings; and studymanagement. Administrative services are notcovered by Medicare.April 200712Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

The MCAC committee undividedly agreedto add a new coverage group, “Investigationalclinical services,” which are defined as itemsor services that are being investigated as anobjective within the study for their effect onhealth outcomes, including items and servicesinvolved in the control arm of the study.In addition, investigational clinical servicesthat meet one of the following conditionsare covered: the item or service is currentlyavailable (covered) to the Medicare beneficiaryoutside the study; the item or service isrequired through the NCD process for CEDand is being evaluated for its effect on healthoutcomes.The committee agreed to further expandthe new investigational clinical services categoryby allowing coverage of an item designatedby FDA as a humanitarian use device(HUD), and meeting one of the followingconditions:n When Medicare has issued a national noncoveragepolicy, the item or service hasreceived humanitarian device exemption(HDE) status and is the investigationalitem or service in a study that meets therequirements of the policy; orn When no national Medicare policy exists,the item or service has received HDEstatus and is the investigational item orservice in a study that meets the requirementsof the policy.Huron speculates that these proposed changeswill give rise to many implications for theindustry stakeholders. The coverage forevidence development (CED) is a broaderinitiative from CMS to generate data on theutilization and impact of the item or serviceevaluated. The new coverage group of investigationalclinical services means increasedaccess to items and services for Medicarebeneficiaries. Both of these will likely result inpotentially enhanced coverage for items andservices; however, it will not come withouta price of additional compliance requirements.In addition, the new Medicare-specificstandards will increase compliance risk for theclinical trial sites and may lead to increasedscrutiny from the government payors.1 On July 12, 2006 CMS released a guidancedocument titled National Coverage Determinationswith Data Collection as a Conditionof Coverage: Coverage with Evidence Development(CED). This document concerns thecircumstances under which CMS would issuea national coverage determination (NCD)requiring, as a condition of coverage, collectionof additional patient data to supplementstandard claims data.1 Now known as Medicare Evidence Development and CoverageAdvisory Committee (MedCAC)2 Federal Register, Vol. 71, No. 208, page 63022, Friday, October27, 20063 Now known as the Centers for Medicare and Medicaid Services(CMS)4 Chronicle.com; Section: Government & Politics; Volume 52, Issue18, Page A37 and Volume 51, Issue 34, Page A225 MCAC meeting presentation, available at http://www.cms.hhs.gov/mcd/viewmcac.asp?where=index&mid=38Call for AuthorsInterested in submitting an article forpublication in Compliance Today?Send an email to Margaret Dragon atmargaret.dragon@hcca-info.org.IMPORTANT: HCCB awards 2 CEUsfor CHC certification to authors of articlespublished in Compliance Today.Upcoming Deadlines:nnnnMay 1—July 2007 issueJune 1—August 2007 issueJuly 2—September 2007 issueAugust 1—October 2007 issueThank you for your time and attention.We look forward to hearing from youand reading your articles.effective health care in your patients’ languages...continued from page and training of staff, as well as hospital management,can include cultural competencyeducation and CLAS standards.Compliance is possible. More importantly,to better serve increasingly diverse patientpopulations, it is necessary and it’s the rightthing to do. n1 Margie Akin, Diana Carr, and Peggy Payne, “Better Communication,Better Care: Provider Tools to Care for Diverse Populations”(Notes from the Health Industry Collaboration Effort’s Culturaland Linguistic Workshop, September 2004).2 Title VI of the Civil Rights Act of 1964 U.S.C. 2000d et. seq. andits implementing regulation at 45 CFR Part 80. Federal Register,65(169), Aug. 30, 2000.3 U.S. Department of Health and Human Services, Office of CivilRights, Guidance to Federal Financial Assistance RecipientsRegarding Title VI, Prohibition Against National OriginDiscrimination Affecting Limited English Proficient Persons,Federal Register, 69(7), 1763-1768 (last revised October 2006),see http://www.hhs.gov/ocr/lep/revisedlep.html. (Accessed March1, 2007)4 Carmen J. Beamon, et al., “A Guide to Incorporating CulturalCompetency into Health Professionals’ Education and Training”(Prepared for the National Health Law Program, March 2006).5 Office of Minority Health, U.S. Department of Health and HumanServices, National Standards for Culturally and LinguisticallyAppropriate Services (CLAS) in Health Care. Federal Register,65(247), 80865-80879 (2000). See http://www.omhrc.gov/templates/browse.aspx?lvl=2&lvlID=15(Accessed March 1, 2007).6 Paul M. Schyve, “Hospitals, Language, and Culture: A Snapshotof the Nation” (with the Joint Commission on Accreditation ofHealth care Organizations, 2002).7 Dirk G. Schroeder, “Limited English Proficiency (LEP) Regulations:Implications and Guidelines for U.S. Hospitals ServingMinority Populations.” (June 2002).8 From OCR’s Policy Guidance on Title VI. See footnote 3.9 “Hospital Language Services for Patients with Limited EnglishProficiency: Results from a National Survey” (sponsored by theHealth Research and Education Trust and the National HealthLaw Program, October 2006).10Glenn Flores, “Language Barriers to Health Care in the UnitedStates,” New England Journal of Medicine 355, no. 3 (July 20,2006): 229-231.11To learn more about the CCHCP’s Medical Interpreter TrainingProgram, see http://www.xculture.org/training/overview/interpreter/programs.html.(Accessed March 1, 2007)12“CyraCom Language Index” (tracked and compiled by CyraCom,2006).13Mara Youdelman and Jane Perkins, “Providing Language InterpretationServices in Health Care Settings: Examples from the Field”(by the National Health Law Program for The CommonwealthFund, May 2002).14Dennis Andrulis, Nanette Goodman, and Carol Pryor, “Whata Difference an Interpreter Can Make: Health Care Experiencesof Uninsured with Limited English Proficiency” (by The AccessProject, April 2002).Be Sure to GetYour CHC CEUsInserted in this issue of ComplianceToday is a quiz related to this article:“Providing effective health care in yourpatients’ languages” by Michael Greenbaum,begining on page 4.Take the quiz and print your name at thetop of the form. Fax it to Lisa Colbert at952/988-0146 or mail it to Lisa’s attentionat HCCA, 6500 Barrie Road, Suite250, Minneapolis, MN 55435.Questions? Please call Lisa Colbert at888/580-8373.Health Care Compliance Association • 888-580-8373 • www.hcca-info.org13April 2007

April 200714featureEditor’s note: This interview with PatriciaBickel was conducted by HCCA BoardMember Gabriel Imperato, Esq., inFebruary 2007. She may be reached bytelephone at 813/974-8090 or by e-mail atpbickel@hsc.usf.eduGI: Tell us about yourself and your backgroundand what brought you to your currentrole as a compliance professional?PB: My first job in health care was inthe accounting office of the USF PhysiciansGroup, the faculty group practice of theCollege of Medicine at the University ofSouth Florida (USF) in Tampa. Keep inmind that I came into the job with the idealismof the ‘60s and a song in my heart. Ilearned some valuable lessons in that job thatwould later serve me well as a complianceofficer.At that time, each of the clinical departmentshad its own bank accounts, whichthe Board decided to consolidate in orderto implement better controls and save somebanking fees. It was my job to collect all ofthe checkbooks from the department chairmen,not all of whom had yet warmed up tothe idea. Lesson: Don’t step on Superman’scape.I also learned that I had a talent for makingorder out of chaos, and a dogged determinationto solve problems. I left my accountingmanager job behind to become the administratorfor the Department of Psychiatry,which was building a hospital and researchcenter in a joint venture with a hospital company.Over the next ten years or so, I workedmy heart out, as did some dear colleagues, totry to make the center a success during a timewhen psychiatry hospitals all over the countryarticleMeet Patricia Bickel, Complianceand Privacy Officer,Director, Professional IntegrityProgram for Universityof Southern Florida Healthwere struggling financially. After a couple ofownership changes, the hospital was finallyclosed, a casualty of our flawed health caresystem. Lesson: Don’t spit into the wind?GI: How did you originally becomeinvolved in compliance and what was yourfirst compliance position?PB: One day when I was discussing theseeming dysfunction of our institution witha colleague, he advised that the people withthe best opportunity for improving a systemor organization are those within it. Aboutthis time, academic health centers were makingthe news, due to multimillion dollar falseclaims settlements, and USF, like many othermedical schools around the country, wasbeginning to develop a compliance plan. Iwas approached as a possible candidate fora new position of compliance officer for theCollege of Medicine and, well, it looked likemy opportunity for improving a system Icared a lot about.In this position, I was responsible forleading the development of a complianceprogram, with a focus on physician billing,addressing the “seven elements” outlined inthe Federal Sentencing Guidelines. I later coledthe implementation of the HIPAA PrivacyHealth Care Compliance Association • 888-580-8373 • www.hcca-info.organd Security Rules, which expanded the scopeof our compliance efforts to the Colleges ofNursing and Public Health.GI: Tell us about the organization youwork for and some of your responsibilitiesas Compliance and Privacy Officer for USFHealth at the University of South Florida.PB: USF Health is comprised of thethree colleges of Public Health, Nursing, andMedicine, including the School of PhysicalTherapy and the USF Physicians Group (thegroup practice of its physicians and otherhealth care professionals).

A couple of years ago, I initiated developmentof the Professional Integrity Programwhich expanded our compliance programto cover all of USF Health. The name“Professional Integrity Program” was selectedas representative of the positive approachwe have taken toward identifying regulatedactivities within our organization and relatedresources to access when questions arise. Wepublicize the topics and resources on ourinternal Web site.Physician billing compliance remains asthe primary focus for me and my staff. I amfortunate to have three very competent anddedicated Billing Integrity Consultants onmy staff, and am recruiting for another rightnow. We provide billing integrity orientationto all new providers and staff, as well asother training as requested or indicated byour monitoring activities. Our monitoringactivities range from reviews of new providerbilling to investigations of reports of potentialbilling integrity problems.Our institution is in the process of implementingan electronic medical record, whichadds new challenges for our providers andstaff related to both documentation integrityand privacy issues. I have learned that I mustsometimes interject myself into the implementationprocess in order to ensure that thebilling integrity issues are considered.GI: Can you explain any differences thatyou have observed in compliance programstoday versus when you first began working incompliance?PB: Eleven years ago, most academichealth institutions were just beginning to createformal compliance programs. Whereaswe were competitive on most other topics,compliance was a bonding experience,because we all faced a common threat. Wewere scrambling to understand the many, andoften confusing, regulations with very littleguidance available from the government andno organization, such as HCCA, existed.Today, compliance guidance is robustand easily available. I think that HCCAhas contributed significantly to making thishappen through all its education programsand networking opportunities. Today, unlikewhen I first began working in compliance,people from all sectors of the health careindustry share ideas for making complianceprograms effective.GI: What are the unique compliance challengesyou face working at the University ofSouth Florida?PB: Implementation of our electronicmedical record poses some unique challenges.It is a challenge to train everyone to utilizeall of the functionality while maintainingthe integrity of the medical record. It isalso a challenge to ensure timely completionof medical records when the physicians arelearning the system.Another challenge for us is keeping upwith providing guidance on appropriate billingfor new types of providers and new typesof services being added to our group. Ourorganization has recently formed a smallteam that will review new services for viabilityfrom several perspectives, including legal,financial, billing, and compliance.Communication with our widely dispersedclinical sites is also a challenge. In addition tocare provided at our own clinics, our physiciansprovide care to patients at hospitals andother sites throughout several counties. Thereis no single effective method for communicatingwith everyone.GI: What are the biggest compliance riskareas for your institution?PB: Billing of health care services continuesto be one of our biggest compliancerisks. It is easy to make billing mistakes, andmistakes can morph into real problems forany provider, if they implicate the fraud andGabe Imperatoabuse statutes.As an academic health center, researchcompliance is another area of potentialsignificant risk. In the last year, USF Healthcreated a Research Integrity and Complianceoffice to provide specialized guidance for ourfaculty. This office interfaces with a university-wideresearch compliance office.GI: How many staff support the compliancefunction in your organization?PB: The Professional Integrity officecurrently has six full-time employees. TheProfessional Integrity office works veryclosely with the Revenue Cycle Operationsdepartment, which handles all the billingfunctions for the USF Physicians Group.This collaboration contributes much to theeffectiveness of our billing integrity efforts.In addition, there are faculty and staff memberswithin the clinical departments withbilling compliance responsibilities.In addition to the one full-time employeein our Research Integrity and Complianceoffice, several other employees support theresearch integrity function as well.GI: We understand that having an “effective”compliance program is critical. Howwould you define compliance effectiveness?Is there anything you are doing differentlyContinued on page 16Health Care Compliance Association • 888-580-8373 • www.hcca-info.org15April 2007

Meet Patricia Bickel ...continued from page 15since the Sentencing Guidelines Amendmentsof 2004?PB: In a nutshell, compliance effectivenessis the absence of the likelihood of badsurprises. That’s when the compliance officercan really sleep!The expansion of our compliance programto the USF Health Professional Integrity Programcoincided with the 2004 amendments.GI: Do you have any tips for measuringcompliance effectiveness?PB: I agree with those who advise keepingthe focus on the purpose of complianceprograms – to prevent and detect criminalactivity. Unannounced audits of processes areone method to consider. I think it is importantto periodically review samples of patientcomplaints for indications of wrongdoing. Ialso think employee surveys can be useful.GI: What advice would you give to someonejust starting out in compliance and settingup a program?PB: Assume the best and prepare for theworst. I think it is important to maintaina faith in the goodness of people. I wouldrather be proven wrong on that once in awhile, than to miserably live with an assumptionthat everyone is trying to get away withsomething. Preparing for the worst meansyou put in place the policies needed whenthings do go wrong.I would advise anyone who is just starting aprogram in health care to join HCCA, attendrelated training, and become certified throughthe Healthcare Compliance CertificationBoard. Then, arrange to network with othersin similar roles so you have someone to shareideas with.PB: The scope of the industry is a majorchallenge - from individual physician officesto multi-state integrated health care organizations,and everything between. I believe thiscontributes to the complexity of the relatedregulations which are drafted, crafted, andthen edited in attempts to make them applicableto all.Yet to come, I believe the continuedescalation of health care spending in theUnited States, especially as the baby boomersbecome Medicare beneficiaries, will driveeven more financial constraints and increasedregulations. The focus on pharmaceuticalcompanies--and their marketing practicesand interactions with physicians--will likelyincrease due to Medicare Part D.GI: How do you go about getting employeeand staff support for your complianceefforts?PB: First, we seek their support throughinitial orientation about our ProfessionalIntegrity Program. From there, probably ourmost important effort is in being a reliableresource for answering questions.GI: How do you respond to the challengeof keeping education and training interestingand effective?PB: We try to incorporate multiple methodsof education, including in-person, smallgroups, grand rounds, Web-based, emails,and posters.It is always important to keep the audiencein mind as well. I am currently planning aspecial session on privacy issues for whichwe will utilize an audience response systemthat allows for anonymous questions andanswers. This was recommended, because ofthe importance of the topic and the sensitivityof some of the questions that will likely beraised.GI: What has been the single biggest factorthat contributes to the success of yourprogram?PB: I believe the biggest factor contributingto the successes of our program has beenthe determined commitment of my staffgroup with support from key leaders.GI: Does your organization see value inyour participation with HCCA and whatadvantages have you gained from participatingin HCCA?PB: I think HCCA has contributed muchto the advancement of compliance professionalsand compliance programs, and toimproved understanding and communicationbetween the health care industry and regulatorygroups. nCompliance Today ThanksApril 200716GI: What do you feel have been majorchallenges for the health care complianceindustry and what do you feel are the biggestchallenges yet to come?Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

Roy SnellSome interesting developments have occurred in the complianceworld. I have decided to put some of the more bizarreevents together and report on them in one article. Our jobsare difficult. There is a lot of stress. Hopefully, these stories will helpyou to take your mind off your otherwise challenging day.Several senators were disappointed that the Supreme Court did notcome out more strongly in support of the US Sentencing Guidelines.They are also frustrated because they believe that Sarbanes Oxley didnot go far enough to help curtail corporate wrong- doing. A new regulationintended to supplement SOX is being developed by SenatorsSchumer, Harkin, Obama, Edwards, and Salazar. Critics are jokinglyreferring to the proposed regulation as SHOES. The regulation essentiallymandates implementation of the seven elements of a complianceprogram. There is some Republican support, and as a result, manybelieve the regulation will pass.Jim Sheehan, a long time health care fraud prosecutor, has resigned.Jim has left the profession to devote all of his time to his long timehobby of motorcycle racing. I am sure many of you were unaware ofhis interest or skill in the sport. As it turns out, he is quite good. Thereare several people in the sport who believe that he is good enough tomake the X Games if he devotes enough time.physicians would be asked to do. Debbie said that the star of the show,Joe Rogan, believes that it was the most disgusting series of challengesthey have ever had.And finally, many of you may not be aware that I have been a memberof Mensa for many years. I have been reluctant to share a lot about myinvolvement in the organization. Three years ago I was elected to theBoard. I am now very honored to be selected to chair their board. Asof April 1st, I will become the 33rd President of Mensa.I hope you all have as much fun on April Fools Day as I have had. nWe’ve made it a practiceto deal with solutions.Our attorneys are available to handlea full range of services including: White Collar Criminal and Civil Fraud Defense Corporate Liability, Compliance and Governance Corporate Investigations Health LawDebbie Troklus, Past President of HCCA, has been asked to be involvedin the reality show Fear Factor. She will not be on the show butrather she has been asked, along with other health care administrators,to help develop the challenges for one of the shows. The filming wascompleted last month but it will not air until this fall. Debbie is undercontract and could not share a lot of details; however, she thinks thatthe show will be very interesting. Apparently, the producers decidedthat it would be fun to put several physicians on the same show.Debbie and her colleagues got to decide what revolting things thewww.broadandcassel.comBOCA RATON • DESTINFORT LAUDERDALE • MIAMIORLANDO • TALLAHASSEETAMPA • WEST PALM BEACHFor more information, contact:Gabriel Imperato, Managing PartnerP.O. Box 14010Fort Lauderdale, FL 33302954.764.7060gimperato@broadandcassel.comApril 200718Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

