DeKaye Consulting, Inc. Volume V Number 1

January 1999

The Newsletter of

DEKAYE Consulting, Inc.

231 Oakview Avenue
Oceanside, New York 11572
Phone / Fax: (516) 678-2754

On Target

The New Year

Vital Signs

Virtual Reality: Patient Accounts

by Allan P. DeKaye, MBA, FHFMA, President & CEO, DEKAYE Consulting, Inc.

At every month end, Patient Accounts directors and managers should be asking themselves the question: "So what should we do next month?" The answer to this question, if an A/R management plan has been formulated, is usually quite simple: "Keep reducing A/R!" If, in reality, it were only that simple! Well perhaps it is, or will be.

For some, having a system that is capable of selecting open accounts and assigning them to an A/R staff members’ "open account work list," is a major first step. Collection agencies have had this system functionality for quite some time, with predictive systems that both select accounts, place the call, and display the account history and notation section.

For those patient accounts departments with this capability, the key variable is how they determine the parameters for account selection. This automated task can be repeated in its manual equivalent by preparing selected aged trial balances by financial class, insurance plan, dollar amount and aging category. For those less fortunate and not able to produce these ad hoc or report writing reports, color high lighters are an inexpensive alternative, but requires staff to perform a ritual "arts and crafts" function and illuminate the accounts that fit the description of "accounts to be prioritized for the month."

glass_b.gif (1125 bytes) Could this be Algebra?

Let "X" equal the number of accounts that must be closed (with a primary insurance payer), and Let "Y" equal the number of new admissions for the month (substitute "visits" and "procedures" for outpatient service areas). Assuming a dollar value per account of "Z," we should be able to estimate "X" such that the optimum caseload per A/R staff could be calculated, such that "X" will be greater than "Y." Keep in mind that caseload would be the number of accounts to be closed with a payment, and that the workload would likely be a number of accounts to be "worked" where payment might not be determined after one follow-up. This is the reality!

glass_b.gif (1125 bytes) What is Virtual?

One dictionary definition is: having to do with or designating a focus forming such an image.* Can we select a group of accounts, assign them to staff, and reasonable predict their closure, offsetting the increase of new discharges or visits, thereby assuring the reduction of accounts receivable for the month? Being from a generation that has watched the dexterity of our children play video games and master the mouse, the joy-stick, and the like, I am surprised that we have not capitalized in making our staff, in effect, captains of the game board. The game pieces: open accounts. The object: Score the maximum closed accounts with payment possible in a month!

glass_b.gif (1125 bytes) Impediments to Virtual Reality

Probably the first impediment to achieving this virtual reality is "sharing this vision." How many of you will actually set out to determine the "X’s, Y’s and Z’s noted in the above equation?" Second, how many of you have the staff resources deployed so that there is dedicated A/R follow-up staff, who do nothing but follow-up on open accounts? Finally, if there are such dedicated staff on A/R follow-up, have you mapped out a game plan for them in which accounts have both a propensity for payment, and a likelihood that the account can be closed in the current period (month)?

If you could visualize each A/R follow-up staff wearing their virtual reality headset, then you could from your console determine the effectiveness of each staff member. How many accounts they were assigned, how many (payer) contacts they made, and how many "promises of payment" they received, and how many turned out to be fulfilled. You’d truly be in command of the game board.

Of course, it would be up to you to ensure that the right account selection for each staff member was made, and assigned to their work queue. For instance, assigning accounts with higher dollar balances in high propensity payers before moving to lower balanced accounts in less likely to pay insurance carriers would be part of the "virtuality" of designating a focus.

glass_b.gif (1125 bytes) Avoiding Common Mistakes

All too often, managers and frontline supervisors allow staff to select their own accounts; even today, quarterbacks rarely call their own plays, instead allowing coaches, sitting in the sky boxes and taking in the bigger picture, to relay in better plays to take advantage of terrain (political conditions) and opponent (payer) defenses (reasons for delaying payment). Also selecting the right players (staff) is part of the coach’s (Patient Accounts manager’s) job

glass_b.gif (1125 bytes) "I Can See Clearly Now" **

Today, Patient Accounts managers need to put on their virtual reality headsets. For some it will be like putting on "night vision" goggles" in order to illuminate the payer landscape, as well as their own internal impediments to successful A/R management. It’s time for many Patient Accounts managers to either go to the sky boxes to get a better view, and then bring their managers and supervisors there, so that they can see more clearly, too.

