Paperwork nightmare: Dr. Cheryl Ellis (left) and Melinda Staveley of the Rehab Institute show paperwork required by "bounty hunter" auditors
Paul Wellman

Congressmember Lois Capps and six other members of the California congressional delegation met on August 1 to question the conduct of a private company that’s been giving fits to the Rehabilitation Institute of Santa Barbara and other California providers of acute medical care, or short-term treatment for a severe or debilitating illness. Auditing firm PRG-Schultz International (PRG) was hired to examine the Medicare- and Medicaid-funded acute-care cases over the past five years and determine whether the patients should have been authorized for treatment. The pilot program was designed to ensure that limited federal Medicare and Medicaid dollars aren’t spent to treat acute-care patients with high-end treatments when cheaper therapies could suffice.

Thus far, PRG has reviewed 314 cases at the Rehab Institute and concluded that 99 percent should never have been authorized and that federal reimbursement should have been denied. If these denials are upheld on appeal, the financially rickety Rehab Institute could have to refund the federal government $3.12 million from its annual $12 million budget.

At last week’s meeting-held with Centers for Medicare and Medicaid Services (CMMS), the federal agency that hired PRG-Capps questioned the rate of PRG’s denials, and according to her press secretary Emily Kryder, wondered whether the 25-30 percent bounty that PRG received for money saved might have colored the company’s results. Capps and other congressmembers noted that PRG was the only private for-profit company hired to conduct statewide audits. (New York and Florida both hired nonprofits to examine their acute care cases.) PRG’s critics have also pointed out that the company reported earning $18.6 million in the last three months-up from the $3.6 million loss posted by the company for the same quarter last year-and that U.S. Senator Dianne Feinstein’s husband Richard Blum is a major investor.

According to Kryder, CMMS officials said they had not heard these concerns before and asked for written accounts of them. They also conceded that perhaps they hadn’t given acute-care providers like the Rehab Institute enough notice that the eligibility rules might be changing so dramatically. The program went into effect just two years ago; if deemed a success, it will be expanded to all 50 states.

According to Rehab Institute spokesperson Melinda Staveley, the program has been a bureaucratic nightmare, draining staff resources with the task of producing 50 records a month. “We operated strictly according to the rules that were in place at the time,” Staveley said. “Now, we’re being told we should not have accepted these patients, that they could have gotten just as good care someplace cheaper and someplace else.” For example, Staveley said, PRG might find that a stroke patient the Rehab Institute treated might have done as well at a skilled nursing facility or at home. “On an individual basis, who knows? That might be true,” Staveley said, before explaining that studies indicate patients will be better off if they receive focused rehabilitation treatment. Staveley also noted that PRG’s incentive to deny cases could have been heightened because it receives its incentives whether its recommendations pass appeal or not. And for a small treatment center like the Rehab Institute to file an appeal, she said, would be costly and burdensome.

Much of the congressional concern was that PRG’s audit might wipe out some healthcare providers. The Rehab Institute, independently owned since its inception in 1955, announced this summer that it had entered into negotiations to be acquired by Cottage Health System. “I can’t say this was the last straw, but it sure didn’t help,” Staveley said, adding that the institute has “walked the edge” by providing services not compensated by Medicaid, Medicare, or private insurers. She said private donations have held steady, while the cost of services has increased and public remunerations diminished. Staveley said Cottage was in the process of conducting due diligence for a deal that both parties hope to conclude September 5. Cottage may be able to provide the services currently offered by the Rehab Institute, but that switch may result in about 30 institute employees losing their jobs.


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