Focus onAuditing & MonitoringAuditing andmonitoring: Thekey to any effectivecompliance programBy Jeff SinaikoEditor’s note: Jeff Sinaiko is president ofSinaiko Healthcare Consulting, an independenthealth care management consultingfirm, and he works with health care organizationsnationwide on a diverse range ofcompliance issues. For more informationor to make suggestions for his upcomingarticles on the subject, please email jeff@sinaikohc.com or go to www.sinaikohc.com.As consultants, we are often askedby clients to place their specificoperational challenges in some sortof industry context. How does our problemcompare with other hospitals? What is themost common trap that health systems likeours fall into when working through thisissue?In the specific arena of compliance, I’m frequentlyasked to identify the most importantcomponent of an effective compliance program.While the absolute importance of seniorleadership’s buy-in to the process can notbe overstated, based on a wide variety of experienceswith health care clients of all shapesand sizes, the answer to this one has becomeclear: the single function that consistentlyseems to make the biggest difference betweencompliance and non-compliance or effectiveand non-effective compliance programs, is theauditing and monitoring function.This month, I’m privileged to begin a sixpartseries of columns in Compliance TodayJeff Sinaikoregarding the implementation and managementof an effective auditing and monitoringprogram. To illustrate why this subject is socrucial, I invite you to join me in a flashbackto a scene from that classic work of Americancinema, Caddyshack:Judge Smails: Ty, what did you shoot today?Ty Webb: Oh, Judge, I don’t keep score.Judge Smails: Then how do you measureyourself with other golfers?Ty Webb: By height.Quite simply, one has to have an objectivesystem for monitoring, measuring, and otherwiseevaluating performance. One has touse the right criteria, pick the right metrics,and plan effectively to utilize the results. Inthis series, we’re going to address those crucialfactors in order to offer some helpful tips foreffective auditing, and ultimately, more effectivecompliance programs.As a starting point for the series, three primaryissues must be tackled in the developmentof an effective auditing and monitoringprogram:(1) Build the PlanFirst, identify the biggest threat/opportunityissues for your own organization and thenbuild your audit plan against that list ofissues. This list may be driven by the thencurrent OIG Work Plan and/or other issuesthe organization has identified at that time,but clearly, it also will continue to evolve overtime.(2) Define the ScopeNext, it’s important to define a manageablescope for what you’re going to audit andavoid the trap of trying to audit too manyissues at one time. That said, the other componentof scope and another common trapis having each audit that you do involve toolarge a sample, so that too much energy is expendedon each audit. Small probe samples,followed by more in depth audits only in theevent that problems are identified, can becritical tools for sticking to an annual auditplan and schedule.(3) Deploy the ResourcesNot just any resources – the right resources.Make sure that the people doing the auditsnot only have the requisite time and skillsand tools to do the job, but that they areperceived by other members of the organizationas having those skills, so the results areperceived as credible. This means that evenwhen you have measurable results, beingable to use those results effectively to achievechange is not a foregone conclusion. Changemanagement requires its own planning, strategies,and disciplines. However, if the auditresults are not viewed as credible in the firstplace, rightly or wrongly, using the results toeffect change is a non-starter.The message I hope to convey in this seriesof columns is that you can have the greatestwritten policies and procedures and all thesupport in the world from the Board, but ifyou don’t effectively audit and monitor, youmay have no idea what is happening in thetrenches on a daily basis. That is where theopportunities are. Through specific “how to”Continued on page 37Health Care Compliance Association • 888-580-8373 • www.hcca-info.org19April 2007

focusfeatureThe dollars and sense ofexecutive compensationBy Gerald M. Griffith, JD and James R. King, JDEditor’s note: Mr. Griffith is a partner in the Chicago office ofJones Day. He can be reached at 312/269-1507 or by e-mail atggriffith@jonesday.com. Mr. King is a partner in the Columbus,Ohio office of Jones Day. He can be reached at 614/281-3928 orby e-mail at jrking@jonesday.com. Mr. Griffith and Mr. Kingpractice as members of the Health Care and Tax Practice Groups ofJones Day.duties with the same degree of diligence, care, and skill as an ordinarilyprudent person would exhibit in like circumstances, and that theyact in a manner that they believe to be in the best interests of thecorporation. The duty of loyalty dictates that the director or officer actin faithful pursuit of the interests of the corporation rather than theirown financial or other interests or those of any other person or entity.Finally, the duty of obedience obligates a director or officer to act withfidelity to the mission and purposes of the corporation within thebounds of the law generally.April 200720This article discusses current and proposed legal parameters applicableto executive compensation packages generally, as well as currentDirectors and officers are also generally required to act in good faithin discharging their duties. 2 Any unjust enrichment or fraud on thekey focus areas for legislation and regulatory oversight of executivecorporation may violate the good faith requirement and the dutycompensation and recommendations for strengthening the defensibilityof executive compensation programs. Our concern here is withof loyalty to the corporation. Where a director or officer engages inself-dealing to gain approval of his or her own compensation withoutthe appropriate process for establishing executive compensation anddisclosure of relevant potential conflicts, such action is arguably inconsistentwith these fiduciary duties. In one illustrative case, a federal ap-challenges to the total value of compensation packages. It is not ourintent to outline the technical requirements for particular elements ofpellate court found that a health care CEO breached his fiduciary dutya compensation package, such as the strict limitations that may applyby setting his own salary without disclosing substantial outside incometo various deferred compensation arrangements, limits on deductibilityfrom another organization or the use of corporate funds to purchase aof executive compensation, or the detailed record keeping necessary to$6 million life insurance policy. He also bifurcated the presentation ofsupport certain expense reimbursements for federal tax purposes. Oura severance plan, allegedly to mislead the board as to the magnitude ofdiscussion focuses on the nonprofit, tax-exempt health care sector, becauseit is the largest segment of the health care industry and generallyseverance benefits he would receive. 3subject to more extensive regulation of their contracts and transactionsSuch cases highlight the importance of transparency and full disclosurewith insiders. 1of potential conflicts in any compensation arrangement review, as wellas the need to insist on appropriate documentation of reasonableness.Fiduciary dutiesAs indicated in Section 8.30(b) of the Model Act and in many stateDirectors and officers of nonprofit corporations have at least threestatues, directors and officers are entitled to rely on “information,commonly recognized fiduciary duties – the duty of care, the dutyopinions, reports, or statements, including financial statements andof loyalty, and the duty of obedience (though some would argue forother financial data, if prepared or presented by … legal counsel, publicaccountants or other persons as to matters the director reasonablya higher fiduciary standard for charitable organizations). The dutyof care relates to the director or officer’s competence in performingbelieves are within the person’s professional or expert competence.”those functions and requires that the director or officer carry out thoseHealth Care Compliance Association • 888-580-8373 • www.hcca-info.org

Failure to obtain evidence of fair market value, and failure to exerciseappropriate oversight of the executive compensation process, arguablywould be a breach of fiduciary duty by whoever presented or approvedthe compensation package. Documentation of fair market value is alsokey to compliance with the tax rules applicable to exempt organizationsand their executives. The IRS, however, has also shown concernwith organizations that lack appropriate board oversight in compensationmatters, including one audit where the board “had actual knowledgeof…improper payments” to the president and took no action torecover those payments and instead approved additional payments. 4Concerns over whether the fiduciary duties described above are beingmet also has resulted in increasing activism in the executive compensationarea at both the state and federal levels.Recent inquiriesOne of the first rules in the playbook for any attack on a corporationis to “follow the money.” More precisely, follow how much moneygoes to whoever is responsible for making the decisions, or exercisingthe oversight, over the actions being challenged. In some cases (such asunion-sponsored corporate campaigns or class action lawsuits), it maybe a distraction or a tactic to weaken resolve in other areas. At othertimes, it is a prelude to possible legislative efforts, administrative rulemakings, or negotiated settlements. Finally, in an increasing number ofinstances, it is the path followed to prove serious allegations of excessbenefit, breach of fiduciary duty, kickbacks, or securities fraud.Congressional Inquiries. In the last Congress, nonprofit health carecame under attack before several committees. Whether those attacksgain traction in the new Democratic Congress may be an open questionas this article is written. It seems clear, however, that the focuson executive compensation will continue in some key forum, whetherstate or federal, whether regulatory, legislative, or judicial.On the federal level, the Senate Finance Committee staff releaseda proposal in June 2004 that included significant compensationreforms. 5 The proposal would have imposed a number of reforms onthe nonprofit executive compensation process, with potential newexcise taxes for noncompliance. The detailed process proposed forapproval of compensation included: (a) annual advance approval bythe board for all management positions for any increase beyond aninflation adjustment; (b) independence standards for compensationconsultants, who would have to be hired by and report directly to theboard; (c) mandatory public disclosure of compensation arrangements,including an explanation that would be understandable by someonewith a “basic business background.”Following up on executive compensation concerns, in May 2005,Senator Grassley, then Chair of the Senate Finance Committee,took up the banner by peppering ten major hospital systems with 46detailed questions, many of them with multiple subparts, and setting a45-day deadline to reply. 6 The last question on that list asked for a detailedbreakdown of travel expenses for the five top salaried employeesfor the past three years, all salaries, and benefits (singling out countryclub dues in particular) they received from their employer and relatedorganizations during the same period.Federal legislation. The Pension Protection Act of 2006 (PPA) includedlimited reforms relevant to executive compensation, includingincreasing the maximum tax on organization managers to $20,000per transaction for approving non-fair market–value packages [PPA,§ 1212(a)(3)]. The PPA also makes it a per se excess benefit for anysupporting organization (which includes many health care holdingcompanies and foundations) to provide a loan to any disqualifiedperson, with the full amount of the loan being an excess benefit [PPA,§ 1242(b)]. Perhaps most significantly though, the PPA also increasedthe range of permitted disclosures to state charity officials, includingallowing the IRS to disclose proposed revocations and closing agreements(PPA, § 1224).The Sarbanes-Oxley Act of 2002 (SOX) includes a giveback rule forexecutive compensation arguably designed to deprive executives of thebenefits of intentional or negligent misstatement of financial results.In the event of an accounting restatement due to material noncompliancewith securities laws financial reporting requirements as a result ofmisconduct, the CEO and CFO must repay any bonus, incentive, andequity-based compensation received for 12 months following the noncompliantfiling, and any profits realized from sale of the issuer’s securitiesin that same 12-month period. 7 Although this portion of SOXonly applies to public companies and not nonprofit organizations,it is indicative of potential legislative reforms to deal with perceivedabuses in the nonprofit sector as well, and may reflect what Congressconsiders best practices for executive compensation programs. Storiesof nonprofit executives benefiting in similar circumstances are likelyto increase calls for similar reforms in the nonprofit sector, such as theCFO of a Michigan hospital who allegedly falsified journal entriesby overstating asset values and operating income and understatingliabilities. This resulted in a misstatement of the hospital’s financialstatements in an aggregate amount of $117 million over approximatelyfive years and inflated his bonuses by over $144,000, which he agreedto repay. 8 Continued on page 23Health Care Compliance Association • 888-580-8373 • www.hcca-info.org21April 2007

®SMART2.o :bringing HIM peopleand HIM technologytogether.*On one side, it’s a technology solution. On the other, a servicesolution. SMART2.o is more than a software tool, it’s a technologysolution designed to help you continuously assess codingaccuracy and data quality as an important part of your hospital’scompliance program.SMART2.oFor more than 15 years, we’ve worked with HIM professionalsproviding affordable tools and services that help them with codingaccuracy, regulatory compliance, data management and reportsto monitor PPS requirements.So, whether you look at your hospital’s compliance program froma technology perspective or a service perspective, SMART2.o isa very smart, very budget-friendly way to work.To start an in-depth conversation about your particular needs,contact Doug Barry at 866-792-4920 or visit pwc.com/healthcare.*connectedthinkingApril 2007 © 2005 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, asthe context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinkingand SMART2.o are trademarks of PricewaterhouseCoopers LLP (US).22

executive compensation ...continued from page 21Encouragement for best practices. The Nonprofit Panel of theIndependent Sector (the Panel), in its June 2005 report to the SenateFinance Committee, followed a central theme that more responsibilityfor executive compensation should be focused at the board level tothe extent that can be accomplished without conflicts of interest. ThePanel recommended, among other things, that CEO compensationbe approved by the full board annually, in advance, unless the CEO isunder a multi-year contract with no more than an inflation factor orcost-of-living adjustment. For compensation of other executives, thePanel recommended regular reporting to and oversight by the board. 9A number of these concerns have been echoed by the bond ratingagencies in their call for transparency and more performance-basedcompensation.Rating agencies have also focused on executive compensation, andtheir judgments about the executive compensation and review processcan affect an organization’s bond rating and, thus, the organization’saccess to the public capital markets. For example, in June 2005,Moody’s Investor Services issued a “Special Comment” dealing withthe extent to which good (or bad) corporate governance practicesimpact the credit rating of nonprofit health care organizations. In discussingthe criteria considered in the credit rating process, the SpecialComment noted that the board’s handling of the “level of managementcompensation” for CEOs and other top management personnelin the nonprofit health care sector is “drawing increasing attention,”and this increased attention requires a hands-on involvement by theboard in the process of establishing executive compensation and inmonitoring executive performance to ensure that the organization getsthe performance it has paid for. In this regard, the Moody’s SpecialComment notes that nonprofit health care organizations today facea number of conflicting pressures regarding executive compensation.On the one hand, large health care organizations are complicated,sophisticated business operations that require capable, experiencedmanagement, and the organizations must compete for that talent withother comparable organizations, including for-profit companies. Thiscompetition for talent results in an increased pressure to pay more toattract and retain the kinds of individuals needed to run a successfuloperation. On the other hand, as the Moody’s Special Commentnotes, the “appropriate” level of compensation for these executives is“difficult to gauge,” and “attempts to increase executive compensationcan generate negative press attention and the discontent of majorconstituencies.”One recent IRS ruling also highlights many of these same emergingbest practices in executive compensation. Private Letter Ruling200601030 (Jan. 6, 2006) involved a long-term incentive compensationplan aimed at retention of important personnel. The proceduresfollowed in this ruling were a model of transparency, includingmultiple procedural safeguards and review by an independent board;each layer of management making recommendations up the ladderand no one approving their own compensation; and no bonuses paiduntil organization recovers capital investment in the related technologycompany.State Legislation. Some state statutes already regulate conflicts ofinterest in compensation and other matters. For example, in Florida,any director or officer of a nonprofit corporation who improperlybenefits, directly or indirectly, from a conflict-of-interest transactionmay be required to disgorge those profits in an action by the attorneygeneral. 10One of the more drastic legislative proposals at the state level surfacedin Michigan just over two years ago. House Bill 6365 (introduced12/02/04) aimed to regulate compensation of all executive andadministrative employees of licensed hospitals. That legislation wouldhave capped executive pay at 1200% of federal poverty guidelinesfor a household of the same size. That cap would have equated tothe following amounts in 2005: $114,840 for a single executive, and$232,200 for an executive with a family of four. 11State regulatory oversight. Irrespective of legislative action or inaction,state attorneys general and other state regulators have and likelywill continue to exercise their oversight responsibilities over perceivedabuses in the nonprofit sector, including poorly designed, poorlydocumented, and poorly implemented executive compensation plans.Those investigations are examples, though not an exhaustive list, of arrangementsthat are likely to draw close scrutiny. In one example, theKansas attorney general leveled civil conspiracy allegations related to agolden parachute for Health Midwest’s president as part of a proposedhospital sale. Minnesota’s attorney general audited executive compensationand other arrangements at three major health systems, and inMaryland, the insurance regulators blocked the conversion of a healthcare plan, criticizing executive bonuses.In another example, in late June of 2006, the Ohio attorney generalproposed (and subsequently withdrew) a far-reaching set of proposedrules governing the operation of charitable organizations in Ohio. Aspart of these proposals, the Ohio attorney general suggested a ModelCompensation and Expense Reimbursement Policy. Part of this ModelContinued on page 24Health Care Compliance Association • 888-580-8373 • www.hcca-info.org23April 2007

n Compensation paid by multiple entitiesn Loans to directors, officers, or other insiders (Note: IRS sent 200follow-up letters)n Use of property for non-business purposes (e.g., cell phones, laptops, spousal travel, auto allowance, country club dues, otherperquisites)The formal IRS (Internal Revenue Services) report on the executivecompensation initiative was released on March 1, 2007. 14 The reporthighlights a significant rate of errors (more than 30%) in reportingcompensation on Form 990. Levels of adherence to the rebuttablepresumption review process were relatively modest (51%), and onlyslightly more organizations had documented the market value ofcompensation packages (54%). In addition to the reporting problems,the IRS found excessive compensation in 25 examinations and assessedexcise taxes under Section 4958 in excess of $21 million against 40disqualified persons and organization managers. The report also notesthat in addition to the 200 compliance check letters for loan deals (seeabove), the IRS has opened 50 examinations of potentially suspect insiderloans made at below market rates and loans that were not repaid.Whistleblowers. For years, whistleblowers have been key playersin the enforcement of fraud and abuse laws. The opportunity toprosecute cases directly under the False Claims Act may be a part ofthe reason; however, many such claims result in government intervention.Although the False Claims Act does not allow private parties toenforce the tax laws, there is a little used (in health care) provision inthe Tax Code that provides for rewards for whistleblowers who alertthe government to violations of the tax law. Under Section 7623 andthe related regulations (Treas. Reg. § 301.7623-1), whistleblowers canrecover up to 30% in such cases, with the recovery funded from thetaxes collected. It is the government, however, who prosecutes thesecases; there is no private right of action (though one was proposed inthe last Congress). On February 2, 2007, the IRS set up a dedicatedWhistleblower Office to receive and follow up on tips of alleged taxlaw violations that involve amounts greater than $2 million. (Whenthis article went to press, legislation was pending in Congress thatwould lower that threshold to $20,000.)GAO survey. At the request of the Chair of the House Committeeon Ways & Means, in 2006 the General Accounting Office (GAO)distributed a “voluntary” survey to the largest health care systems inthe country. Survey questions focused on the CEO and four other toppaidexecutives at the system level. GAO’s questions reflect an interestin the rebuttable presumption process, handling of conflicts of interexecutivecompensation ...continued from page 23Policy established a presumption that payment of compensation paidto a Covered Person (which would have included any employee ofa charitable organization) in excess of 30 times the minimum wage($321,600), was, “as a rule,” “generally not deemed to be in furtheranceof the charitable purposes” of the organization. 12 The proposedModel Policy further provided that, if more than $321,600 is paid,there must be “procedural safeguards,” which “at a minimum, shallinclude approval by a supermajority of the full board, . . . with thefull knowledge of the total Covered Compensation paid to the CoverPerson by the charitable organization and such other Related ThirdParties as may be compensating the Covered Person.” 13Executive compensation initiative. IRS enforcement activities haveincreased significantly in recent years despite overall staffing declinesin the exempt organization sector. Although full scale audits are stillconducted, the IRS has shifted significant resources to more focused,limited-scope exams through what have been dubbed “soft contactletters.” In that vein, in the first half of 2005, the IRS launched itsexecutive compensation initiative, contacting over 1,800 exemptorganizations with questions about their executive compensation.That initiative was followed in early 2006 with nearly 600 soft contactletters asking about both community benefit activities and executivecompensation.The IRS letters asked a series of questions focused on the compensationreview process, conflicts of interest, and reasonableness of totalcompensation, including who made compensation decisions, whatwere the duties and responsibilities of the executives, does the organizationfollow the procedures for establishing a rebuttable presumptionof reasonableness, what sources of comparable data were used, whetherhospitals used both for-profit and nonprofit comparables in settingcompensation, and whether actual compensation was set within therange of comparable data. Consistent with prior guidance, the questionnairesreflect a focus on total compensation and benefits.Prior to issuance of the formal report on this project, comments fromvarious IRS officials highlighted several red flags that may suggest adefective compensation process (and potential inurement or excessbenefit issues):n Insufficient governing board oversight of compensation decisionsn Failure to follow the rebuttable presumption procedure as a “bestpractice” may be a cause for concernn Compensation not clearly tied to actual dutiesn Using comparables that include only for-profit companiesn Underreporting of compensation on Form 990April 200724Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