Once there, then Patient Accounts managers can gain a better perspective on the need for better account selection and play-calling each month. Using "virtual reality" concepts in the business office, clearly focuses on seeing the landscape, setting goals and reaching the target. Let the games begin!

*   The World Book Dictionary, Volume two (L-Z), 1989, p. 2337.
** "I Can See Clearly Now" from the song sung by: Jimmy Nash

Emphasis on Education

Surviving the Business Office Merger

by Allan P. DeKaye, MBA, FHFMA

Just when you thought everything was starting to go well--A/R was being reduced, managed care difficulties were finally under control, the new system was tamed, and all that remained was setting next year’s goals and objectives--it happens. Your hospital will merge with one or more facilities.

It used to be the internal or external audit, the OIG letter, but now, the uncertainty associated with M&A (merger and acquisition) brings the uncertainty associated with job scrutiny and job security. Have I done a good (enough) job, do I have the right (political) pedigree? Difficult questions, no easy answers.

All too often, the instinctive reaction is "time to go," and many a good Patient Accounts director has jumped ship. No doubt, sometimes the handwriting is on the wall, and events and circumstance become clear, whether for budgetary or consolidation purposes, and seeking greener pastures makes a lot of sense. However, for some, the premature departure deprives an individual of building on a good (if not strong) track record, and denies the institution of a valuable resource.

glass_b.gif (1125 bytes) Underrating Our Value

Perhaps the hardest self-evaluative task we would have is to determine if we’d be the choice of the senior financial staff of the new entity. Did we have the right stuff to be given the reigns of the CBO (Central Business Office)? Since "beauty" is in the eye of the beholder, the truest tests of ability are not based on merit alone. Complicating the process is the fact that the job of running a CBO may require more than just one good leader (albeit, there can usually be only one director). That is not to say that at the leadership and managerial ranks, there shouldn’t be room for two or more of the best (some System’s would be so fortunate) patient account directors or managers.

glass_b.gif (1125 bytes) Underestimating the Job of Running a CBO

CBO formation has many components. System selection (where disparate platforms are in use by the merger partners) becomes a major decision to allow economies of scale to be realized. Second, determining the best talent by means other than political (facility) affiliation. There are likely to be issues with ongoing and aged A/R management, as well as managing outsourcing and collection agency contracts, and dealing with managed care and other insurance companies.

So instead of only worrying on who’ll be number one, merger partners should be thinking about having some depth in the management line-up. Any pro-football team is a good illustration of having a seasoned back-up quarterback. And just as the demands of a long season can wreck havoc with the starting quarterback situation, a long year’s A/R march can be laced with many operational impediments ranging from audits, compliance activities to Systems related and other A/R management issues.

glass_b.gif (1125 bytes) Dismissing the Foregone Conclusion

While merger and acquisition often focuses on reaching savings, attaining playing weight too quickly is like the dieter who drops too much weight too quickly: look good for a while--give it back subsequently. Advice. Good management personnel are hard to find. Even at the undergraduate and graduate levels of healthcare education programs, we don’t train staff to enter the "cash flow cycle." Instead, financial students often wind up in accounting, budget and reimbursement, and not Patient Accounts, Admitting and even such departments as Medical Records and Utilization Management (complementing the potential negative impact from non-compliance or focus from these areas on case management).

Often viewed as more equitable to let someone go at the outset, organizations are often deprived of good talent, simply because one individual may be at a higher salary--though not specifically less skillful or talented. The recognition that the sum of several hospital’s may be greater than the whole, suggests that CBO formation should be a time to bulk up on good managers to take on the various dynamics that must come together to allow the CBO to quickly reach its potential.