est, reliance on independent professional advice in setting compensation,use of internal and external self-audits, and the enforcement ofperformance bonus criteria for executives. Like the IRS questionnaires,the GAO survey focused on all forms of compensation, including cashcompensation, retirement benefits, and perquisites (including loans,travel and entertainment expenses, and payments to/for spouses andfamily members).Of the 100 surveys distributed, GAO received 65 replies. The repliesshow a significant level of sophistication in executive compensationmatters. GAO noted that the hospital systems commonly reportedthat their board or executive committee were primarily responsiblefor approving executive compensation, the system had a conflict-ofinterestpolicy that applied to the board or committee members andcompensation consultants, and they relied on comparable market datain making compensation decisions. Senator Grassley, however, focusedon the negative, noting his disappointment that 35% of the hospitalssurveyed did not respond, that one-third of those responding had nowritten criteria for selecting members of the compensation reviewbody, and that in 17% of the cases, the CEO was a voting member ofthat body. He also noted that “critical audits of personal entertainmentexpenses, spousal travel, automobile expenses, and social club dues arenot being performed on a regular basis.” 15Federal compensation standards for nonprofitsThe legal standards related to executive compensation for tax-exemptorganizations are not overly complex on their face, yet their applicationto particular facts can prove challenging, particularly for higherendcompensation packages. Although they lack the same purportedbright lines that apply to deductibility under Section 162(m) in thefor-profit sector, the rules for exempt organizations rely heavily onprocess. Following those procedural protections, including takingthe steps to establish a rebuttable presumption of reasonableness, canprotect both the organization and its executives.Inurement and private benefit. Among other requirements fortax-exempt status as a Section 501(c)(3) organization, no part of theorganization’s net earnings may inure to the benefit of insiders, 16 andthe organization may not benefit any private party more than as anincidental part of its broader, primarily charitable activities. 17 Violationof either the private inurement or private benefit rules can jeopardizetax-exempt status. Section 501(c)(3) organizations, however, may payreasonable compensation for services actually provided without violatingthese proscriptions. 18Defining reasonable compensation. Reasonableness for this purposeis based on comparables—like-pay for like-services, by like organizations,in like circumstances. 19 Whether an organization is “comparable,”however, means more than just being in the same line of business.20 It is also important to consider the size of the organizations (inboth revenues and scope of activities) and their financial performance.Defining the comparables that go into a compensation analysis can, inpractice, have a more significant outcome on the final result than whatpercentile is selected.Fair market value generally is a range rather than a specific amount. 21The same can be said for reasonable compensation. Compensationconsultants, however, are unlikely to provide unqualified opinions onreasonableness if compensation is above the 90th percentile in appropriatesurveys for comparable positions with comparable organizations(because higher percentiles tend to be extrapolations or have insufficientdata points for the same reliability), or if more than half of thecomparables are for-profit companies.The regulations define “reasonable compensation” as: “the amount thatwould ordinarily be paid for like services by like enterprises (whethertaxable or tax-exempt) under like circumstances.” 22 A cap on compensationis relevant to reasonableness under Section 4958 and under theinurement rules generally. 23 Although the IRS encourages reasonablecaps on total compensation, there is no hard dollar cap required bycurrent federal law at any specific amount.All items of value are included in assessing reasonableness, with limitedexclusions [i.e., de minimis and working condition fringe benefits,expenses reimbursed pursuant to an accountable plan under Reg. 1.62-2(c)]. Although the Section 4958 regulations are silent on the role ofcommunity benefit and community need in an analysis of reasonableness,given the IRS’ focus on community benefit activities generally inthe model conflict-of-interest policy (included with the instructionsto Form 1023), and in the recent compliance check letters mailed to600 hospitals, it is difficult to imagine the IRS arguing that nonprofitscannot assign some value to specific community benefit goals in anexecutive bonus program.Use of surveys and consultants. Although using an off-the-shelf surveyis less expensive and may be adequate for many typical executivepositions and performers, its reliability and utility depend, in part, onthe degree of expertise in compensation matters of board or committeemembers who rely on the surveys. 24 Off-the-shelf surveys tend toContinued on page 27Health Care Compliance Association • 888-580-8373 • www.hcca-info.org25April 2007

26April 2007Health Care Compliance Association • 888-580-8373 • www.hcca-info.orgAn Independent Member of Baker Tilly International

executive compensation ...continued from page 25include a wide range of companies that may end up overstating, orunderstating, the actual market rate for comparable positions.A customized survey, though more expensive, can be more preciseand produce a dramatically different range through the selectionof comparator companies that are more closely comparable to theorganization. A number of public companies have been taken to taskin the press for selecting peer groups to benchmark themselves againstfor compensation purposes that are in unrelated industries, are notof a similar size, or are not performing as well financially, are notgiving due consideration to where the companies actually recruit forexecutive talent, and are paying all executives at the 75th percentileor above. 25 Compensation also can exceed the range of comparablesin special cases with an explanation. 26 However, a case-by-case reviewis necessary to assure that there are appropriate reasons for the excess(e.g., documented recruitment and retention difficulties or exceptionalperformance). Exceeding ranges increases the risk that compensationwould be found to be unreasonable.Finally, whether using published or custom surveys, the data generallymust be fresh to be reliable. Compensation consultants typicallyupdate a prior year’s survey results by an inflation factor to adjust forthe normal time lag between data gathering and publication. Althoughthere is no bright-line time as to when a survey or other valuation istoo old to use, and much may depend on local market conditions, theIRS has found a five-year-old compensation survey to be outdated andunreliable (Tech. Advice Memo. 200244028), and in another case, an18-month-old valuation was considered unreliable (Anclote, supra).Automatic excess benefit transactions. Payments to disqualifiedpersons will not be treated as payment for services, unless that intent iscontemporaneously substantiated (or the payments are expense reimbursementsunder an accountable plan). Without that substantiation,the payments would be viewed as automatic or per se excess benefits,regardless of the value of any services provided. Appropriate substantiationincludes properly reporting the payments on Forms W-2, 1099,990, or 1040 before the IRS opens an audit of the taxpayers. If there isreasonable cause for failure to report (i.e., mitigating factors or eventsbeyond the exempt organization’s control), and that failure is promptlycorrected, the per se rule would not apply. In addition, an exempt organizationmay produce other documentation to show that it followedits normal approval process for compensation (e.g., approved writtencontract signed before payment is made). 29Compensation compliance protection for various executive levelsVarious exceptions may apply to protect compensation paid to differentemployees, depending on their prior relationships with the organization,the total value of their annual pay package, and the processfollowed by the organization to approve executive compensation.New and newly promoted executives. One of the most useful exceptionsin the regulations allows organizations to negotiate compensationpayments for new executives and those promoted from the rankswithout subjecting the contract to the Section 4958 excess benefitrules. Similarly, a new executive with no prior relationship with theorganization is not likely to be an insider triggering the private inurementrules. 30Excess benefit transactions. Compensation above reasonable levels is Although the Section 4958 exception is frequently referred to as thea taxable excess benefit for “disqualified persons” (which includes all “initial contract” exception, it can be used for the same executivevoting board members, CEO, COO, CFO, treasurer, key department multiple times as long as he or she is not already a disqualified personheads, and others with significant influence over the organization, as when the contract is signed (e.g., a finance executive being promotedwell as their family members). 27 The amount of compensation in excessof what is determined to be reasonable is referred to as the excess takes effect). The exception, however, is limited to fixed paymentsto CFO may not be a disqualified person before his new agreementbenefit. Section 4958 imposes a two-tier tax on that excess, first at the – which would include specific dollar amounts and amounts that canrate of 25% and then, if it is not repaid with interest, an additional be objectively determined pursuant to a fixed formula set forth in thetax at the rate of 200%. In willful or flagrant cases or repeat violations, contract. Specific awards for specific targets will be considered objective,but discretionary judgments about performance will not (i.e., thethose taxes can be doubled under Section 6684. Organization managerswho approve excessive compensation packages are also subject to discretionary portion would be subject to the excess benefit rules).tax at the rate of 10% of the excess benefit, subject to a per transactioncap (formerly $10,000, now $20,000). Moreover, if the excess Only binding written contracts can qualify for this exception. Thebenefit transactions are substantial or pervasive enough to demonstrate agreement need not be overly formal or detailed, as long as it has thethat, as a whole, the organization is no longer operated exclusively for basic terms and compensation spelled out with sufficient specificity tocharitable purposes, exemption may be revoked. 28Continued on page 30Health Care Compliance Association • 888-580-8373 • www.hcca-info.org27April 2007

Join us at HCCA’s 2007 Local Area ConferencesHCCA’s local area conferences take place throughout the year, all over the United States.You’re sure to find one that works for you!New York, NY.............................May 18Seattle, WA..................................June 1Detroit, MI..................................June 15Los Angeles, CA.......................June 29Anchorage, AK....................July 12–13Boston, MA...................... September 7Minneapolis, MN............ September 14Kansas City, MO............ September 28Chicago, IL............................ October 5Pittsburgh, PA..................... October 12Honolulu, HI.................. October 18–19Denver, CO.......................... October 26Louisville, KY.................... November 2Nashville, TN.................... November 9Visit www.hcca-info.org for registration informationApril 200728Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

2007 HCCASouth Atlantic LocalArea Conferencetremendous successEditor’s note : Robert Pelaia is the SeniorAssociate General Counsel for Health Affairsat the University of Florida – Jacksonville.He may be reached by telephone at904/244-3146 or by e-mailrobert.pelaia@jax.ufl.edu.This year’s South Atlantic Local AreaConference was held on January 26,2007 at the Walt Disney World SwanResort, located in the heart of Walt DisneyWorld in Orlando, Florida. The conferencewas co-chaired by Ken Nunez, Director ofMedicare Advantage and Regulatory Affairs atWellCare Health Plans and myself.This was the third anniversary of this localconference, and attendance has increased everyyear. If you were able to make the conference,you know how informative and relevantit was. If you are a compliance professional inFlorida and you were unable to make it, youmissed out on a great local networking andeducational experience. The outside temperaturewas cold (by Floridian standards) but theoverall consensus from attendees is that it wasone of the best local compliance conferencesthey had ever attended!Informative general sessionsThe South Atlantic Local Annual Conferenceis an educational and networking event designedspecifically for health care complianceprofessionals working in Florida. Attendees(and speakers) represented many different industries,including hospitals, nursing homes,By Robert Pelaiaphysician practices and health plans. Theconference program included the followingeducation sessions:n Tim Byrnes & Kelly Bennett, from theMedicaid Program Integrity Office at theFlorida Agency for Health Care Administration,started the morning with a 2007 updateon Florida Medicaid Program Integrity. Locatedin the American Health Care Association(AHCA) Office of the Inspector General,the Medicaid Program Integrity Officeaudits and investigates providers suspected ofoverbilling or defrauding Florida’s Medicaidprogram, recovers overpayments, issuesadministrative sanctions, and refers cases ofsuspected fraud for criminal investigation.Mr. Byrnes provided an overview of theFlorida Medicaid program, recent trends inprogram integrity, and the Medicaid IntegrityProgram Provisions of the Deficit ReductionAct of 2005. Ms. Bennett then providedaudience members with details of AHCA’snew Medicaid self-audit protocol.n Kathy Reep, VP/Financial Services/Complianceat the Florida Hospital Association,provided attendees with the inside scoop ona number of “hot topics” related to hospitalcompliance that have been on the radarscreen at the Florida Hospital Associationincluding: Medicare Recovery Audit Contractors(RACs); Medicaid Program Integrity initiatives;the Medicare HINN 11; Medicare’sDRG payment window; and “present onadmission” indicators.n Eric M. Baim, an attorney with theHogan and Hartson law firm, flew in fromWashington D.C. to discuss the Open Letterto Health Care Providers issued by, the U.S.Department of Health and Human Services’Office of Inspector General (OIG) on April24, 2006. The Open Letter describes a newinitiative to encourage self-reporting by providers.Mr. Baim challenged audience membersto consider if the Open Letter is a goodpathway for their particular organization. Healso explored the roles of compliance officer,auditors, and in-house and outside counselwith respect to potential self disclosures.n Thomas G. Wilson, PhD, MHA, ProjectConsultant on Corporate Compliance andEthics at Blue Cross and Blue Shield ofFlorida, examined Medicare Parts C and Dand provided a look backward and forwardon new compliance requirements for HealthPlan Sponsors in 2007. Mr. Wilson opinedthat the arrival of Medicare Part D brought anew era of compliance challenges facing plansponsors. He shared his views on some generalPart D compliance issues and strategies tocomply with the new fraud, waste, and abuseguidance including: eligibility, enrollmentand disenrollment issues; marketing guidelines;and determinations, reconsiderations,and appeals.n Benjamin L. Frosch, President of FroschMedical Consultants, Inc. in Plantation,Florida, treated audience members to asession on compliance monitoring, training,and discipline. Mr. Frosch stressed thatcompliance isn’t just a matter of creating acompliance program, then sitting back. Itmeans ongoing vigilance, training, and ifnecessary, internal punitive measures. Theconfrontational approach might not be thebest way to change behaviors among staff andemployees who pose compliance risks, butContinued on page 51Health Care Compliance Association • 888-580-8373 • www.hcca-info.org29April 2007

executive compensation ...continued from page 27be enforceable under state law. If at any time the executive does notsubstantially perform his or her obligations under the contract, theexception is lost. Likewise, if the contract is terminable by the exemptorganization without cause and without substantial penalty (e.g., atwill employment), the contract is treated as a new contract as of thefirst date that such termination could be effective (even if it is not terminated).In addition, if the parties make any material change in thecontract, such as extending or renewing its term or making a “morethan incidental change to any amount payable under the contract,” thecontract is also treated as a new contract as of the date of the change.In these last two cases, the deemed “new contract” still may qualify forthe initial contract exception, if the executive is not yet a disqualifiedperson. 31Long-term executives. Some longer serving executives still mayqualify for another exception, including the exception for bindingwritten contracts in effect continuously since before September 14,1995. 32 If at any point the exempt organization has the right to terminatethe contract without consent and without substantial penalty,the exception ends as of the first date that such termination could beeffective (whether or not it is actually terminated). Likewise, any materialchange in the contract results in loss of the exception. After thisexception ends, the normal reasonableness analysis would apply (unlessthe executive fits another exception). In the course of one audit, theIRS determined that a consulting agreement for a retired health caresystem CEO and his spouse had been materially changed (and thus nolonger qualified for this exception). The changes included extendingthe term, decreasing the minimum hours of service required,restructuring annual payments to include payment for an existingnoncompete, adding a survivor’s benefit to pay the surviving spouse,and adding a deemed insecure clause to allow the couple to acceleratepayments if they became concerned about the system’s financial conditionfollowing a sale of substantially all system assets. 33Junior/Mid-level executives. Executives at relatively more modest paylevels also may qualify for a blanket exception from the Section 4958excess benefit rules. Under IRS regulations, all non-highly compensatedemployees [as defined in Section 414(q)(1)(B)(i)] will be deemednot to be disqualified persons if they are not voting board members,are not certain high-ranking officers or family members of disqualifiedpersons, and they are not substantial contributors to the organizationunder Section 507(d)(2)(A) (gifts of at least $5,000 and more than 2%of total donations). 34 For 2006 and again for 2007, the dollar amountthreshold for being highly compensated was $100,000. 35Other executives. For other executives, as well as for boards andorganization management approving their compensation, the bestprotection available is often following the procedure outlined in theregulations for establishing a rebuttable presumption of reasonablenessfor the compensation package. 36 Following an appropriate process (describedbelow) creates a rebuttable presumption of reasonableness andshifts the burden to the IRS to prove compensation is too high. As wehave seen in recent tax litigation (i.e., the Caracci case, supra), whohas the burden of proof can have a significant impact on the outcome.To establish the presumption and shift the burden of proof to the IRS,three basic requirements must be met.First, the compensation arrangement must be approved in advanceby an authorized body (which can include the board, a committee, orindividuals authorized under state law to act on behalf of the board)comprised of independent members. In this context, independencemeans that the member and his or her family have no conflict asto the arrangement being approved and no vote swapping occurs(i.e., trading an approving vote on one transaction for a conflictedmember’s approving vote on another transaction). A conflict may bepresent if:n the arrangement involves the member’s own compensation or thatof his or her family,n the member or any of his or her family members is an employee reportingto the person whose compensation is being approved (e.g.,a CEO’s direct report voting on the CEO’s compensation),n the member receives other payments that are approved by theperson whose compensation is being approved, orn the member has any other material financial interest affected by thecompensation arrangement.Consistent with the IRS model conflict-of-interest policy, anyone whohas a conflict should be excused from the meeting before any deliberationor vote on the compensation package, though they may make astatement and respond to questions.Second, the authorized body must determine that the transactionis consistent with fair market value based on a review of adequatecomparability data. As noted above, the level of detail required inthe comparability data depends on the expertise of the authorizedbody in compensation matters. Under Section 53.4958-6(c)(2) of theregulations, adequate comparability data may include market data for“functionally comparable positions,” information on the availabilityof similar services in the geographic area, “[c]urrent compensationsurveys compiled by independent firms,” and actual binding writtenApril 200730Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

offers from similar organizations.The standards for independence of a compensation consultantunder the Section 4958 regulations are not well defined. The auditorindependence standards of Section 201 of SOX [15 U.S.C. § 78j-1(g)& (h)] require prior audit committee approval (or a special exceptionfrom the Public Company Accounting Oversight Board) for anauditor of a public company to provide certain non-audit services,including “appraisal or valuation services, fairness opinions, or contribution-in-kindreports.” A growing number of nonprofit organizationshave voluntarily adopted this and other requirements of SOX, whichmay lead to questions as to whether valuation experts who are partof a professional services firm that renders accounting services to theorganization can be independent for purposes of Section 4958.The final regulations are silent on that point, however, the preambleto the temporary regulations provides some guidance on the meaningof “independence” for compensation consultants and other valuationexperts. There, the IRS stated that “[t]he requirements for appropriatevaluation experts are modeled after the section 170 regulations thatdefine qualified appraisers for charitable deduction purposes.” 37 Thoseregulations provide that a qualified appraiser, among other things,does not include an employee of the taxpayer, corporations ownedmore than 50% by the taxpayer or part of the same control group, oran appraiser who is both regularly used by the taxpayer and does notprovide a majority of his/her/its appraisals for unrelated persons duringthe tax year. 38 The final Section 4958 regulations do not referencethese rules, leaving the meaning of “independence” somewhat up inthe air. Although Section 1219 of the Pension Protection Act, passedlast year, amended the statutory definition of “qualified appraiser”for purposes of Section 170, it continued the authority for additionalregulatory criteria, and the IRS has confirmed that the above independencestandard still applies. 39In light of the recent indication that the IRS is examining corporateresponsibility issues in the tax-exempt sector, it remains to be seenwhether the independence issue will be addressed specifically in thefuture. 40 One IRS official, however, commented that the IRS doesnot believe that exempt organizations should follow any more lenientpractice for auditor conflicts of interest than that applicable to publiccompanies under SOX, and “extra scrutiny will be given to anycompensation report or property valuation that is performed by theorganization’s regular accounting firm.” The official went on to notethat the IRS is particularly concerned about the business relationshipthat typically exists between top officers and the organization’s regularaccounting firm, and that the IRS (presumably to be convinced ofindependence) would require that the consultant should be selectedby, and the engagement terms (including compensation) should beapproved by, the board of the exempt organization and not by theexecutives whose compensation is being evaluated. 41Internally generated surveys of at least three comparable organizationsare specifically recognized in the regulations as an acceptablealternative for organizations with gross receipts under $1 million,though such surveys may raise antitrust concerns. The regulations donot require customized opinions from independent compensationconsultants, but it is often prudent to seek that advice for higher-endcompensation arrangements.Third, the approval must be adequately and concurrently documented.The required documentation amounts to the four W’s of compensation:Who is paid? What are they paid? Why are they paid that?When is it documented? The minutes of the meeting must include:n the details specified in the regulations, including the terms of thecompensation arrangement being approvedn the identity of the members present and votingn the comparability data they relied on andn any actions related to the compensation arrangement that weretaken by conflicted members of the authorized body.The minutes must be prepared no later than the date of the nextmeeting of the authorized body or 60 days after the approval, and theauthorized body must then approve the minutes within a reasonabletime.Protections for management. The regulations include two specificsafe harbors for board members and other organization managers thatwill “ordinarily” protect them from liability for the 10% organizationmanager tax for approving transactions that result in an excess benefit.The first safe harbor, and one followed frequently in practice, is to followthe steps outlined in the regulations for establishing the rebuttablepresumption of reasonableness. 42The second safe harbor available to organization managers is relianceon a favorable, reasoned opinion of an attorney (including in-housecounsel), appraiser, or compensation consultant, following full disclosureof all material facts, and including a full analysis of the transaction(both the facts and the applicable standards), not just a statementof conclusions. For organization managers to be able to rely on theContinued on page 34Health Care Compliance Association • 888-580-8373 • www.hcca-info.org31April 2007

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executive compensation ...continued from page 31April 200734opinion of experts other than attorneys or CPAs, such experts must Form 990 reporting(1) hold themselves out to the public as compensation consultants, The IRS released a revised version of Form 990 on February 1, 2006(2) perform the relevant valuations on a regular basis, (3) be qualified that significantly expanded the required reporting of compensationto make valuations of the type of services at issue, and (4) include in for directors, officers, key employees, and independent contractors.the written opinion a certification that they meet requirements 1–3. 43The changes, detailed below, reflect an expanded view of what mayconstitute a conflict of interest and also sound a theme of increasedNon-traditional compensation modelstransparency and better tracking of compensation from related entities.It is likely that the IRS intends to use this additional data inAlthough granting stock or the equivalent in a Section 501(c)(3)organization likely violates the inurement prohibition and jeopardizes developing a risk modeling program to improve audit focus, and theexemption, similar structures involving taxable affiliates may pass list of revisions may, in effect, be a checklist of potential areas of abusemuster. Two recent IRS rulings highlight that even in the tax-exempt that will receive close scrutiny in future audits:sector, it may be possible to structure appropriate compensation arrangementsthat go beyond a typical base-salary-and-bonus arrange-to current or former directors, officers, or key employees, includ-n Question 50 of the Form 990 now requires reporting of all loansment where the executives’ efforts are contributing to the growth of ing payment terms, interest, security, and purpose of the loan. Thisother aspects of the overall enterprise. Where these other activities are reporting requirement also includes any salary advances or “otherin the commercial sector, they may also strengthen the case for more advances for the personal use and benefit of the recipient” and anysignificant reliance on compensation plans of for-profit companies in receivables that are subject to “special terms” or arise from “nontypicaltransactions.” A separate entry on the schedule is requiredthat sector, particularly if there is a history or tangible risk of losingexecutives to other employers in that sector. Like OIG advisory opinions,private letter rulings are only binding as to the particular parties terms.for each such item, even if made to the same person or on the sameand transactions involved; however, they are often indicative of the n Question 51.b. requires reporting of other receivables not acquiredagency’s views of particular issues absent more authoritative guidance. as investments, including a description of the relationship of theborrower to any director, officer, key employee, or substantialIn Private Letter Rulings 200602039, 200602040, and 200602041 contributor.(Jan. 13, 2006), various Section 501(c)(3) organizations formed a taxablecorporation to develop and exploit intellectual property.conflict of interest by asking for an explanation of any family orn Question 75.b. adopts a broad view of what may constitute aStock or options in the new entity would be used by the related exemptorganizations as compensation for services provided by employ-five highest paid other employees reported on Schedule A, the fivebusiness relationships among directors, officers, key employees, theees or contractors. The IRS concluded that this arrangement would highest paid professionals, and the five highest paid other independentcontractors reported on Schedule A (referred to collectivelynot adversely affect the organizations’ exempt status as long as totalcompensation is reasonable.below as the “Inside Group”).n Question 75.c. requires reporting of payments by any related organizations(under common supervision or control) or managementIn Private Letter Ruling 200225046, a Section 501(c)(3) education andresearch organization (M) established a taxable subsidiary (N), provided companies to any of the Inside Group, including a schedule identifyingeach related organization and, depending on the relationship,all of the initial capitalization in exchange for 100% of N’s stock, andlicensed certain intellectual property to N for a 10- to 20- year period also the amount of compensation it paid. Organizations are alsofor minimum annual payments and a split of gross revenues from the required to attach a description of the relationship with the othercommercialization of the intellectual property. A majority of the directorsof the subsidiary were not directors or officers of the tax-exempt significant clarifying detail explaining the scope of what constitutesorganizations. The Instructions to Form 990, however, provideparent, and the two entities maintained separate space, records, bank related organizations and establishing two levels of disclosure,accounts, and employees. The parent also intended to grant stock or optionsin the subsidiary to the parent’s employees as part of a reasonabledepending on the nature of the relationship.compensation package (apparently with support from a compensation Rather than including additional detail on the Form itself, theconsultant). The IRS concluded that the proposed arrangement would Instructions call for an attachment to provide various levels of detailnot jeopardize the parent’s exempt status.on compensation from organizations that are related to the taxpayer.Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

The scope of what needs to be reported depends on the nature ofthe relationship from among the eight different types of relationshipidentified in the Instructions. Those potential relationships betweenthe organizations are:(1) ownership or control(2) common control(3) supporting and supported organization as described in Section509(a)(3)(4) use of a common paymaster(5) one organization pays a portion of the compensation that the otherorganization is contractually obligated to pay(6) partners in a partnership, members in an LLC or joint ventures(7) entities that conduct joint programs or share facilities or employees(8) one or more persons exercise substantial influence over the affairsof both organizations (the same test as for determining who is adisqualified person under Section 4958)For Relationships 1-6, the required attachment must includecompensation paid by the related organization as well as identifyingthe overlapping directors and officers, the Employer IdentificationNumber (EIN) of the related organization, and a description of therelationship. For Relationship 2, compensation from the related organizationmust be reported unless the new volunteer exception applies.For Relationships 7 and 8, compensation from the related organizationdoes not need to be reported (if those are the only relationships). ForRelationship 8, the only reporting required on the Form 990 is thename of the individual, the name and EIN of related organization, anda description of the relationship between the organizations.The Instructions also include three reporting exceptions: (1) The volunteerexception (referenced above) applies only to Relationship 2 andtakes the relationship out of the full disclosure with compensation,and into the more limited disclosure approach of names, EIN, andrelationship. This exception only applies where Relationship 2 is theonly relationship with the related organization, and it only applies toa person serving on the taxpayer’s board “as a volunteer without compensation.”It is not clear from the Instructions whether reimbursementof expenses would be treated as compensation for this purpose,but even non-taxable compensation, such as working condition fringebenefits, is required to be reported in Part V. On the other hand, it isnot unusual for state statutes to ignore reimbursement of expenses inclassifying directors as volunteers. 44For the second exception, organizations related through a bank orfinancial institution trustee, neither the relationship nor the compensationwould need to be reported. Likewise, with the third exception(for certain independent contractors), neither the relationship northe compensation would need to be reported if the recipient of thecompensation is merely a common independent contractor withoutsubstantial influence over either the taxpayer or the related organization.The independent contractor exception, however, does not applyto management companies that perform CEO, COO, CFO/Treasureror similar services for the taxpayer. Of the five examples included inthe Instructions, Examples 3 and 4 are the most useful in illustratingthe interplay between Relationships 2 and 8.n Question 75.d. also asks whether the organization has in place awritten conflict-of-interest policy. The Form 990, however, doesnot yet require organizations to attach a copy of their conflict-ofinterestpolicies. The current Form 1023 (required for new Section501(c)(3) organizations), however, does require copies of thosepolicies (Part V, Question 5.a. and Schedule C, Question 14).n Part V-B now requires organizations to report payments to formerdirectors, officers, and key employees, regardless of how long theyhave been out of office, retired, or otherwise out of the organization.Instructions require organizations to attach a scheduleshowing a breakdown of the type and amount of compensation,and given the inherent double counting for retirement benefits,the reporting period could be extensive. Although for purposes ofSection 4958 there is a five-year limit on the look-back period fordisqualified person status, there is no limit on look-back periods forwho is an insider subject to the inurement prohibition. Moreover, ifthere was no disclosure of an excess benefit transaction on the Form990, the statute of limitations on any excess benefit transaction stillmay be open beyond the five-year look-back period for disqualifiedperson status.n Schedule A, before the recent revisions, only required reportingof payments to independent contractors for professional services.Schedule A now has been revised to require reporting payments toindependent contractors other than for professional services. Thiswould include services such as construction, catering, maintenance,landscaping, etc. (Connecting the dots, the IRS, in theory, couldidentify arrangements that may involve indirect excess benefit orvote swapping with members of the board or committee approvingexecutive compensation.)Form 1023 reportingThe IRS has also revised the Form 1023 exemption application tosignificantly expand the required compensation disclosures for neworganizations with respect to directors, officers, key employees, andContinued on page 36Health Care Compliance Association • 888-580-8373 • www.hcca-info.org35April 2007

executive compensation ...continued from page 35independent contractors, including much of the same informationrequested on Form 990. Part V of Form 1023 also outlines what theIRS considers to be “recommended” practices for establishing compensation(though not necessarily required for obtaining exemption):(a) whether the organization follows a conflict-of-interest policy;(b) whether compensation arrangements are approved in advance ofpaying the compensation;(c) whether the organization documents in writing the date and termsof approved compensation arrangements;(d) whether the organization records the vote of every individual whodecided or voted on the compensation arrangements;(e) whether compensation arrangements are approved based onevidence of compensation paid by similarly situated taxable andexempt organizations, current compensation surveys compiled byindependent firms, or actual written offers from similarly situatedorganizations;(f) whether the information on which the compensation decisions arebased and their source are recorded in writing; and(g) if the organization does not follow all of these practices, that itdescribes how it establishes compensation that is reasonable for itsInside Group.Form 1023 does note that adopting a conflict-of-interest policy is nota prerequisite for exemption, though in practice it can be difficult toobtain exemption without one. If the organization has not adopteda conflict-of-interest policy, it is asked in the next question (Part V,Question 5) to describe what procedures the organization will followto assure that no one with a conflict of interest will have influence overthe organization’s setting of his or her compensation.Following up on the theme of concern with insider transactions,and likely because of the IRS’ perception of a potential for conflictbetween personal financial gain and the mission of the exemptorganization, Part V, Question 6 asks about discretionary bonuses andrevenue-based compensation for the Inside Group. Organizations thathave or intend to implement such programs are required to describehow the amounts are determined, who is eligible to participate,whether there is a cap on total compensation, and how the organizationwill determine that it pays no more than reasonable compensationfor their services.Academies ofHealth CareComplianceCompliance AcademiesJune 4–7, 2007Chaparral Suites Resort | Scottsdale, AZCHC Exam Application Deadline:April 27, 2007August 20–23, 2007Wyndham Chicago | Chicago, ILCHC Exam Application Deadline:July 13, 2007November 5–8, 2007Disney’s Contemporary Resort | Orlando, FLCHC Exam Application Deadline:September 28, 2007December 10–13, 2007Westin Horton Plaza | San Diego, CACHC Exam Application Deadline:November 1, 2007advanced AcademiesJune 25–28, 2007Hyatt at Fisherman’s Wharf | San Francisco, CACHC Exam Application Deadline:May 18, 2007October 22–25, 2007Renaissance Harborplace Hote | Baltimore, MDCHC Exam Application Deadline:September 14, 2007April 200736Strengthening executive compensation programsThe flood of recent challenges and guidance in the area of executivecompensation can seem like a complex, never-ending maze, albeitone with blurred edges rather than sharp corners. Nevertheless, a fewHealth Care Compliance Association • 888-580-8373 • www.hcca-info.org

eacons emerge to guide the way in developing best practices for anonprofit organization’s compensation program:1. Follow the rebuttable presumption procedure when establishingcompensation for anyone who may be a disqualified person. To theextent approvals are delegated by the board to a committee or individuals,regular reports should be provided to the board for exerciseof appropriate oversight.2. Critically examine the comparable data to assure that the organizationsand positions included are truly comparable to your organizationin size, financial performance, duties and responsibilities, andother relevant circumstances.3. Develop a compensation philosophy that is focused on the specificmarket circumstances of your organization and where it is likely toturn when recruiting talent. Also include a description, updated annually,of employees recruited by other organizations, including asmany details as are available about the compensation arrangementsoffered by those other organizations.4. Review and update comparability data for all executive compensationprograms on an annual basis, at least for anyone who may be adisqualified person.5. Tie compensation amounts and pay ranges to specific goals that areset in advance and objectively measurable, and document performanceof those goals, such as through annual evaluations.6. Include a mix of both financial and mission-driven goals in theexecutive compensation program.7. Create incentives for better performance and avoid the risk ofoverpaying for underperformance by putting more compensation atrisk at a more modest percentile base compensation.8. Assure independence of the approving body through adoption andmonitoring of a substantive conflict-of-interest policy based on theIRS model policy and any more-stringent requirements of state law,including annual or more frequent conflict disclosure requirements.(Some organizations begin each board meeting with a standingquestion about any previously undisclosed potential conflicts.)9. Obtain independent compensation consultant opinions for executivecompensation packages (total compensation) above a certainpercentile (e.g., 60th, 75th, or 90th, depending on risk tolerance).10. Avoid lightning rod perquisites like automobile allowances, countryclub dues, and spousal travel. For other common perquisites(e.g., cell phone, laptop), either discontinue the program, insiston documentation of business use, or treat the entire amount asincome on Form W-2.11. Follow the four W’s in preparing minutes of compensation meetings:Who, What, Why, When.12. Keep all documentation of compensation decisions, contracts,evaluations, and resolution of potential conflicts of interest on filefor at least six years. n1 All section numbers refer to the Internal Revenue Code of 1986, as amended, unless otherwise noted.2 See Revised Model Nonprofit Corporation Act, § 8.30(a)(1) (1987) (the “Model Act”).3 Boston Children’s Heart Foundation, Inc. v Nadal-Ginard, 73 F.2d 429, 434 & 437-38 (1st Cir. 1996).4 Tech. Advice Memo. 200243057 (July 2, 2002).5 The report is online at: http://www.finance.senate.gov/hearings/testimony/2004test/062204stfdis.pdf.6 The list of questions and a summary of all replies can be found on the Senate Finance Committee Website (http://finance.senate.gov/) on the Press Releases page for Sen. Grassley.7 SOX § 304, 15 U.S.C. § 7243.8 See SEC Litigation Release No. 19455 (Nov. 2, 2005).9 The Panel’s final and supplemental reports are available online at http://www.independentsector.org/panel/main.htm.10 See Fla. Stat. 617.2003.11 70 Fed. Reg. 8373.12 Prop. Ohio Admin. Code § 109:1-1-11(A)(6)(a).13 Id.14 The final report is available on the IRS web site at http://www.irs.gov/pub/irs-tege/exec._comp._final.pdf.15 See Press Release, “GAO Survey on Nonprofit Hospitals’ Executive Compensation” (July 28, 2006),http://finance.gov.16 Treas. Reg. § 1.501 (c)(3)-1(c)(2).17 St. David’s Health Care System v. United States, 349 F.3d 232, 236-237 (5th Cir. 2003); AmericanCampaign Academy v. Commissioner, 92 T. C. 1053, 1065-66 (1989); Gen. Couns. Memo. 37789(Dec. 18, 1978); Treas. Reg. § 1.501(c)(3)-1(c)(1).18 See, e.g., United Cancer Council, Inc. v. Commissioner, 165 F.3d 1173, 1176 (7th Cir. 1999); LorainAvenue Clinic v. Commissioner, 31 T.C. 141 (1958); Sonora Community Hosp. v. Commissioner, 46T.C. 519, 525‐26 (1966), aff’d per curiam, 397 F.2d 814 (9th Cir. 1968).19 See Treas. Reg. § 1.162-7(b)(3). See also Founding Church of Scientology v. United States, 188 Ct.Cl. 490, 412 F.2d 1197, 1200 (1969); B.H.W. Anesthesia Foundation v. Commissioner, 72 T.C. 681,686 (1979).20 See Caracci v. Commissioner, 456 F.3d 444 (5th Cir. 2006).21 See Caracci, 456 F.3d at 449 (noting with approval the assignment of a fair market value range toassets involved in the conversion of a tax-exempt health care provider to a taxable corporation); seealso Anclote Psychiatric Ctr. v. Commissioner, 1998 T.C. Memo 273 (stating, “We see our task as oneof determining whether the sale price was within a reasonable range of what could be considered fairmarket values”), aff’d, 190 F.3d 541 (11th Cir. 1999).22 Treas. Reg. § 53.4958-4(b)(1)(ii).23 See Treas. Reg. § 53.4958-6(d)(2)(ii); Gen. Couns. Memo. 38322 (March 24, 1980).24 Treas. Reg. 53.4958-6(c)(2)(i) & (c)(2)(iv), Example 1.25 See G. Morgenson, “Peer Pressure: Inflating Executive Pay,” New York Times (Nov. 26, 2006).26 Treas. Reg. § 53.4958-6(c)(3)(ii).27 Treas. Reg. § 53.4958-3(c) & (e).28 70 Fed. Reg. 53599-53604 (Sept. 9, 2005) (proposed regulations); Caracci v. Commissioner, 118 T.C.379 (2002), rev’d on other grounds, 456 F.3d 444 (5th Cir. 2006).29 Treas. Reg. § 53.4958-4(c).30 United Cancer Council, Inc. v. Commissioner, 165 F.3d 1173, 1176 (7th Cir. 1999).31 Treas. Reg. § 53.4958-4(a)(3).32 Treas. Reg. § 53.4958-1(f)(2).33 Tech. Advice Memo. 200244028 (June 21, 2002).34 Treas. Reg. § 53.4958-3(d)(3).35 IR-2006-162 (Oct. 18, 2006).36 Treas. Reg. § 53.4958-6.37 66 Fed. Reg. at 2146 (emphasis in original).38 See 26 C.F.R. § 1.170A-13(c)(5) & 26 U.S.C. § 267(b). For this purpose, “taxpayer” likely should beread as referring to both the applicable tax-exempt organization and the disqualified person.39 IRS Notice 2006-96, I.R.B. 2006-46 (Nov. 13, 2006).40 See Announcement 2002-87, 2002-39 I.R.B. 1 (Sept. 4, 2002).41 “Remarks of Leonard J. Henzke Jr., IRS Exempt Organizations Reviewer, Before the ALI-ABA Conferenceon Tax-exempt Organizations,” Tax Notes Today, 2004 TNT 25-25 (Feb. 6, 2004).42 Treas. Reg. § 53.4958-1(d)(4)(iv).43 Treas. Reg. § 53.4958-1(d)(4)(iii).44 See, e.g., Mich. Comp. Laws § 450.2110(2) (defines a volunteer director as “a director who does notreceive anything of more than nominal value from the corporation for serving as a director other thanreasonable per diem compensation and reimbursement for actual, reasonable, and necessary expensesincurred by a director in his or her capacity as a director”).Auditing and monitoring ...continued from page 19advice, suggested high impact audits, and examples of lessonslearned from the common challenges clients face, we’ll see what adifference effective auditing and monitoring can make in capturingthose opportunities.In the next article, while quoting The Godfather, I’ll tackle theissue of defining the auditing and monitoring plan, strategiesfor success in sticking to it, and some high impact issues to beaudited in the hospital Emergency Department. nHealth Care Compliance Association • 888-580-8373 • www.hcca-info.org37April 2007