Finally, with the internal focus on CBO functions like billing, collection, A/R management, etc., the external empowerment on the front-end operations like admitting and registration and the need to concentrate on the payer community may make a CBO management team rich in senior level managers a valuable commodity to ensure that the sum of the disparate parts is truly greater than the whole.

glass_b.gif (1125 bytes) The Outlook

Mergers and acquisitions will continue as the alliances of hospitals continue as a defense against growing managed care companies. There are two challenges in this article. First: Patient Account directors and managers shouldn’t simply through in the towel. But in order to make the synthesis part truly operational at a higher level, CFO’s need to objectively assess the talent presented by the merger to ensure that it isn’t pound wise and penny foolish. In the battle of A/R, you can’t have too many quarterbacks, especially with the challenges necessary to make it to the Super Bowl (year end and beyond).

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Emphasis on Education Course Curriculum.

Perspectives And Commentary

Additional Document Requests and Other Audits
—How to Survive

by Allan P. DeKaye, MBA, FHFMA

1998 by CCH Incorporated. All Rights Reserved. Reprinted with permission from CCH Healthcare Compliance Letter

NYC Hospitals Brace for Reviews. At the beginning of 1998, in the New York metropolitan area, Medicare fiscal intermediary, Empire Blue Cross, began sending "Additional Documentation Requests (ADRs)" to hospitals for outpatient services claims. This effort was initiated under HCFA’s instructions for conducting more prepayment reviews. These ADRs requested that clinical justification be resubmitted to allow the intermediary to evaluate the appropriateness of the claim. In the meantime, the claim was suspended. Failure to resubmit the appropriate documentation within the allotted forty-five (45) days would result in a claim denial. Reconsideration could then only be accomplished by resubmitting the entire claim as though it were a new billing.

Review vs. Audit. Hospitals in NYC were initially inundated with these requests. While volume levels subsided over the summer, it’s not yet clear that the volume won’t return to pre-summer levels. The process has taken on characteristics of a "documentation audit." However, unlike a more traditional on-site audit, where a provider is more apt to react with an array of resources and controls, and the payer is usually committing its own on-site team, under this new ADR technique payers have more flexibility to add records to the review process while limiting its costs. Providers contending with ADRs are faced with an ongoing review process characteristic of a "focused medical review" of its claims before payment was issued.

Controlling the Process. While some randomness was reported in the selection, there was a propensity to include services such as mammography and PSA level testing, psychiatry and rehabilitation services. The tight time frames for documentation resubmission was often fraught with payer delays in mailing notices. When combined with a provider’s need to retrieve and copy related records, deadlines were reported missed, necessitating regeneration of claims.

Providers were cautioned to consider these as documentation audits similar to the on-site ones conducted by various payers. Providers should adopt record controls on incoming, inter-departmental and external documentation and correspondence. Providers were also advised to review negative findings for documentation denials especially in the areas of mammography and PSA testing – areas that have some requirements that can be easily misinterpreted.

Audit-Proofing: Survival Guidelines. With the growing emphasis on corporate compliance activities, healthcare providers are likely to see an increase in all forms of audit and review activities. Providers need to approach each review with a sound understanding of the scope of review, possible deficiencies, and potential exposure (both regulatory and monetary).

Providers should consider these "Ten Essential Steps of Audit Preparation."*

  1. Obtain authority under which the audit is being performed.
  2. Request the scope (i.e., years covered, number and type of cases, etc.) of the audit.
  3. Identify the members of the audit team, and their responsibility (and their professional credentials, where appropriate).
  4. Determine the anticipated start and end dates for the audit, the number of days to be spent on-site, off-site time, and if any on-site work space is required and/or needed.
  5. Identify what will be needed from the facility (e.g., specific cases, access to staff, access to systems, etc.).
  6. Establish a liaison to the auditors and a protocol for interim briefings and an on-site exit conference.
  7. Determine when the report or findings will be issued, and whether results will be in draft format, if corrections/comments can be made, and the procedure for issuing a final report.
  8. Identify facility’s rights of review and/or appeal.
  9. Ensure assembly and readiness of "rapid response team" (as warranted).
  10. Provide for a "Need to Know" informational update program for senior management.