Criminal enforcementliability: Quality of care,medical necessity, andreasonableness ofhealth care servicesEditor’s note: Gabriel L. Imperato is theManaging Partner of the Fort Lauderdaleoffice of Broad and Cassel. He is boardcertified as a specialist in health law, isCertified in Healthcare Compliance by theHealth Care Compliance Association, andis a member of the organization’s Boardof Directors. He can be reached by calling954/745-5223 or by e-mail atgimperato@broadandcassel.comThe result of recent civil and criminalfraud enforcement actions hasraised the stakes for business organizationsrelated to the quality of care, medicalnecessity, and reasonableness of providinghealth care services. The involvement offederal and state law enforcement in pursuing“quality of care,” “medical necessity,” and“reasonableness” prosecutions requires healthcare business organizations to more particularlyaddress compliance issues related tothe type of care and treatment they provide.The oversight of the quality of care, medicalnecessity, and reasonableness of health careservices is nothing new for these organizations.However, the involvement of the lawenforcement community with these issueselevates the need for this oversight and likelyrequires different methods to address thisgrowing risk for health care organizations.These developments present challengesbecause decisions about the quality of care,By Gabriel L. Imperato, Esq., CHCmedical necessity, and reasonableness of careare made on a diffuse basis in most healthcare organizations, primarily by practicingphysicians. (See 42 U.S.C. § 1395 and correspondingcase law.) The historical overviewof these initial physician determinationshas typically been made by Medicare andMedicaid contractors who process claims forreimbursement. (See 54 Fed. Reg. at 4305.)A further review is undertaken at the hospitallevel through its own utilization review mechanismsin conjunction with quality improvementorganizations (QIO), formerly knownas peer review organizations. (See 42 U.S.C.§ 1320c-5.) These determinations about thequality of care, medical necessity, and reasonablenessof health care services, however, haveapparently proved to be insufficient to detercriminal and civil enforcement actions by theDepartment of Justice, the Attorneys General,the Medicaid Fraud Control Units of thedifferent states, and the Office of InspectorGeneral of Health and Human Services.Furthermore, the advent of “whistleblowersuits” based on the quality of care, medicalnecessity, and reasonableness of health careservices, under the United States False ClaimsAct, has had a profound affect on federal andstate enforcement agendas. The legacy ofenforcement actions commenced in the nursinghome industry. The enforcement actionsand case law involving nursing homes, whichwe have seen over the years, focused on longtermcare services or the abdication of thoseservices, which in turn raised the specter of“worthless” services. The courts have foundthat the provision of worthless services byhealth care providers could be a basis forFalse Claims Act liability. The underlyingtheory has been that the worthless servicesare analogous to services which have not beenprovided or that the services were so neglectfulas to constitute no care at all. Accordingly,a claim for such worthless services can beconsidered a false or fraudulent claim underthe False Claims Act.The enforcement actions which have beenbrought against the hospital and physiciansegments of the health care industry havebeen based on a “deficient or worthless service”theory of liability or that the serviceswere not “medical necessary or reasonable.”There is a statutory provision under theMedicare and Medicaid programs whichspecifically excludes from coverage anyitems or services which are not reasonableand necessary for the diagnosis or treatmentof illness or injury. [See 42 U.S.C. §1395y(a)(1)(A) (Medicare) and 42 U.S.C.§ 1396a (Medicaid)] This basis of liabilityhas proven more actionable under criminaland civil fraud theories than the quality-ofcarebasis of liability which developed in thenursing home industry. The reason for thisalternative theory of liability, with its statutoryunderpinnings, is that the standard forliability for quality-of-care actions under theFalse Claims Act is a rather difficult standardfor relators and/or the Department of Justiceto establish. The leading decision addressingquality-of-care allegations against a physiciangroup practice stated the following:The False Claims Act was not designed foruse as a blunt instrument to enforce compliancewith all medical regulations – butrather only those regulations that are a preconditionto payment – and to construeApril 200738Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

the impliedly false certification theory inan expansive fashion would improperlybroaden the Act’s reach. Moreover, a limitedapplication of implied certification inthe health care field reconciles, on the onehand, the need to enforce the Medicarestatute with, on the other hand, the activerole actors outside the Federal Governmentplay in assuring that appropriatestandards of medical care are met. Interestsof federalism counsel that the regulation ofhealth and safety matters is primarily, andhistorically, a matter of local concern.[See U.S. ex rel. Mikes v. Strauss, 274 F.3d687, 699-700 (2d Cir. 2001)]The Court in Mikes went on to say that“permitting qui tam plaintiffs to assert thatdefendant’s quality of care failed to meetmedical standards would promote federalizationof medical malpractice, as the Federalgovernment or the qui tam relator wouldreplace the aggrieved patient as plaintiff.”Id. at 700. The Court of Appeals went onto observe that “the courts are not the bestforum to resolve medical issues concerninglevels of care. State, local or private medicalagencies, boards and societies are better suitedto mentor quality of care issues.” Id.The Mikes decision and another decisioninvolving a nursing home defendant, U.S.v. NHC Healthcare Corp. [115 F. Supp.2d 1149 (W.D. Ma. 2000)] both concludedthat the False Claims Act “may properly beinvoked if a defendant’s services are so deficientas to be worthless.” However, the courtsalso agreed the False Claims Act should notbe used to call into question a health care provider’sjudgment regarding a specific courseof treatment. Thus, these courts have limitedthe False Claims Act from becoming a federalmalpractice statute. [See U.S. ex rel. Phillipset al. v Permian Residential Care Center,376 F. Supp. 2d 879 (W.D. Tex. 2005)]Quality of care, medical necessity, and reasonablenessof health care services has, nevertheless,become a growing basis for whistleblowerclaims under the False Claims Act. A numberof cases that have been both reported andfiled and under seal are currently beinginvestigated by law enforcement. This placeshospitals, as well as physicians, in a vulnerableposition and at risk for being nameda defendant against these types of allegations.A physician typically makes the initialquality-of-care or medical necessity decisionin the hospital setting, yet the hospital isaccountable for this physician’s decision andvicariously liable for the care and treatment ofpatients in its facility. The growing basis forwhistleblower claims places the hospital in theuntenable position of having to more closelymonitor the quality of care, medical necessity,and reasonableness of physician services,without necessarily having the type of controlover the physician medical staff necessary toeffectively monitor those services.A number of cases involving both criminaland civil fraud enforcement have highlightedthe risks for health care facilities for qualityof care, medical necessity, and reasonablenessof services. The United Memorial Hospitalcase involved the criminal prosecution andconviction of a medical staff physician, thephysician chief of the medical staff, thephysician chief of emergency medicine, andthe chief executive officer of the hospital, aswell as a criminal conviction of the corporatehospital entity itself. This case is likely themost egregious example of the consequencesof failure to address quality of care, medicalnecessity, and reasonableness issues in thephysician/hospital setting.The Redding Hospital case in California afew years ago is another case which involvedallegations of over-utilization and lack ofmedical necessity and reasonableness for cardiacstent procedures in the operating roomof the hospital. These allegations resulted inadministrative sanctions and enforcementactions against individual physicians and thehospital. These types of cases are now beinginvestigated and pursued by whistleblowersand the Department of Justice and AttorneysGeneral as the basis for False Claims Actliability, with varying levels of allegationsinvolving the quality of care, medical necessity,and reasonableness of care. Accordingly,individuals and organizations are busy defendingthemselves against allegations basedon these issues in criminal and civil enforcementactions. A more thorough discussion ofthe allegations and evidence involved in thesecases is outside the scope of this article, butwill be discussed at future HCCA ComplianceConferences.Some warning signals have already been identifiedand lessons learned from the cases thathave arisen over the last several years. Thefollowing would appear to be some significantwarnings:n Medical staff physician’s privileges restrictedat other hospitalsn Complaints from nursing, operating room,and medical staffn Quantity of patients and explosive growthof practicen Negligent credentialing and peer reviewn Cloned medical records: inadequate historyand physicals; diagnosis inconsistentwith treatment and/or treatment regardlessof medical necessity or reasonablenessn History of malpractice complaints andrelated complicationsn Evidence of financial motivation supercedingquality-of-care and medical necessityconsiderationsn Conflicts of interest compromisingorganizational governance and complianceactivities for the organizationContinued on page 40Health Care Compliance Association • 888-580-8373 • www.hcca-info.org39April 2007

Quality of care...continued from page 39The lessons learned fromcases thus far are:n Don’t be afraid to “knowwhich way the wind isblowing” when you see thewarning signals.n Investigate whenever it appearsthere may have been a pattern of billing fordeficient and/or unnecessary medical services.If the medical necessity is unclear, donot bill for the service and make restitutionwhere necessary.n Do not tolerate conflicts of interest inorganizational governance and in addressingcompliance matters, especially those relatedto “quality of care” matters.n Given the law on collective corporate responsibilityand deliberate ignorance underthe False Claims Act, take little comfort inthe fact that specific, high-level hospital officialsdidn’t know about the pattern of billingfor unnecessary medical services.The failure of a hospital, or other health careorganization, to effectively audit and monitorquality of care, medical necessity, and reasonablenessof services will surely result in potentialliability, given the current enforcement environment.nCHCThe HealthcareCompliance Certification Board(HCCB) compliance certificationexamination is available in all 50states. Join your peers and becomeCertified in Healthcare Compliance(CHC).CHC certification benefits:■ Enhances the credibility of thecompliance practitioner■ Enhances the credibility of thecompliance programs staffed by these certifiedprofessionals■ Assures that each certified compliancepractitioner has the broad knowledge basenecessary to perform the compliance function■ Establishes professional standards and statusfor compliance professionals■ Facilitates compliance work for compliancepractitioners in dealing with other professionalsin the industry, such as physicians andattorneys■ Demonstrates the hard work and dedicationnecessary to perform the compliance taskcertified inhealthcarecomplianceThe Compliance Professional’sCertificationSince June 26, 2000, when CHC certificationbecame available, hundreds of your colleagueshave become Certified in Healthcare Compliance.Linda Wolverton, CHC, says she sought CHCcertification because “many knowledgeable peoplework in compliance and I wanted my peers torecognize me as one of their own.”For more information about CHC certification,please call 888/580-8373, e-mail hccb@hcca-info.org or click on the HCCB Certification button onthe HCCA Web site at www.hcca-info.org. nCongratulations onachieving CHC status!The Health Care ComplianceCertification Board announces thatthe following individuals have recentlysuccessfully completed the Certifiedin Healthcare Compliance (CHC)examination, earning CHC designation:Rumana AlamStephanie L. BailerCatherine J. BaileyBess A BredemeyerMargaret T. ChanCarol L. ChildressBarbara B. ClawsonDarrell ContrerasCleo L. CorlissTamera Mae CrowMayling CuestaGeraldine DavisDeidra M. DorseyLetha R. FisherUmshaveni Pam GovenderMark D. GozaLynda S. HilliardJulie A. HouskaElizabeth Van HsiehMark W. IversonAngela M. KaiserCharlene F. KaneSara A. KellerShirley KomotoJennifer R. LeeKathleen G. LoyaDenise A. LucianoSarah Jean Mc HughGail Zulka MckillopPatricia D. MeesNancy C. MerrittKelli Ann MeyerMolly A. MichaelMary Ann K. OltAudrey PerdigonSandra J. PukaJennifer R. PuleoDana L. ReadDebra RuckertValerie Blue SandersBophasy SaukamCindy K. ShifflettGeretta H. SueingMichael SullivanDebra Jo WeatherfordGrace Y. YehApril 200740Health Care Compliance Association888-580-8373 • www.hcca-info.org

O N L I N E W I T H R E S I D E N C I E SI N A L E X A N D R I A , VAGraduate Certificate inHealthcare CorporateComplianceAcquire the compliance officer knowledge in demand today.Unique Format. Seven-month, 12 credit program, with twoshort residencies and online distance learning betweenresidencies.Master the key concepts of high-priority healthcare lawsincluding federal fraud and abuse law, governance andcorporate responsibility, HIPAA, federal tax law, and more.Enjoy unparalleled access. Learn from a world-class facultyteamed with senior regulators, legislators, patient advocatesand legal experts.Program FormatFive-day In-classroom Residency atGW’s Graduate Education Center inAlexandria, VA – Oct. 29-Nov. 2, 2007Six-month Online Distance Learningsegment between residenciesThree-day Capstone Residency backin Alexandria, VA – May 19-21, 2008Application Deadline: August 31, 2007Information SessionsWednesday, April 181:00 pm ETOnlineThursday, May 246:00 pm ETOnlineRsvp Today!202.973.1130nearyou.gwu.edu/hccHCCBAccreditedStackable Credentials. Apply this certificate toward aMaster’s of Public Health degree.Program offered by the College of Professional Studies andSchool of Public Health & Health Services, in partnershipwith the law firm of Feldesman Tucker Leifer Fidell LLP.www.gwu.edu/gradinfo31771THE GEORGE WASHINGTON UNIVERSITY IS AN EQUAL OPPORTUNITY/AFFIRMATIVE ACTION INSTITUTION CERTIFIED TO OPERATE IN VA BY SCHEV.Health Care Compliance Association • 888-580-8373 • www.hcca-info.org41April 2007

Compliance samplingwithout tearsEditor’s note: Tom Ealey is an experiencedhealth care administrator and managementconsultant and an associate professor ofbusiness administration at Alma College inAlma, Michigan. He may be contacted at989/463-7135, or by e-mail athealthcarethinktank@yahoo.com.Compliance auditing is all aboutrisk. Compliance risk measures theprobability of a material compliancefailure.By auditing and sampling risk, we measurethe probability that our auditing techniqueswill fail to find compliance risks. Due to thedifficulties of auditing every patient encounter,we depend on sample audits that aresufficient to minimize audit risk and largeenough to detect existing compliance risks,without overburdening the staff and creatingundue distractions.Systematic, probabilistic audit samplingtechniques, while providing a high level of validity,require training that most clinical andadministrative personnel do not have. Manyof the statistical techniques have been devisedfor external financial auditing purposes,rather than compliance auditing, and so maynot meet our needs.So what will meet our needs?Criteria for compliance audit samplingThere are simpler probabilistic and nonprobabilisticsampling methods we can use,and our criteria for selecting sampling techniquesshould:n Be easily explainable to participating staffBy Tom Ealey, CPAn Allow assembly of sample records withoutbeing unduly burdensomen Be Scalable to the organizationn Use an adequate sample size to providevalid conclusions, without wasting valuablestaff timeCompliance riskThe first identifier of compliance risk is yourprior compliance work. Those areas thatfailed standards in previous compliance auditsshould be your primary concern. New categories/providersand newly identified problemsare your next targets.Other risk indicators include informationfrom staff or whistleblowers, questions frompatients, claims denials, staff turnover, newproviders, and possible computer systemsbreakdowns and deficiencies.How do we determine sample size? Thegreater the risk, the larger the sample.Sample sizes should be appropriate to thesize of your organization and the volume ofencounters. A small organization has fewerresources to dedicate to compliance work,and should not be snowed under with hugeaudit samples (unless initial work unearthsmajor problems).Sampling size guidelines are often in the 5%-10% range of encounters, but there are noclear cut guidelines. Past compliance reportsshould be reviewed to determine initial samplesizes, with procedures to expand samplingif the results are unacceptable. With a goodtrack record, 5%–10% may be adequate, butif problems surface, a larger sample will berequired.Useful sampling techniquesYou can tailor the sampling technique tosuit the specifics of the situation, and eachmethod has its advantages and disadvantages.Simple random sampling, a probabilisticapproach, treats every encounter the same, selectsa sample size, and determines the sampleusing some unbiased technique.Case: A clinic has 10,000 encounterswith computer-assigned numbers 11,127– 21,127. A 5% sample is desired. Startingwith encounter number 11,135 every 20thencounter is selected: 11,155; 11,175;11,195; etc.This technique is useful in determining thecompliance rate of your overall claims, butmay not be helpful in examining certainstrata of claims, as we are ignoring riskierversus routine claims.Encounter or appointment sampling is onemethod of developing thorough and properlyscaled samples. This is a non-probabilisticblock sampling technique, as we are choosingencounters by daily blocks.Using encounter blocks, the sampling shouldbe automatically scalable, for example, a dayof encounters in a 10-physician organizationwould be scaled about 5 times greater than aday in a 2-physician office.A coding audit approach would pull the encounterand medical documentation files andverify accurate coding. An operation auditingapproach would follow the encounter fromthe front desk through the collection anddeposit of the payments. In either case, anadequate sample should be created. Considerthis sample process for an ambulatory surgerycenter (ASC).April 200742Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