This methodology will help prepare for internal and external audits, payer audits, and governmental audits. By adopting this methodology, the provider signifies to both internal and external audiences that the review is important enough to warrant the attention of senior management.

*  DeKaye, Allan P. The Patient Accounts Management Handbook. Aspen Publishers, Inc., 1997, Gaithersburg, MD., Exhibit 12-1, p. 158.

: Ask The Expert

by Allan P. DeKaye, MBA, FHFMA

Q: We are in the process of rethinking our ancillary charging system. What things should we be considering in light of this (ie: compliance issues)?

A: It is not uncommon for a system to be used for both productivity reporting and billing. Depending on the age of your system and the degree to which upgrades and new versions are released, you may be more vulnerable to complying with new regulations. Assuming the system still has a useful life remaining, you'll want to have your vendor make programming changes to ensure continued compliance.

In most contracts of this type, vendors either offer to, or providers have insisted on contractual language that binds the vendor to ensure its systems are in compliance at the time of installation, and that the vendor warrants continued regulatory compliance over the life of the agreement. However, the contract may also provide for vendor assumption of cost, or cost-sharing between vendor and client (or client base). Penalty provisions may also apply, if the vendor fails to meet or maintain this level of compliance. While penalties may not offset the cost of procedural workarounds, they can be a powerful incentive, if the client starts withholding penalties from payments. For severe non-compliant functionality, replacement systems may be necessary.

Regarding the performance of "unsuccessful" procedures, you might consider the following. Record both procedures, because they were ordered and performed. However, you should create an adjustment code (allowance). If "repeat procedures" are that prevalent, create a specific code that denotes this fact. Most systems will track the use of an allowance--including the lab or ordering department so that the responsible department heads can evaluate the clinical and financial implications when this . The allowance code should be added to the respective masterfiles (charge master, billing files and G/L, etc.). The allowance amounts will vary by amount based on the test fee that is being reversed, but the original statistic is preserved. This is not dissimilar to the way an ER admission is recorded as a statistic, but the system function that transfers the charges to the inpatient account also negates the billing for the ER visit, but allows the visit count to be incremented.

This subject is addressed in more detail in my book, The Patient Accounts Management Handbook (Aspen, 1997), Chapter 9, "The Charge Collection Process," (by Ben Marrone).

Q: I am the administrative director of a physician group practice. Are we required to have a physician practice compliance plan to conduct internal or external reviews?

A: I am not aware of any requirement that mandates an internal or external review. It is important to keep in mind that there are various types of reviews that can be performed (e.g., coding reviews, billing reviews, payor audits, etc.). For most practices it will be a question of cost.

Internal reviews can be an effective tool to measure performance and compliance. The drawback is that they may lack objectivity and independence. Depending on the size of the practice, there may be sufficient staff resources who are able and/or qualified to perform the type of review that is indicated.

The opposite is also true.

External reviewers can be engaged to perform a variety of reviews ranging from chart to bill audits, billing compliance audits, as well as quality reviews, etc. Similarly, outside firms are often engaged by a practice's legal counsel in order to allow the consultant's work product to be protected under the attorney/client privilege. The concern with outside firms will also be the cost factor. Practices that belong to a MSO may be able to purchase the type of review services at a preferred rate for being part of, or affiliated with the organization.

Perhaps the most important aspect of the review should be to perform what is called for in your compliance plan. In addition, using your compliance guidelines, you will need to be prepared to act to correct deficiencies and problems, and in some instances report them to various regulatory agencies to

avoid penalties associated with any form of improper claiming or related action.

For more information on the subject of audits and reviews, you'll find Chapter 12, "Audit-Proofing," in The Patient Accounts Management Handbook (Aspen, 1997), to address the matter in more detail.

Q: We seem to be recently inundated with ADR's (Additional Documentation Requests) from Medicare. What can we do about these? Are there time limits to responding?

A: ADR's can present operational and financial hardships to providers. They usually require the provider to produce the chart notes for a particular service. While this may not seem a daunting task, when the requests occur in large volumes, they can take their toll on internal response capabilities. Failure to respond in a timely manner can result in claims simply not being paid.

I suggest that providers treat the ADR process as though it were an "on-site documentation audit." Providers often do not treat these "mailed" in requests with the same tenacity as they would if an audit team was on-site. The financial impact of ADR's can be as severe as an on-site audit.

Providers should put document controls in place to control receipt of requests, and use transmittal controls to move requests for information internally throughout their organization. Time frames need to be monitored, and documentation needs to be reviewed to ensure that it matches the request made.

While payment should be forthcoming for satisfactorily submitted documentation, providers need to assess subsequent denials based on the (in)adequacy of the documentation. Clinical reviews and refutation should be considered if it felt that rules and regulations have been inappropriately applied.

For more information on the subject of audits, you can reference Chapter 12, "Audit-Proofing" in my book, The Patient Accounts Management Handbook (Aspen, 1997).You may also reference an article on ADR's I have written in a new publication: CCH Healthcare Compliance Newsletter, published by Commerce Clearing House. December 1998 issue..

Q: Our hospital IS Director seems to be at odds with our Patient Accounts Manager who does not seem to have any interest at all in our accounting system, its capabilities, etc. in regards to our re-engineering planning. We have offered our assistance, but have received a very "I have no time" attitude. This has proven frustrating. Any suggestions?

A: The Patient Account Manager's reaction to your offer of assistance is indeed strange. Most PAM's would welcome the opportunity, and relish the interest and support. Here are some thoughts that may help you better assess the current situation and next steps to be taken:

- About the PAM

  1. Does the PAM come from a hospital with the same system/platform?
  2. Does the PAM have such broad system's knowledge and experience that perhpas they found your offer to attend vendor workshops and classes too elementary?

- About Your System and Current State of A/R

  1. Would you regard the system as functioning at or above expectation?
  2. Was there a turnover in PAM's due to the (? bad) state of the A/R or just a vacancy/new hire based on normal market conditions?
  3. Is the level of A/R at acceptable levels (both days and dollars)?
  4. Does the existing Patient Accounts Management Team and Staff have an above average knowledge of system's applications and functionality--are they good users?

If your answers generally support the notion that the new PAM is coming into a relatively good state of systems and A/R, then the inidividual may have other objectives--re-engineering to do more with less--mergers and acquisitions or CBO; or new managed care contracts. If this is the case, why not prepare an "Executive Summary Briefing" of systems and Patient Accounts. You may already have the nucleus of such a report already. This welcome/transition document will provide the PAM with an agenda from IS' perspective. Include any issues/agenda that require the Patient Accounts department's involvement.

Be sure to copy the CFO, and suggest your availability to meet to review any Q&A that may arise from her reading of the document. Why not schedule a lunch meeting with you, the CFO and PAM after both have had a chance to review. This may help get a clearer sense of any other issues and agenda on the CFO's/PAM's minds.

If nothing else, you will have had a forum to make your points, and seek direction from the CFO. After that, let the PAM make the next step. But try to answer the Questions posed above, to see if some of the answers may help you flush out any hidden agenda items. It may help you direct the tone of your Executive Summary Briefing.

Q: What can we do to address this new "anti-dumping statute and its relation to treating patitents who can't pay in the emergency room?

A: With the re-emphasis on the federal statute that precludes hospital emergency rooms/departments from refusing to examine and stabilize patients who cannot pay, and the potential liability under the "anti-dumping" statute, hospitals have real logistical and operational issues to address in order to ensure that it captures correct demographic and financial data.

Both sets of data elements are needed. Clinicians require certain demographic data especially as it relates to referencing patient records, ordering and reporting lab, x-ray and other ancillary tests, as well as for tracking patients upon discharge, especially if recall is indicated.