Task: Coding audit of charts from February2007, sampled as follows:The sample is pulled from items known inadvance to have a likelihood of problems.The answer to that question is yes—this is theultimate directed sample.Sample: every third surgery chart from thefollowing dates:Monday first and third weeksTuesday second weekWednesday first and fourth weeksThursday third weekFriday second and fourth weeksThis provides audit coverage for 8 of 22working days in a month, and should beadequate. If the sample does not provide acomfort level, add an additional Tuesdayand Thursday. A 10-day sample should beadequate unless you generate informationindicating a severe risk of noncompliance orgenerate information on major operationalproblems.This sampling method covers busy and slowerdays, and is likely to touch each surgeon whouses the ASC. The sample is automaticallyscaled; a center doing 600 cases a month willautomatically draw a larger sample than acenter doing 200 cases a month.If the 8 day/every third chart sample touchesmore charts than you have the resources toaudit, use the same days but pull every fourthchart. Do not drop days, because this couldmiss surgeons and miss procedures.Supplement the sample for special circumstances.If an ASC does overnight stays,but only does those cases on Tuesdays andWednesdays, a sub-sample for those days andcases should be developed.Directed samples provide “problem focused,”non-probabilistic samples, usually generatedin response to a specific problem detectedwithin the organization.Examples:n surgeries performed by Dr. Jones, due toprior coding problemsn CPT codes with a high denial raten CPT codes subject to inquiries by payersn CPT codes subject to correspondence fromthe OIGStrata sampling divides the population (allencounters) into subpopulations and focusesaudit work on the riskier subpopulations. Asingle stratum or multiple strata can be selectedbased on the compliance team’s knowledge ofthe organization and prior audit results.Stratification samples could include:n Surgeries with bills higher than $_______n Surgeries using 4 or more CPT codesn Surgeries performed by new surgeon Dr.Smithn Surgeries using more than X minutes ofoperating room timen Imaging procedures with a billings higherthan $_______n Procedures/encounters with a high denialraten Problematic CPT codes from prior complianceauditsn Newer CPT codesBefore deciding to pull every item in thestrata, check the number of items. If ““Surgerieswith bills higher than $_______” createsa pool of 500 cases, you may need to “samplethe sample.” A typical approach would be topull every fifth case for a 50 case review. If theresults are unsatisfactory or inconclusive, pullevery tenth case for 50 more.100% Sampling?Is there ever cause for 100% sampling, that is,testing every item with certain characteristics?Several scenarios come to mind when a100% might be advisable:n a physician is determined to have beenconsistently up-codingn a new procedure has introduced to theorganization to a new riskn a specific procedure has a high claimsdenialraten a whistleblower has made claims of irregularitiesn specific-payer claims problems (e.g., workerscompensation)n patient complaintsThe 100% sampling is targeted to a directedsample in a specific time period (your billingsystem should be able to print a listof encounters by the categories above). Apercentage of noncompliant claims is noted,reviewed with the compliance officer, andfurther action is determined.SummaryCreating samples for coding audits andoperational audits can be accomplishedwithout special technical knowledge oradvice. The knowledge and skills of your staffcan be combined with these simple samplingtechniques to create a high probability ofdetermining your compliance risks. nSpecial thanks to Kaylee Sova, my teachingassistant, for her review and insights.Current Procedural Terminology (“CPT”)is a trademark of the American MedicalAssociation, and the system is copyright bythe AMA.Health Care Compliance Association • 888-580-8373 • www.hcca-info.org43April 2007

COMPLIANCE101Developing sound policies and proceduresspecific to potential risksBy William Moran and Nadine Robinson, MPHEditor’s note: William C. Moran is Vice Presidentwith Strategic Management Systems, Inc.and is located in their Chicago office. He maybe reached by telephone at 847/828-3515.Nadine Robinson is an Associate in the Alexandria,VA office of Strategic ManagementSystems. She may be reached by telephone at703/683-9600, ext. 435.This is the second of a two-part series onhospital risk assessments. Part 1 was publishedin the March 2007 issue of ComplianceToday.”Hospitals are becoming more reliant on riskassessments to discover prospective risk areasand to determine how these risks can bereduced. A hospital should examine internaland external sources for various risks, and usethis information to identify and prioritizeits highest concerns. Examples of potentialorganizational risks include cost reports,EMTALA, and anti-kickback areas. When thehospital’s risks have been prioritized, internalcontrols can then be integrated to assist inmanaging these risks. Policies and proceduresare often a good solution to address risksbecause they require a review of applicablefederal and state regulations, examine currentoperating procedures, and provide anopportunity to train affected personnel withupdated information. This article will outlinea process that can be used from developmentto finalization of policies and procedures tointernally manage designated risks.Review, revise and/or develop policies andproceduresTo begin this process, a team of individualswith the appropriate knowledge and skillspertaining to each of the risk areas to be tackledshould be designated. A work plan shouldbe developed including a timeline. Designatedpersonnel should collect and reviewexisting policies and procedures. There areessentially six steps involved in the developmentof the policies and procedures.The first step involves the creation of acriteria/condition matrix. This matrix is ananalysis of current federal and state regulationsfor the particular risk issue (ie, cost reports,EMTALA, anti-kickback, etc.). All applicablefederal, state and local regulations should bereviewed specific to the issue being addressed.Additionally, existing policies should be reviewedto determine if they sufficiently addressall requirements. Please refer to Table 1 for anexample of the criteria/condition matrix.The second step is based on these regulationsand the review of existing policies and procedures.An analysis should be undertaken anda determination made as to which documentsmay need to be developed and/or updated.As soon as the proposed policies have beenagreed upon, drafts should be developed.The third step entails reviewing the draftpolicies and procedures with the appropriateteam of designated personnel, who are theprimary users, to ensure all procedures are inline with what is currently being done, as well asto ensure that federal and state regulations andpayer requirements are sufficiently addressed.For instance, if developing cost report policiesand procedures, you should meet with membersof the reimbursement department who areresponsible for the submission of the cost report.The fourth step includes revising the policiesand procedures based on the feedbackobtained. These policies should be assessedonce more, with the designated staff havingfinal review, and then a final draft of thepolicies will be composed. Once the policiesare finalized, they should be made availableto all applicable employees via the Intranet,electronic or hard copy distribution, organizationalnewsletter, etc.The fifth step is to develop training for thestaff on these policies. While the policies arebeing implemented, discussions should beheld concerning the type of training neededto address the risk area. As soon as the policiesare fully implemented and all applicable staffhas received the policies and procedures andhas had time to review them, training shouldbegin. Personnel should be designated to conductthe training, whether it is interactive orWeb-based. Organizations must be certain toaddress why these policies were developed and/or updated, as well as any applicable regulationsrequiring specific procedures or examplesof how the procedures can be applied.The sixth step is to audit the policies todetermine whether the departments areadhering to the guidelines and to measure ifthe policies have helped reduce the risks forthe specific risk area.Throughout this process, the executivemanagement committee and the board ofdirectors should be kept informed on theactions that are being taken internally to addressselected risks. This will allow executivesan opportunity to respond to any concernsthey may have regarding procedures beingimplemented or training that is provided.Personnel should be selected to annuallyreview the policies and procedures for ac-April 200744Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

Table 1curacy to the regulations and revisions madewhen changes to regulations are released.This updated information can be electronicallydistributed to applicable employees ordiscussed during annual compliance training,if appropriate. The organization shouldalso consider instructing the Internal Auditdepartment to review the various high-riskareas after implementation of the policies andprocedures and employee training. The informationdiscovered can be used to determinewhether safeguards are in place to prevent thelikelihood of this risk occurring.ConclusionIn an effort to address designated risks, an organizationshould implement internal controlsto decrease the likelihood of the risk occurring.The development and/or revision of policiesand procedures, specific to each risk area,should be established. There are six standardsteps that can be utilized—from the creationof a designated group of employees, to thedrafting and finalization of the policies, to theapplication and training in these policies. Anorganization should audit these policies andprocedures to ensure they are appropriately addressingand diminishing the applicable risks.By integrating internal controls, an organizationcan better control its risks. nHealth Care Compliance Association • 888-580-8373 • www.hcca-info.org45April 2007

COMPLIANCEFOCUSGROUPHCCA/AHIACompliance program effectiveness—Usingpeer review to assess your programBy Jan Coughlin, CHC, CPC, MT(ASCP)SIEditor’s note: Jan Coughlin is Director,Corporate Compliance Program & PrivacyOfficer with Scripps Health Audit and &Compliance Services. She may be reached bye-mail at Coughlin.Jan@scrippshealth.org.This is the second article in a series on ComplianceProgram Effectiveness. The first article,“An overview of methods to assess complianceprogram effectiveness” begins on page 32 ofthe March 2007 issue of Compliance Today.The Compliance Auditing and MonitoringFocus Group of the Health Care ComplianceAssociation (HCCA) and the Association ofHealthcare Internal Auditors (AHIA) memberscontinue to explore opportunities toimprove compliance auditing and monitoringcapabilities. Their goals are to clarify the rolesand responsibilities of compliance and internalaudit functions, achieve greater leverageof combined resources, and improve effectivenessas they address issues within theirhealth care organizations. The focus grouphas developed guidance and reference materialson key aspects of health care auditing andmonitoring processes, including the SevenComponent Framework for complianceauditing and monitoring, which comprisesthe following activities:n Perform a risk assessment and determinethe level of riskn Understand laws and regulationsn Obtain and/or establish policies for specificissues and areasn Educate personnel on policies and proceduresand communicate awarenessn Monitor compliance with laws, regulations,and policiesn Audit the highest risk areasn Re-educate staff on regulations and issuesidentified in the auditThis second article on compliance programeffectiveness provides practical tools andtechniques for conducting a peer review as amethod to measure and improve the overalleffectiveness of your organization’s complianceprogram. An effective compliance programis an expectation of governing boardsand senior management, as well as a cleararticulation by the federal government. It is asignificant business risk for an organization tohave an ineffective compliance program andnot know it. Creating an effective complianceprogram requires the ongoing commitmentof the organization to comply with applicablelaws and regulations and to invest the necessaryresources to compliance-related activities.Several options are currently available to assesscompliance program effectiveness. One ofthe challenges is that standards for measuringcompliance program effectiveness are still intheir infancy and are not universally accepted,either by health care compliance organizations,or by the government.Current Options to Assess ComplianceProgram Effectivenessn Internal Review - Self Assessmentor Using Internal Auditn Professional Consulting Firmn Government Review - voluntaryor involuntaryn Peer ReviewThe previous article in this series summarizedeach of these approaches. This article providesan in-depth analysis of the Peer Review option.Using peer review to assess the effectivenessof a compliance programThe Charter of the Corporate ComplianceCommittee for my organization (Scripps Healthin San Diego, CA) requires a periodic review toassess the compliance program’s effectiveness.This is consistent with the requirement for ourinternal audit function to have a peer reviewat least every five years to meet The InternationalStandards for the Professional Practiceof Internal Auditing, promulgated by theInstitute of Internal Auditors. After evaluatingseveral options, we decided that a peer reviewof the compliance program was the best option.Conducting a peer review using experiencedcompliance professionals has the advantageof bringing first-hand knowledge of the mostcurrent compliance processes, techniques, andbest practices, and addressing the dynamicsand cultures of large complex organizations.Advantages of peer review are two-fold inthat the review can address the interests of thereviewer(s), as well as those being reviewed. Ourdecision to use a peer review process developed,in part, from our successful experiences withother health care industry examples (below),such as clinical laboratory accreditation reviewsand internal audit quality assurance reviews,both of which are based on peer review.College of American Pathologists (CAP)Laboratory Accreditation Program (LAP)The goal of the College of American Pathologists(CAP) Laboratory AccreditationProgram (LAP) is to improve the quality ofclinical lab services through voluntary participation,professional peer review, education,and compliance with established performancestandards. Successful completion of the LAPhas deemed status as equivalent to, or ismore stringent than, CMS’s regulations andis also recognized by the JCAHO as deemedaccreditation. The CAP Laboratory AccreditationProgram utilizes multi-disciplinary teamsof practicing lab professionals as inspectors.April 200746Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

“Lab professionals are involved on both sidesof the inspection process, so there is alwaysa healthy exchange of ideas and discussionof the latest lab techniques that goes beyondregulatory requirements. There is somethingvaluable to take away from every inspection.”The Institute of Internal Auditors (IIA)Quality AssessmentThe Institute of Internal Auditors (IIA) is aninternational professional association of morethan 122,000 members. Throughout theworld, The IIA is recognized as the internalaudit profession’s leader in certification, education,research, and technological guidance.IIA Standard 1312 requires every internalaudit department to have an external qualityassessment at least once every five years. TheIIA has developed a Quality Assessment (QA)process to facilitate meeting this standard.The IIA review is typically one to two weeksand is conducted with a project managerand one or more volunteers. The IIA hasdeveloped a comprehensive QA manual thatincludes several assessment tools.Because peer reviews of compliance programsare not yet well established, this approachrequired Scripps to use available resources todevelop the framework, process, and toolsused in the review. Scripps was fortunate tohave Mary Findley, Vice President/CorporateCompliance Officer for Baylor Health CareSystem in Dallas, Texas, conduct this peerreview of the Scripps compliance program in2005. The review was designed to evaluate theoverall effectiveness of the Scripps CorporateCompliance Program and to assist in thedevelopment of a process improvement actionplan for areas of improvement and/or furtherenhancement. The scope of the review conducteddid not constitute an examination inaccordance with the International Standardsfor the Professional Practice of Internal Auditingor generally accepted auditing standardsor attestation standards, and did not includean evaluation of Scripps’ internal controls.The review was also not intended to includean opinion on Scripps’ degree of compliancewith applicable laws and regulations.Considerations when conducting a peerreviewWhen using peer review as the mechanismfor assessing your compliance program effectiveness,several factors must be considered.It is advisable to articulate the scope andexpectations in an engagement letter with thereviewer(s). Key considerations include:n maintaining confidentialityn ensuring independence, integrity, andobjectivityn using due professional caren selecting qualified reviewer(s)n defining the scope and purpose of the peerreviewn planning an organized review process, andn determining who will receive the peerreview resultsSuggested components of a complianceprogram peer reviewMany tools can be used to assure a successfulpeer review. Information will need to begathered and analyzed, and having the righttools provides an easy way to define the scopeof the review. Knowing how the tools weredeveloped will help the reviewer understandhow the organization has put the complianceprogram into operation.Evaluation tool. A critical component of apeer review is an evaluation tool or checklist(based on a set of standards) against whichthe compliance program is measured. Adefined rating system and criteria for scoringresponses on the evaluation tool are essential.Scripps and Baylor co-developed an evaluationtool using several resources, includingthe United States Sentencing CommissionGuidelines for Organizations and Entities,the Office of the Inspector General (OIG)Compliance Program Guidance for Hospitals(February 1998), the OIG SupplementalCompliance Program Guidance for Hospitals(January 2005), and the Health CareCompliance Association resource document“Evaluating and Improving A ComplianceProgram.” The evaluation tool we developedis now included in the HCCA Health CareAuditing & Monitoring Tools manual publishedin 2006. It is time again to reviewand update our evaluation tool, to ensureit reflects the latest regulatory informationavailable and our industry’s “best practices.”The tool consists of 75 questions in the followingcategories:n Compliance Program Organization &Oversight (6 questions)n Policies & Procedures - Code of Conduct(9 questions)n Reporting & Communication (13 questions)n Education & Training (10 questions)n Risk Assessment, Auditing & Monitoring(14 questions)n Investigation, Response & Prevention(13 questions)n Enforcement of Disciplinary Standards(10 questions)Scoring/ Rating answers to the evaluationstandards Without a generally accepted method,scoring the evaluation standards provedto be a challenging part of the peer reviewmethodology for our Compliance ProgramEffectiveness Assessment. For our review, weobtained examples of tools from previousHCCA presentations and industry examples(CAP and IIA). These scoring tools rangedfrom assigned points to more qualitativemeasures, such as “meets or does not meet”the particular indicator. We decided to use amodification of the IIA Quality Assessmentscoring method, therefore, evaluation stan-Continued on page 49Health Care Compliance Association • 888-580-8373 • www.hcca-info.org47April 2007

Publisher:Health Care Compliance Association, 888-580-8373Executive Editor:Roy Snell, CEO, HCCA, roy.snell@hcca-info.orgContributing Editor:Dan Roach, President, HCCA, 888-580-8373Manager, Articles and Advertisments:Margaret R. Dragon, HCCA, 781-593-4924, margaret.dragon@hcca-info.orgCopy Editor/Proofreader:Patricia Mees, CHC, HCCA, 888-580-8373, patricia.mees@hcca-info.orgLayout:Gary Devaan, HCCA, 888-580-8373, gary.devaan@hcca-info.orgHCCA Officers:Daniel Roach, Esq.HCCA PresidentVP & Corporate Compliance OfficerCatholic Healthcare WestSteven Ortquist, JD, CHCHCCA 1st Vice PresidentPartnerMeade & RoachRory Jaffe, MD, MBA, CHCHCCA 2nd Vice PresidentExecutive Director–Medical ServicesUniversity of CaliforniaJulene Brown, RN, BSN, CHC, CPCHCCA TreasurerMeritCare Health SystemJennifer O’Brien, JDHCCA SecretaryVP Corporate ComplianceAllina Hospitals & ClinicsOdell Guyton, JDHCCA Immediate Past PresidentSenior Corporate Attorney,Director of Compliance,U.S. Legal–Finance & OperationsMicrosoft CorporationFrank Sheeder, JDNon-Officer Board Member ofExecutive CommitteePartnerJones DayCEO/Executive Director:Roy Snell, CHCHealth Care Compliance AssociationCounsel:Keith Halleland, Esq.Halleland Lewis Nilan Sipkins & JohnsonBoard of Directors:Urton Anderson, Ph.D.Associate Dean for Undergraduate Programsat McCombs School of BusinessUniversity of TexasCynthia Boyd, MD, FACP, MBAChief Compliance OfficerRush University Medical CenterAnne DoyleSenior Vice President and Chief ComplianceOfficerFallon Community Health PlanGabriel Imperato, JDManaging PartnerBroad and CasselAl W. Josephs, CHCSenior Director Policies and TrainingTenet Healthcare CorporationJoseph Murphy, JDCo-Founder Integrity InteractiveCo-Editor ethikosF. Lisa Murtha, Esq., CHCManaging DirectorHuron Consulting GroupMark Ruppert, CPA, CIA, CISA, CHFPDirector, Internal AuditCedars-Sinai Health SystemDebbie Troklus, CHCAssistant Vice President for Health Affairs/ComplianceUniversity of Louisville, School of MedicineSheryl Vacca, CHCDirector, National Health CareRegulatory Practice, Deloitte & ToucheCheryl Wagonhurst, JDPartner, Foley & Lardner LLPGreg Warner, CHCDirector for ComplianceMayo ClinicApril 2007Compliance Today (CT) (ISSN 1523-8466) is published by the Health Care ComplianceAssociation (HCCA), 6500 Barrie Road, Suite 250, Minneapolis, MN 55435. Subscription rate is $295 ayear for nonmembers. Periodicals postage-paid at Minneapolis, MN 55435. Postmaster: Send address changesto Compliance Today, 6500 Barrie Road, Suite 250, Minneapolis, MN 55435. Copyright 2006the Health Care Compliance Association. All rights reserved. Printed in the USA. Except where specificallyencouraged, no part of this publication may be reproduced, in any form or by any means without prior writtenconsent of the HCCA. For subscription information and advertising rates, call Margaret Dragon at 781-593-4924. Send press releases to M. Dragon, PO Box 197, Nahant, MA 01908. Opinions expressed are not those ofthis publication or the HCCA. Mention of products and services does not constitute endorsement. Neither theHCCA nor CT is engaged in rendering legal or other professional services. If such assistance is needed, readersshould consult professional counsel or other professional advisors for specific legal or ethical questions.48 Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