Financial data is needed to bill insurance carriers on the patient's behalf, as well as the patient for self-pay responsible amounts (deductibles or co-payments), or non-covered charges. In many instances, insurance carrier utilization management requirements place notification and other approval regimens on both the patient and provider, with penalties for failure to adhere to these administrative regulations. And whether the patient is "treated and released" or subsequently admitted to the hospital, there may be a subsequent set of requirements that replace the initial ones already described.

For many ER's/ED's the most obvious changes place nurse triage before registration. In some cases, the patient is then routed back to registration after care is rendered (when the patient is treated and released) to complete the data capture process. Many ER's/ED's also fax over notifications, or have patients or staff call the managed care company to ensure that this requirement is met.

This is an area where others may have successfully implemented other approaches to address the logistics of these challenges.

Q: Our facility is considering transferring the registration and admitting function directly to patient floors. What are some of the concerns we may face regarding accuracy and completeness of demographic and financial data capture?

A: Letting go of the Admitting and Registration function is difficult. I agree that the customer service benefits are a major plus--just think of our own individiual experiences with hotel check-ins, car rentals, etc, when lines can be bypassed.

The quid pro quo for ceding empowerment must be the acceptance of accountability. Simply said: measure and feedback, but have an up-front commitment that performance standards will be met. This, of course, presupposes that when Patient Accounts had the admitting/registration function that it has an enviable track record (I'd go so far as to say 100% accuracy--and that should be the goal).

Prior to transferring the functional responsibility, there should be a workflow design and policy and procedural development that describes the patient, paper and workflow and system support necessary to achieve continuity of function. Training would be the next important phase, and it must be thorough. Avoid on-the-job training for this new staff responsibility--you'll need to focus on education. Try a limited rollout if at all possible; feedback performance, and take corrective action if warranted.

You'll find this subject addressed in greater detail in The Patient Accounts Management Handbook (Aspen). In Part II (Chapters 5-8: Bolen, Edens, DeKaye and Roberts), "Knowing Who The Customer Is: The Registration of the Patient," is devoted to many topics that will be of interest regarding this subject. You'll also want to reference Chapter 20 (Hallowell) who addresses error rates and customer service considerations.

The Contributor's Corner


by Andrew Schulman, Carpenter & Onorato Health Care Consulting

0319004b.gif (1033 bytes) Home health agencies’ desperate hope for some kind of interim payment system reform in 1998 received a bit of positive news in late October. The Omnibus budget bill included a minimal IRS reform package. Specifically, implementation of a prospective pay system for home care was mandated to go into effect on October 1, 2000. The 15% cut scheduled to be implemented October 1, 1999 was delayed for one year, minor changes in the per-visit and per-beneficiary limits were made and Periodic Interim Payment was preserved until October 1, 2000. Still, one of the many concerns raised by the implementation of IPS for home care has been, and remains, its impact on Medicare beneficiaries’ access to services. In reaction to access, the Medicare payment Advisory Commission (MedPac) will analyze access to Medicare home health services in a report it plans to issue to Congress by June 1999. In an attempt to measure the IPS’s impact on access to care, MedPac will examine survey and certification data, analyze claim data and survey providers. Its major objective will obviously measure how IPS has changed the number of beneficiaries receiving services, the type and mix of services being provided, and beneficiaries’ ability to receive the services they need.

0319004b.gif (1033 bytes) On January 1, 2000, no computer help line in the world will be able to undo the damage if you haven’t prepared for the year 2000 problem (also known as Y2K). Computer software systems and pieces of equipment that perform computerized operations may not be able to recognize the 2000 date. Wether free standing or hospital affiliated, home health agencies will face identical problems in assessing potential areas of trouble and finding solutions. Of course, there is also a big question about whether payments will come in on time, especially Medicare and Medicaid, primary payor sources for most providers. It is clear most businesses have to worry about both management and technical issues surrounding the Y2K problem.

0319004b.gif (1033 bytes) An agency that has obtained a surety bond for 1998 can get their bond returned by the fiscal intermediary. Once returned, the home health agency can attempt to a pro-rata refund for the cost of the bond. Fiscal intermediaries were instructed to tell home health agencies that HCFA will only make claims against a surety bond subsequent to a new submission compliance data, which will be 60 days after publication of a new final rule, but no earlier than February 15, 1999.

0319004b.gif (1033 bytes) HCFA has thus far delivered mixed messages on OASIS data collection and data submission. The regulation is still awaiting clearance form the Secretary of Health and Human Services. The regulation would then go to the Office of Management and Budget for signature. Trade associations across the country are encouraging members to begin the OASIS preparation now by integrating the OASIS data with their current clinical forms to develop a complete integrated assessment. It is the industry belief that data submission would not start until April 1, 1999 at the earliest.


Essential Elements of Corporate Compliance Programs

By Gregory J. Naclerio, Esq. Health Law Partner, Ruskin, Moscou, Evans & Faltischek, P.C., Mineola, NY

Many health care providers, ranging from major teaching hospitals to large physician practices, are actively engaged in Corporate Compliance Programs (the "Program"). These providers realize that such a Program is their best defense against draconian governmental criminal and/or civil actions, as well as potential whistle blower False Claims lawsuits. Yet, there are many providers (which includes, according to the recent model Program issued by HHS, billing companies) who do not know the basic elements of a Program. That ignorance is now to be exorcized.

A Program basically consists of three parts: (1) the Legal Audit; (2) the Code of Conduct; and (3) the Compliance Infrastructure. Firstly, a "Legal Audit" must be conducted in those areas where the provider is most vulnerable to potential violation of the law. One obvious area for institutional providers is the billing department. Less obvious areas include physician contracts, hospice care, home health agencies, OSHA compliance and private inurement issues. A Legal Audit is akin to a due diligence review and examines the client’s current business practices to insure they are in compliance with the law. Such an audit should be conducted by or under the direction of legal counsel to take advantage of the attorney-client privilege.

Secondly, the provider must establish a written Code of Ethics (the "Code") which is "reasonably capable of reducing the prospect of criminal conduct." The Code should not be "canned" but developed and written by the provider’s senior management. This will go a long way to show the government yours is not a "paper" compliance program.

Thirdly, provider must create a Compliance infrastructure which implements the results of the Legal Audit and the Code. This management system should include: (a) the appointment of a high level member of the organization to act as "Compliance Officer." In that capacity, the Compliance Officer will take overall responsibility for the program and investigate/adjudicate employee claims of ethics violations; (b) establish training of all employees, subcontractors and even vendors in the Code. Such training should commence on employment or retention of the vendor and re-occur yearly. A critical part of the training program is to have those who become aware of Code violations contact the Compliance Officer

Such contact can be in person, via a Hotline, use of E-Mail or Post Office Boxes; (c) when a Code violation is reported, the Compliance Officer must conduct an immediate investigation to determine if a violation has occurred and, if so, take measures to assure the violation ceases immediately as well as consider if disclosure to the government is warranted; (d) the provider must also use "due care not to delegate substantial discretionary authority" to individuals the provider knows or should have known had a propensity to engage in illegal activity; (e) the Program must also insure that the Code is consistently enforced by taking disciplinary action against all violators. (Interestingly, the federal compliance program requires that individuals such as supervisors, who fail to detect a Code violation by their subordinates, also face disciplinary action); and (f) the Compliance Officer must also take reasonable steps to achieve compliance with the Code by means of monitoring or auditing systems reasonably designed to detect criminal conduct.

While some may argue such a Program is too onerous, they should understand that if a violation of law occurs, the government will not only seek to take its "pound of flesh" but also dictate the provider institute a Compliance Program written by the government. Generally, the government’s Programs is far more onerous than actually needed and are written by bureaucrats and not real world professionals. The choice is yours: you can institute a Program now – or you can have one imposed upon you later. The choice is yours! Happy Holidays!

For more information about this article, you may contact Mr. Naclerio at (516) 663-6633, or E-mail him at:

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