Compliance program effectiveness ...continued from page 47dards were scored as:N= Not implemented or does not meet thestandardP= Partially meets the standardG= Generally meets the standard, andB= Represents a “best practice” for the standardQuestions scored as “N” or “P” were specificallydiscussed in the peer review report.Document review. To assist the peer reviewer(s)in tangibly assessing the standards on theevaluation tool, it is important to providedocumentary evidence of how the complianceprogram was put into operation at the organization.Providing key documents in advance ofthe on-site visit by the reviewer minimizes theamount of time the reviewer will need to spendat the organization. The documents should alsoprovide a broad overview of the compliance program,allowing the reviewer to formulate ideasfor specific questions and areas of focus. Documentsthat should be provided are grouped incategories related to the seven elements of thecompliance program. The document “binders”assembled for the peer review can then bemaintained and are readily available for externalregulatory agencies and/or external auditorshired by the organization who may want toreview the compliance program. The SuggestedDocuments for Review of Compliance ProgramEffectiveness we developed is included in theHCCA Health Care Auditing & MonitoringTools manual published in 2006.Confidential survey of key complianceprogram customers. A valuable techniquein the peer review process is to confidentiallysurvey key individuals in the organizationabout the compliance program. Completionof a confidential survey, with access to theresults by the reviewer(s) prior to the on-sitevisit, is an excellent way for the reviewer(s)to develop a feel for issues and better focustheir on-site time on potential issues or areasof weakness. Scripps developed a confidentialWeb-based on-line survey consisting of 26questions that was sent electronically to morethan 40 individuals. A commercially availableInternet-based survey tool/ Web site was usedto deploy the survey. The results were viewableonly by the reviewer. Because the surveyresults were not anonymous, the reviewercould follow up directly with an individual onspecific questions or issues identified duringthe on-site interviews.Survey questions (rated on a scale of 1 =Disagree to 5 = Strongly Agree) used were asfollows:1. On an overall basis, the compliance programseems well planned and organized.2. The written annual Compliance Plan(s)is effective in describing the complianceprogram.3. The objectives for the compliance programare clearly communicated and tracked.4. Stated annual compliance program objectivesare met each year.5. Corporate Compliance Committee meetingsthat I attend are worthwhile.6. Frequency and duration of the CorporateCompliance Committee meetings are appropriate.7. Business unit-specific compliance committeemeetings I attend are worthwhile.8. Compliance training conducted over thelast year was effective.10. Compliance-related policies are understandableand current.11. Compliance-related policies are communicatedto and understood by affectedconstituents.12. Compliance Hotline availability is knownby management and staff.13. The Compliance department staff iscompetent and has the skills and experiencerequired.14. The Compliance department is responsiveto your requests for information.15. The Compliance department staff is availableto participate in meetings when requested.16. Compliance investigations and audits areof a high overall quality.17. Compliance audits were conducted of keyrisk areas.18. Written reports for investigations andaudits are understandable and fair.19. Written reports are completed and issuedon a timely basis.20. The Compliance department recommendationsare appropriate from a riskcost/benefit standpoint.21. The organization follows up on recommendationsand corrective actions fromCompliance reports.22. Disciplinary actions resulting fromcompliance violations are taken whennecessary.23. Disciplinary actions resulting from complianceviolations are consistently applied.24. The Compliance department adds valueby identifying and communicating compliancerisks.25. Management understands the importanceof compliance and makes it a priority.26. The organization has an effective complianceprogram.Interviews of Key Persons. In assessing thecompliance program, it is important for thereviewers to meet face-to-face with key complianceprogram “customers” and obtain theircandid feedback, including suggestions forimproving the compliance program. Interviewquestions should be determined in advance andstandardized as much as possible, but can alsobe tailored to include specific questions triggeredby the individuals’ role, review of documents, orresponses received during the advance confidentialsurvey of key compliance program customers.These interviews are preferably conducted duringthe on-site visit, but can also be done by phoneif schedules do not permit the interviews to takeplace during the on-site visit. Table 1 provides aContinued on page 50Health Care Compliance Association • 888-580-8373 • www.hcca-info.org49April 2007

Compliance program effectiveness ...continued from page 49list of suggested persons to interview.On-Site visit by the reviewer(s). The on-sitevisit by the reviewer(s) is the key componentto the peer review. While on-site, the reviewerwill review the Evaluation Tool (Checklist)questions with the chief compliance officer ordesignee and will personally observe complianceprogram elements, including documentationof activities in action. Informationgained from the document review, interviews,and confidential surveys are all assimilatedinto the assessment of each standard.Report of the peer review assessment. Awritten report on the Peer Review Assessmentis the key deliverable. The report should focuson summarizing measures against establishedstandards/criteria, issues identified, and recommendationsfor improvement. In addition tothe summary, specific metrics from any of thetools used should also be included, such as asummary of the Evaluation Tool (checklist)scores and a summary of the confidentialsurvey results. The report should include compliancemanagement’s responses and correctiveaction plans as an appendix, if possible. Thereport should be addressed to and reviewedwith the level of management responsible forsupervising the chief compliance officer (generallythe CEO) and should also be shared withthe Corporate Compliance Committee and theapplicable committee of the Board.Using the tools throughout the yearMost of the tools developed for the peer reviewcan be used internally by the Compliancedepartment throughout the year for periodicself-assessment and for management report-Table 1ing purposes. Surveys can be easily tailoredto query specific departments or groups, andare a good way to do a needs-assessment todetermine compliance education focus areas, toidentify risk areas for further review, or to determinespecific issues or areas to audit. In ourexperience, it’s advantageous to conduct suchsurveys in advance of preparing the annualcompliance plan and/or annual audit plan.Specific compliance program effectivenessmetrics that may be assessed during the peerreview can also be monitored monthly orquarterly and presented to the CorporateCompliance Committee and to the Board.These ongoing measures include:n Tracking completion of corrective actionsnoted in compliance investigation or auditreportsn Tracking completion of action items fromcompliance meeting minutesn Monitoring coding and claims accuracy datan Sorting hotline/helpline (and other reportedissues) data and trends by categoryand business unitn Following up on the status of complianceplan annual objectivesn Maintaining compliance education statistics.n Analyzing externally reported quality dataand trendsConclusionAn effective compliance program is an expectationof governing boards, senior management,and the federal government. While the healthcare compliance industry is not yet ready toendorse an official set of compliance programeffectiveness standards, sufficient informationis available to do a meaningful assessmentof your compliance program. Compliancefunctions should evaluate their complianceprograms for effectiveness. Start by completinga comprehensive self-assessment or facilitatedself-assessment with an independent peercompliance professional. Such a self-assessmentwill give you a better sense of the current stateof your program, provide you with a road mapfor the most beneficial improvements, and prepareyou for a more formal review. Keeping theinitial assessment simple and focusing on theseven elements prescribed by the OIG in theircompliance guidance is a good place to start.About the AHIA/HCCA Focus GroupThe AHIA/HCCA focus group will continueto address compliance auditing and monitoringdirectives through white papers, articlesand educational initiatives. The focus groupwelcomes your feedback and requests toaddress particular matters related to auditingand monitoring. Please submit your requestdirectly to any member of the focus group. nMembers of the focus group are:Randall Brown, Baylor Health Care System(rkbrown@bhcs.com)Jan Coughlin, Scripps Health (Coughlin.jan@scrippshealth.org)Debra Muscio, Central Connecticut HealthAlliance (dmuscio@nbgh.org)Mark P. Ruppert, Cedars-Sinai HealthSystem (ruppertm@cshs.org)Kathy Thomas, Duke University HealthSystem (Kathy.thomas@duke.edu)Debi Weatherford, CHAN HealthcareAuditors (dweatherford@chanllc.com)1.) College of American Pathologists – Accreditation and LaboratoryImprovement (Web Site). December 2006.2.) The Institute of Internal Auditors (IIA) (Web Site). December 2006.April 200750Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

South Atlantic Local Area Conference ...continued from page 29sometimes there is no choice. Mr. Froschgave a do-it-yourself” workshop on how to beyour own internal cop. He reviewed the characteristicsof physician practices that comeunder government scrutiny and explainedtried-and true techniques to make sure thatphysicians keep in the safety zone and awayfrom compliance violations.n Michael D. Bell, Senior Vice President atEduNeering, Inc. in Princeton, New Jersey(and of Counsel at Mintz Levin in Washington,DC) addressed compliance plan effectiveness.According to Mr. Bell, establishing andmaintaining a compliance program is only halfthe battle. Compliance personnel also mustbe able to demonstrate to senior management,regulators, and in the worst case scenario,a judge or the OIG, that their complianceprogram is “effective.” Mr. Bell explainedthe differences between an OIG corporateintegrity agreement and a certificate of complianceagreement. He also provided attendeeswith practical tips and best practices on topicssuch as: what the DOJ and OIG look forin a corporate compliance program; areas ofexploration for effectiveness audit; internaland external benchmarking; and effectuatingbehavior changes.HCCA Leadership in AttendanceHCCA leadership had a strong showing at theSouth Atlantic Local Area Conference. HCCAChief Executive Officer Roy Snell gave thegroup some thoughts on ethics and compliance.Mr. Snell also provided a general overview ofnew developments at HCCA and hot topicsin health care compliance. Gabe Imperato,HCCA Board member and Managing Partnerof the Fort Lauderdale office of Broad and Cassel—oneof the generous sponsors of the SouthAtlantic Local Area Conference—also attended.Finally, HCCA Board Member and First Vice-President Steve Ortquist and his law firm partnerDan Roach (Meade & Roach, LLP) camefrom Chicago to attend and generously sponsorthe conference Mr. Ortquist gave the group anoverview of his vision for the future of HCCAand sought input on how to improve membersatisfaction. This kind of access to HCCAleadership was unprecedented at the local leveland provided a unique and rare opportunity forincreased networking.Admission to 2007 Compliance InstituteawardedAt the close of the conference, many attendeeswon HCCA hooded sweatshirts, travel mugs,and long-sleeve shirts when they correctly answeredtrivia questions based on the content ofthe day’s sessions as well as several pop culturequestions (your odds of winning increased ifyou were knowledgeable about both healthcare compliance and “American Idol” trivia).The day’s activities culminated in a drawingfor one free admission (valued at $999.00) tothe 11th Annual 2007 HCCA ComplianceInstitute to be held April 22-25 in Chicago.The grand prize winner was Nancy Odeh,Facility Compliance Officer at Iasis Healthcare(Palms of Pasadena Hospital) in St. Petersburg,Florida. Nancy will be heading to Chicagoand attending the Compliance Insititute free ofany conference fees! Congratulations Nancy!See you next year!The South Atlantic Local Area Conferenceproduced a variety of perspectives on increasinglycritical issues in the compliance arena.If you made it this year, I know I’ll see younext year. If you didn’t make it this year,come next year! The planning committeeexpects to produce an equally provocative andinformative experience for next year’s conference.Current plans call for hosting the 2008conference on Friday, January 25, 2008 at thesame Orlando location. Mark the date andlet’s keep the momentum going! nHCCA Board Election ResultsThe votes have been tabulated and HCCA Board of Directors election results are now final. From a slate of eight,HCCA members selected the following individuals to serve on the HCCA Board of Directors:Julene D. Brown, RN, BSN, CHC, CPCBilling Compliance ManagerMerit Care Health SystemFargo, North DakotaKaren A. Murray, MBA, CHE, CHCCorporate Compliance OfficerCatholic Medical CenterManchester, New HampshireCongratulations Julene, Karen, and Greg!Gregory J. Warner, CHCDirector for ComplianceMayo ClinicRochester, MNHealth Care Compliance Association • 888-580-8373 • www.hcca-info.org51April 2007

Online Compliance Trainingauthored byauthored and updated byAdmissions & Registration (3)OVER 69 COURSESCoding & Pricing in the LaboratoryAllied Health Services (6) Processing Laboratory Orders (3)Patient RelationshipsManagement Responsibilities inHIM Coding Compliance (2) the Health Care Environment (4)HIM General Compliance (2) Nursing Documentation (3)HIM Compliance Management (3) Patient Financial Services (3)Home Care (3) Physician Coding (2)Home Health (3) Physician Documentation (9)Hospice (4 courses) Skilled Nursing (5)Home Medical Equipment (2)Medical Necessity RequirementsIntro to the Regulatory Environment (3) in the Laboratory (2)Laboratory Administration (2) EMTALA (3)CUSTOM COURSES (General Compliance, Code of Conduct, Ethics, Hotline, etc)Deficit Reduction Act (DRA)CLIENTS RECEIVE:• Monthly virtual roundtables with PricewaterhouseCoopers HealthcareAdvisory practice consultants & your compliance peers• Interactive courseware with case studies & scenarios• Option to utilize your facilities current eLearning system oreHealthcareIT's award winning eLearning system that featuresdiscussion forums, compliance alerts, and multiple communicationtools targeted to your learners.• Subject matter experts with functional and operational expertise:PricewaterhouseCoopers.April 200752COURSEWARE DESIGNED FOR THEFOLLOWING AUDIENCES:Coders • Billing/Financial Services • Pharmacy • AdmittingHome Care • Nurses/Patient Care Providers • FinancePhysicians-Employed • Discharge Planning • Compliance/AuditLaboratory, Hospice • ER Support Staff • Cardiac ServicesER Nursing • Therapies • Registration • HIMPhysicians-Not Employed • Volunteers • Board MembersSkilled Nursing/Long Term Care • Nursing ManagementAdditional online training curriculums available include:Coding, Disaster Preparedness, Clinical CE’s and JCAHO StandardsHealth Care Compliance Association • 888-580-8373 • www.hcca-info.orgeHealthcareITe L e a r n i n g & I T S o l u t i o n sFor further information or to arrangea product demonstration pleaseemail: info@ehealthcareit.comor call 1-800-806-0874.www.ehealthcareit.com

HHS OIG publishesreport on prescriptiondrug plan sponsors’compliance plansEditor’s note: Robert Penezic is a SeniorAssociate in the Fort Lauderdale office ofBroad and Cassel. He is a member of theHealth Law and White Collar Criminaland Civil Fraud Defense Practice Groups.Mr. Penezic specializes in pharmaceuticalfraud and regulatory issues. He can bereached by calling 954/745-5271 or bye-mail at rpenezic@broadandcassel.com.In December 2006, the U.S.Department of Health and HumanServices Office of Inspector General(OIG) published its findings regarding 79compliance plans submitted by prescriptiondrug plan (PDP) sponsors. PDP sponsors areprivate providers of Medicare Part D benefitsto some 43 million Medicare beneficiaries.By federal regulation, all PDP sponsors arerequired to have compliance plans. Thesecompliance plans must cover eight elements,set forth in the regulations, in a manner thataddresses a sponsor’s specific operations andrisk areas. Moreover, compliance plans mustmeet any requirements set forth in materialspublished by the Centers for Medicare andMedicaid Services (CMS). CMS publishedmaterials elucidating the regulations in June2005 and April 2006, and the OIG appliedthese materials in its analysis of submittedcompliance plans.In order to undertake its review, the OIGdeveloped a detailed checklist of the variousregulatory and administrative materials relatingto PDP sponsor compliance plans. It tookBy Robert Penezic, Esq.a broad view of all such materials and did notattempt to assess the quality of complianceplans nor the extent of their implementation;however, the OIG did seek specific evidenceof the appointment of a compliance officerand designation of a compliance committee.Moreover, the OIG distinguished CMS requirementsfrom recommendations; however,in the absence of specific CMS requirements,the OIG applied CMS recommendations inits analysis of compliance plans.The OIG made the following findings:1. All PDP sponsors had compliance plans,but most did not address all eight regulatoryelements. The OIG observed that thesubmitted compliance plans ran the gamutfrom nine-page documents to multi-bindercompilations, and that some were internallydeveloped but others were prepared by pharmacybenefit managers. The OIG appearednot to be influenced by format or mode ofdevelopment. It found that many plans didnot fully meet the requirements with respectto two elements: first, designation of a complianceofficer and compliance committee,and second, procedures for internal monitoringand auditing.The OIG found that four plans did not addressthe compliance officer and committeeelement in any way; others described the element,but did not indicate that such personsor bodies had actually been designated.Where compliance officers and committeeswere designated, 63 plans failed to statethat such entities are specifically responsiblefor monitoring the PDP sponsor’s antifraudprogram.The OIG determined that 44 plans did notindicate that PDP sponsors have installedprocedures to monitor and audit the activitiesof the sponsors’ contractors. Further, 48plans did not state that PDP sponsors wouldpermit the government to audit their records.The OIG indicated that it deems these elements“essential” to the success of a complianceplan.Half of the plans did not contain sufficientdetail regarding compliance processes toensure that such processes actually functionwithin an organization. Specifically, the OIGnoted deficiencies in six areas.First, with respect to compliance trainingprograms, the OIG noted that plans generallycontained insufficient detail regarding topicsto be covered, format of the training, andconsequences of employee failures to participatein training.Second, with respect to processes for reportingcompliance violations, the OIG notedthat most plans did not specifically identifyreporting mechanisms or communicate thesemechanisms to employees.Third and fourth, with respect to internaland external monitoring and auditing procedures,the OIG commented that many plansdid not include audit schedules or auditingtechniques to be applied.Fifth, with respect to procedures for respondingto compliance violations, the OIG notedthat many plans contained no specific detail.Continued on page 54Health Care Compliance Association • 888-580-8373 • www.hcca-info.org53April 2007

HHS OIG publishes report ...continued from page 53Finally, with respect to procedures for implementingcorrective actions, the OIG foundthat many plans did not list detailed descriptionsof disciplinary actions to be undertakenby sponsors.2. Most compliance plans addressed thefraud and abuse element in some way, butonly a fraction fully addressed all governmentrecommendations regarding frauddetection, correction, and prevention. TheOIG found that plans most often did notmeet CMS requirements regarding frauddetection procedures, fraud awareness training,and efforts to coordinate and cooperatewith CMS and law enforcement regardingpotential fraud. Even among those plans thatdid contain these procedures, the OIG foundinsufficient detail regarding the procedures.The OIG indicated that many complianceplans did not reflect the “key activity” ofanalysis of claims and other data to examinetrends, identify potential errors, or detectfraud. Further, the OIG noted that manyplans did not indicate that PDP sponsorshad methods to train employees or enrolleesregarding fraud, waste, and abuse. The OIGalso indicated that while many plans faciallystated that sponsors had procedures in placefor fraud detection, correction, and prevention,the plans lacked detail.The OIG finally noted that CMS has notaudited PDP sponsors’ compliance programs.As such, the OIG recommended that CMSundertake an analysis to ensure that PDPsponsors are actually meeting all publishedrequirements. In response to the OIG’s recommendations,CMS indicated that it wouldundertake routine audits of compliance plansbeginning in 2007.In light of the OIG’s findings and CMS’stated intention to audit PDP sponsors’compliance programs, each PDP sponsorshould undertake a careful review of itscompliance program to ensure that it meetsall requirements and recommendations setforth in federal regulation, CMS publications,and OIG reports. This review should includea thorough analysis of the level of detailexpected by the OIG and CMS in a complianceplan. Competent health care counsel canassist sponsors in performing the analysis. nVolunteer Opportunityat the 2007 Compliance InstituteCome network with other compliance professionals while making adifference in the surrounding community by volunteering with us onSaturday, April 21, from 9:00 am to 4:00 pm. Transportation, boxlunch, and refreshments throughout the day will be provided. Thisevent is sure to get you geared up for the annual meeting! Pleaseregister for this volunteer event on your registration form. If you’vealready registered for the conference and would like to join the volunteerevent, please send an email to Lizza.catalano@hcca-info.org.About the project:This year we are pleased to be volunteering for Vital Bridges. Afront-runner in the fight against HIV and AIDS, Vital Bridgeshelps people throughout metropolitan Chicago to improve theirhealth and build self-sufficiencyby providing food services, nutrition counseling,housing assistance, case management, prevention education, andeducational and vocational services. Vital Bridges serves 2,100 peopleannually. With an average monthly income under $600, theystruggle to pay for rent, food, utilities, transportation, and medicalcosts. Vital Bridges provides the tools to help clients stabilize andrebuild their lives. For more information about this organization,please visit their website at www.vitalbridges.org.We will be handling a variety of tasks as a group. A majority of ourtime will be spent cleaning the interior and exterior of the facility, makingit a cleaner, safer, and happier place for the patients who use thefacility week after week! Transportation, lunch, and refreshments willbe provided to all volunteers.To Learn More visit www.compliance-institute.org/hotel/volunteer.htmApril 200754A special thanks to Meade & Roach LLP for generouslysponsoring this opportunity.Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

Your HCCA StaffThe Association for Health Care Compliance Professionals888-580-8373 | 952-988-0141 | fax 952-988-0146Sarah AnondsonGraphic Artistsarah.anondson@hcca-info.orgLizza CatalanoConference Plannerlizza.bisek@hcca-info.orgLisa ColbertCertification Coordinatorlisa.colbert@hcca-info.orgGary DeVaanGraphic Services Managergary.devaan@hcca-info.orgMargaret DragonDirector of Communicationsmargaret.dragon@hcca-info.orgDarin DvorakDirector of Conferencesdarin.dvorak@hcca-info.orgWilma EisenmanMember Relationswilma.eisenman@hcca-info.orgJodi EricksonAudio/Web Conference Coordinatorjodi.erickson@hcca-info.orgNancy G. GordonManaging Editornancy.gordon@hcca-info.orgKarrie HakensonProject Specialistkarrie.hakenson@hcca-info.orgPatti HoskinDatabase Associatepatti.eide@hcca-info.orgJennifer HultbergConference Plannerjennifer.hultberg@hcca-info.orgApril KielDatabase AdministratorMember Relationsapril.kiel@hcca-info.orgCaroline Lee BivonaAccountantcaroline.leebivona@hcca-info.orgPatricia MeesCommunications Editorpatricia.mees@hcca-info.orgBeckie SmithConference Plannerbeckie.smith@hcca-info.orgRoy SnellChief Executive Officerroy.snell@hcca-info.orgCharlie ThiemChief Financial Officercharlie.thiem@hcca-info.orgNancy VangAdministrative Assistantnancy.vang@hcca-info.orgHealth Care Compliance Association • 888-580-8373 • www.hcca-info.org55April 2007

New HCCA MembersThe Health Care Compliance Associationwelcomes the following new members andorganizations. Please update any contactinformation using the Member Center onthe Web site, or e-mail Karrie Hakenson(karrie.hakenson@hcca-info.org) with changesor corrections.Alabaman Lori Chamblessn Jacqueline D. Hill, Children’s Hlth Systemn Cullen K. Hunt, Franklin Primary Hlth Ctrn Claire Owens, Shelby Baptist MedicalCentern Brad H. Parsons, Decatur General HospitalAlaskan Carol L. Childress, Bristol Bay Area HlthCorpn Gail Clinch, State of Alaska, DSDSn Erik Flexman, Providence Health and Servicesn Louis Martinez, Caridad Home Care, Inc.n Alan Thye, Central Peninsula HospArizonan Linda Cowan, Guidance Center, Incn Mary L. Dunaway, RN, BSN, CPC, CPC-H, Univ Medical Centern Valerie J. Evans, CLS,CLCP, Univ MedicalCentern Maryann Feigeln Dave Kaubisch, Banner Baywood Med Ctrn Sandra L. Marsh, Banner Healthn Christina Melnykovych, CodingContinuum,Inc.n Gail Shannon, Gila River HealthcareCorporationn Stacy Shupe, Catholic Healthcare Westn Yvonne Sposito, RN, CIGNA Healthcareof AZ Incn Elaine L. Strader, Schaller Andersonn Michael B. Sullivan, Sinaiko HealthcareConsulting, Incn Connie L. Svaleng, CPA, Verde ValleyGuidance Clinic Incn Kimalet Winzer, Care 1st Health Plan AZArkansasn Sara Farris, J.D., Delta Dental of Arkansas,Inc.n Susie Moore, Arkansas Foundation forMedical CareCalifornian Donna Abrams, TPMG Compliancen Andre G. Acosta, LA Care Health Plann Rene Argomaniz, Univ of Southern CAn Thea Bullock, Co of Orange Health CareAgencyn Daniel Camp, St Agnes Medical Ctrn Margaret Chan, Kaiser Permanenten Benjamin D. Cripps, Kaiweah Delta HlthCare Districtn Ronald Cruz, Washington Hospitaln Pamela Dorsey, Kaiser Permanenten Janet Franklin, Rhit,Ccs,Ccs-P, KaiserPermanenten Patrick Gage, CalPERSn Cheryl F. Gonsalves, TPMG/Kaisern Mark Goza, Kaiser Permanenten Brett Grosso, Calpersn Michelle R. Hackley, RN, Esq., Hooper,Lundy & Bookman, Incn Larisa Hamada, Pepperdine Universityn Elizabeth V. Hsieh, Kaiser Permanenten Judy S. Ireland, MS, JD, Sutter Healthn Linda Jewell, Saint Agnes Medical Ctrn Hope S.M. Jones, Hired Hand Consultingn Azar Kattan, Valleycare/Olive View Med Ctrn Janice Killion, JD, County of Napan Shirley Komoto, Moss Adams LLPn Troy Lairn Elise C. Lenox, County of Marinn Stacy MacCready, Palo Alto MedicalFoundationn Nicole Kay McCollum, Kaiser Permanenten Frances McKelvey, Genoptixn Carol Melvin, John Muir Healthn Mayra Palacios, LA County Dept of Hlth Svcsn Jared C. Powell, Kaiser Permanenten Jennifer Puleo, Shield Healthcaren Sally Ramirez, Kaiser Permanenten Dana Read, Children’s Hospital & ResearchCenter at Oaklandn Judy A. Roberts, Caloptiman Willem Roos, Moss Adams LLPn Neida Rosario, PriceWaterhouseCoopersn Rhoda L. Ryba, Healthworks, Inc.n Darren Sackman, Alvardo Hospital MedicalCtrn Valerie B. Sanders, Kaiser Permanenten Eva M. Satori, Catholic Healthcare Westn Jett Stansbury, Alameda Alliance for Healthn Jean B. Stone, RHIT CCS, Stanford Hospital& Clinicsn Randolph Taylor, HealthSmart Pacific, Incn CaSonya Thomas, County of San Bernardinon Cindy VanDran, Skilled Healthcaren Debra Weatherfordn Pamela B. Wolf, Centinela Freeman HlthSystemColoradon Jodie C. Atchley, Rocky Mountain Hlth Plnn Erika Bol, EACn Patty S. Cuervo, Community Hospn Connie Dale, Community Hospn Karen Heath, Cochlear Americasn Christine Newgren, CHFP,CPA, CenturaHealthn Stefani R. Saxton, Kaiser Permanenten John Wyckoff, CPA, Memorial HospitalConneticutn Sharon A. Blanchette, CPA, MBA, UConnHealth Centern Maura Geirin, HealthNet, Incn Pamela R. Hickey, Univ of CT Health Ctrn Angela C. McLean, HealthNet, IncDelawaren Jennifer M. Sheckells, Nemoursn Patricia G. Simpson, Schaller Anderson ofDelawareApril 200756Health Care Compliance Association • 888-580-8373 • www.hcca-info.org

Washington, DCn Ka Ng, RHIA, CCA, Mount Sinai Medical n Joan Simental, Enthalpy Health Associatesn Jana Kolarik Anderson, Epstein Becker & CenterMarie Wagner, AlohaCareGreen PCn Marian W. Schlow, Martin Memorial Hlthn Mirhossein Mirsaidi, CPA, KPMGSystemIdahon Deborah A. Morrison, Providence Hosp n Diane Schmidt, Dept or Veteran’s Affairs n Jane Lindsay, CIA, Blue Cross of Idahon Stephanie Pederson, Dep of Veterans Affairs n Elizabeth Strachota, Universal Americann Angie Tran, GWU Medical Faculty AssociatesFinancial CorpIllinoisn Kimberly Tolman, Nova Southeastern Univ n Rumana Alam, Carle Foundation Hospitaln Michael Turrell, WellCare Health Plans n Nancy Alonso, Neurologic & OrthopedicFloridan Susan A. Vellek, MBA, CHP, Martin MemorialInstitute of Chicagon Darlene Arbeit, Sarasota Manatee JewishHealth Systemsn Alex W. (Bill) Bower, Community HospitalHousing Counciln Ellen J. Wise, ChildrenFirst Home Health of Ottawan Niki Bailey, BS, Leesburg Regional Medical Care Systemn Alana M. Chapman, Springfield ServiceCenterCorporationn Tyrina D. Blomer, Esq, Nations Health Georgian Grace Daigel, MBA, JD, Delnor - Communityn Renee M. Boyette, BSN, Univ of Florida n Chris Anderson, Compliance 360, IncHospn Sharon Budman, Univ of Miami Miller n Suzanne DeStein Compau, Gwinnett n Lynn DeWilfond, Kewanee HospitalSchool of MedicineHospital Systemn Robert Gross, Univ of Chicagon Wendy T. Cannon, Shands Healthcare n Darcy E. Devine, AVA, AIBA, Gates, Moore n John M. Haukland, Usoncologyn Yvonne Capote, BSN, Baptist Hospital & Companyn Nathalia M. Headley, Northwestern Memorialn Walter Carfora, Walter Carfora, PA n Chris Faklaris, Compliance 360, IncHospn Kelly M. Daly, NCH Healthcare System n Jane Green, PhD, Morley Research Foundation n Julie A. Houska, Carle Foundation Hospn Deborah DeLeo, TreeFrog Datan Carolyn P. Haynes, WellPoint, Inc. n Tomicia James, RHIA, Rush Univ Med CtrSolutions,Incn Marie Livingstone, Effingham Hospial n Carol Lind, Northwestern Memorial Hosp.n Scott Gregory Didion, Ernst & Young, LLP n Merlene Lockrage, RPh, JD, RPh, JD, n Brenda K. Manning, Dennis A Brebner &n Linda L. Dugan, Radiology Regional Ctr Quest DiagnosticsAssoc.PAn Nancy I. Lorenz, MBA, Southeast GA n Sarah Jean McHugh, Carle Foundationn Paula Esposito, WellCare Health Plans, Inc. Health SystemHosp.n Kimberley Evans, PharMerican Justin McDonald, Compliance 360 Inc. n Lori A. Moore, Blessing Corporate Svcs, Incn Felicia Fitzgerald, Univ of Floridan Del K. Meek, McKesson Provider Technologiesn Ron Nunziato, SIR Management, Incn Althea Graham, Shands Jacksonville Medn Mary Jo Nutter, Northwestern MemorialCtrn Victor L. Moldovan, Phears & Moldovan Hospitaln Nancy Jessee, Winter Haven Hospital n Pam O’Rourke, Community Health n Kristen A. Pawlowski, Huron Consultingn Sandra Johnson, Adventist Health System SystemsGroupn Karen Kaczmarek, Access Diabetic Supply n Glenda D. Pickren, Southeast GA Health n Maria Pekar, Loyola Univ Health Systemn Donna Lawlor, Cypress Health Care ManagementSystemn Brenda A. Schillinger, Springfield Servicen Steven Robinson, KPMG, LLPCorpn Brenda M. Lezama, Preferred Care Partners, n Maureen Sloane, RHIT, Northside Hospital n Matthew W. Staman, Huron ConsultingInc.n Landa Stricklin, Ethica Health & RetirementGroupn Stephen W. Mackey, Univ of MiamiCommunitiesn Mary Stremsterfer Elliot, City of Chicago,n Paul Meyer, Health Management Associates, n Kathryn Towns, Compliance 360, IncDept of LawInc.n Marilyn K. Tarrant, Evanston Northwesternn Ellen Minden, JFK Medical Center HawaiiHealthcaren Ana T. Navarrete, RN CPUR, Baptist n Maria Chun, John A Burns School of n James A. Turner, Jr., MBA MHA, ChildrensHospital of MiamiMedicineSurgical FoundationHealth Care Compliance Association • 888-580-8373 • www.hcca-info.org57April 2007

New Members ...continued from page 57April 200758n Tracy Volel, Univ of Chicagon Kathy Weiman, Metropolitan MedicalLaboratoryn Karen Zupko, Karen Zupko & Associates,Inc.Kentuckyn Tonya Feinauer, Neltner Billing & Consultingn KKristi Marie Murphyn Christopher Peck, Gateway Regional HealthSystemn Angela Scott, Russell County Hospitaln John Goulart, Jr., Partners HealthCareSystems, Inc.n Amy Guay, Feeley & Driscolln Kevin Kelley, Law Office of Kevin J. Kelleyn Clara Kridle, PricewaterhouseCoopersn Denise Luciano, DePuy MitekIndianan Mary Beth Claus, Captain Integrity/B & DConsultingn LeeAnn Foltz, Hill Rom, Inc.n Tony Haisley, Cardinal Health System, Inc.n Toni J. Harper, St.Vincent Healthn Michelle Muething, Fairbanksn Joanne O’Malley, St Margaret Mercy HealthCaren Leslie J. Pfeffer, I Univ School of Medicinen Donna Price, Community Physicians ofIndianan Colleen Roberts, Captain Integrit/B & DConsultingn Jean Schlosser, Adult and Child CenterCourtney Vehling, Indiana University Schoolof Medicinen Kathy J. Wade, SPHR, UnityHealthcare,LLCn Robert Wade, Baker & Daniel, LLPLousianan Aimee Bertrand, LSU-HCSD Univ MedCtrn L. Rene’ Goux, Comm-Care Corporationn Dawn R. Harvey, Comm-Care Corporationn Marcus J. Manuel, General Hlth Systemn Henry Masson, Mr., Comm-Care Corp.n John Stassi, II, Comm-Care CorporationMainen Courtney L. Hanna, McKesson ProviderTechnologiesMarylandn Laurie Alban Havens, TJ Rockn Khalida Burton, McBee Associates Incn Rebekah Casteel, Bon Secours HealthSystemn Christina Davis, Huron Consulting Groupn Ann Dodelin, Team Lead,n Nancy Repice, JD, Univ of MA MedicalSchooln Leslie Sebba, Anna Jaques Hospn Mary Thornton, MTA, Incn Marcia Widmer, Dana Farber Cancer InstMichigann Richard Bouman Cleo L. Corliss, Touchstone Innovativen Gerardyne Drozdowski, Warner Norcross& Juddn Karen R. Dukes, Detroit Medical Ctrn Mary A. Farrington, Van Buren CMHAn Dianne L. Haas, Huron Consulting Groupn Susan Hall, Medical Management Specialistsn Wallace Hart, Michigan Office of AttorneyGeneraln Gregory E. Knuth, Genesys Health Systemsn Virginia Kuilema, CHC, Spectrum Healthn Joseph Laurent, Agility Health Professionals,Iowan Amy S. Herr, Greater Regional Med Ctrn Kevin Parker, The Exeter Groupn Debra A Schott, Mercy Medical Centern Robin Evers, FutureCare Hlth Mgmt Corpn Linda Howard, Schaller Anderson of MEn Kathleen Miller, Kaiser Permanenten Stefon T. Moore, BA, MA, Johns HopkinsHlthcare LLCInc.n Cynthia McLaughlan, Coding ComplianceSolutions, LLCn Sandra Oprsal, Ingham Regional MedicalCentern Mark Mulzoff, Maryland General Hospital n Shaunda Phillips, Ingham Regional MedicalKansasn Kathie J. Butcher, Newman RegionalHealthn Mary Ann Elliott, Goodland Regional MedCtrn Kimberly Enriquez, RHIA, CCS, Sisters ofCharityn Mary Ninos, RNMS, Coventry HealthCareIncn Lisa Cheatham Williams, MSN, MBA, RN,Johns Hopkins Health Systemn Madeleine A. Williams, Huron ConsultingGroupCentern Cindy Rollenhagen, M.A., CCC-SLP,Spectrum Health United Memorialn Claudine Sherrod, Zimmer Great Lakes,Inc.n P. David Vinocur, Smith Haughey Rice &Roegge PCn Cindy Neal-Keltner, Sisters of Charity of MassachusettsLeavenworth Health Systemn Leanne Berge, Network Health Cambridgen Martie Ross, Lathrop & Gage LCHealth Alliancen Monique Trojacek, Child Heatlh Corporationn Cassandra Eckhof, MA Behavioral Hlthof AmericaPartnershipHealth Care Compliance Association • 888-580-8373 • www.hcca-info.org

The Health Care Compliance Association (HCCA) and the Society forCorporate Compliance & Ethics (SCCE) are sponsors of the national CorporateCompliance & Ethics Week. This year Corporate Compliance & Ethics Week willbe celebrated May 20–26, 2007.Begin planning now! Consider how you will celebrate this week. Hold yourannual education, unveil a new training program, or plan a series of complianceworkshops to deliver your organization’s compliance message to all employees.HCCA and SCCE have a number of items available for purchase to spotlightcompliance in your organization during the third Corporate Compliance & EthicsWeek. Fax your order by Friday, May 11, to ensure delivery before this event.CorporateCompliance& Ethics WeekMay 20–26, 2007Doing the Right Thing3 color sticker (60/roll)$24.00 per rollFour colorful posters (blue, green, violet, and red), each showcasing a different ethical messageand including the Corporate Compliance & Ethics Week logo. 2 ft x 3 ft glossy color posters(1 each per 4-pack) $25.00 per 4-pack (min. order 3 packs)ZIPPY ® letter openerStainless-steel blade$1.70 ea. (min. order 25)Two neon colors in one uniquedouble-ended highlighter$1.85 ea. (min. order 25)Translucent blue water bottle.Holds 32 oz.$3.75 ea. (min. order 10)Block of sticky notesOver 300 sheets per block$3.50 ea. (min. order 25)Official poster for CorporateCompliance & Ethics Week2 ft x 3 ft glossy color poster$7.50 ea. (min. order 10)4 x 3 sticky notes (50 sheets/pad)$2.25 ea. (min. order 25)Medium-point ballpoint pen (black ink)Includes six compliance messagesthat change with each click$1.99 ea. (min. order 25)Blue ceramic mug$3.95 ea. (min. order 6)2.5 stress reliever ball$1.85 ea. (min. order 25)Visit www.hcca-info.org or www.corporatecompliance.org to order.Order before May 11 to ensure delivery by Compliance Week!