Another Pharmacogenomic Lab Hit With Audit, Multi-million Dollar Repayment Demand

Pharmacogenomic lab faces hardship as CMS seeks recoupment of multiple millions of dollars

CEO SUMMARY: In 2014, during a ZPIC audit of an unnamed pharmacogenomic testing lab, a federal auditor reviewed a small number of claims that had been filed over a period of several years. Despite supporting letters from physicians, the auditor rejected those claims, then extrapolated the findings to declare payments for thousands of tests over that same period to be illegal. The lab now owes the federal government multiple millions of dollars, payable immediately. The unnamed lab is fighting the case.

ARE FEDERAL AUDITORS TARGETING pharmacogenomics laboratories with deep-dive audits and demands for steep overpayments?

Sources tell THE DARK REPORT that as many as six pharmacogenomic labs have been audited in recent years. In each case, a small number of claims has been identified as improperly paid, and then the auditors extrapolate that small number of rejections to all claims filed over a period of years. The result has been demands for each targeted lab to pay multiple millions of dollars.

After THE DARK REPORT published a story about the Medicare audit and subsequent bankruptcy filing of Pharmacogenetics Diagnostic Laboratory LLC (PGXL), of Louisville, Ky., an unnamed company official from a second clinical laboratory reported that his lab was hit with an audit from a Zone Program Integrity Contractor (ZPIC) and the circumstances were similar to those of PGXL.

The company official did not want to disclose his name or that of his laboratory, saying the case was under appeal and any attention on the case involving his specific laboratory could result in retribution that might complicate and prolong the matter. In agreeing to discuss the circumstances of the audit, the company official requested that all identifying details of the case be left out of this article.

Minimal review of Claims

The circumstances for this unnamed lab were eerily similar to the case of PGxL. As in the PGxL case, AdvanceMed, the ZPIC auditor, began an audit of the laboratory’s claims and requested documents on tests ordered over a multi-year period.

In the audit of the unnamed lab, AdvanceMed reviewed a small number of claims and declared that Medicare should not have paid any of those claims. In making this charge, AdvanceMed said the tests were not medically necessary, the official said. There was never any allegation of fraud or any other impropriety, he added. The auditor did not agree that the tests ordered by the treating medical provider were medically necessary, he added.

Then, the auditor extrapolated from the small number of claims to all claims filed over many years, the official explained. The result: a demand for overpayment of multiple millions of dollars.

Maximum penalty assessed

“We were under a similar audit as PGXL,” the company official said. “The auditors focused on a minimum number of records. From those claims, the auditor determined that 100% of claims submitted during the extended universe of time were not medically necessary. The result is a demand for repayment of 100% of the claims reimbursement for the entire universe of the time under audit.

“During the appeals process of our case, it became increasingly clear that the auditor did not follow the Medicare Program Integrity Manual,” the lab official added. “Indeed, AdvanceMed’s audit was so haphazard, it contained no less than four serious errors, each of which would invalidate the audit on its own merit. Together it shows a complete disregard for the audit rules.

“In many of the cases, the laboratory obtained letters from the ordering physicians,” the official said. “Those physicians explained that they ordered the tests for specific patients, how the test results were used to amend the patients’ treatment regimen, and how the patients responded to the changes in treatment.

“Despite the errors in procedures and the letters from physicians, AdvanceMed denied all the claims for the same reason: a lack of medical necessity,” he added. “This seems to be a catchall when they fail to find anything else the laboratory may have done wrong.”

a hindrance to appeals

After the audit, the unnamed pharmacogenomic testing lab began the appeal process and found it was challenging. “There are several levels of appeal a laboratory can go through, all of which are within the responsibility of various CMS contractors,” the official said. “The first level of appeal is back to AdvanceMed itself. The next level of appeal is to the area Medicare Administrative Contractor (MAC). Typically the ZPIC works under the direction of the MAC.

“The next level of appeal is to a Qualified Independent Contractor (QIC),” he said. “This is another contractor, typically in a different area of the country. The next level of appeal is to an administrative law judge (ALJ).

“When a case goes before an ALJ, this step is the first independent review of the audit by a party who is not a CMS contractor,” the official explained. “In April 2013, CMS began delaying the assignment of cases to the ALJ for 24 months. This delay has created a tremendous backlog of cases. The current wait time for a case to be assigned to an ALJ is over two years.

Growing Backlog of Cases

“The problem is that recoupment of the alleged overpayment is allowed to resume while the provider waits for an ALJ assignment,” he added. “This means many, many small providers may be forced out of business entirely or into bankruptcy protection, as was the case with PGXL.”

In a letter to the federal Department of Health and Human Services last year, the American Hospital Association cited statistics that show the average appeal after an audit is about 30 months and growing. Ashley Thompson, the AHA’s Senior Vice President, Public Policy Analysis and Development, explained that figures from DHHS’ Office of Medicare Hearings and Appeals (OMHA) show appeals taking longer and longer.

“The most recent statistics released by OMHA show that the average appeals processing time was 935.4 days in the third quarter of fiscal year 2016—an increase of 75 days from the prior quarter and 140 days since the beginning of the fiscal year,” Thompson wrote. “This is movement in the wrong direction, and it is clear that merely tweaking the appeals system will not adequately address the problem.”

Thompson’s letter was addressed to Nancy J. Griswold, the OMHA’s Chief Administrative Law Judge and specifically detailed problems with the Recovery Audit Contractor (RAC) program. The letter did not address ZPIC audits. But OMHA uses ALJs when providers appeal decisions by RACs and ZPICs, according to Rich Marotti, an attorney with the firm Murphy Austin Adams Schoenfeld LLP, in Sacramento.

providers Win Most appeals

In an article on his law firm’s web site, Marotti also reported that the AHA has published success rates for those who file ALJ appeals. In 2014, AHA reported that healthcare providers were successful in 67% of cases before an ALJ, he wrote.

“The result of the current years-long wait to be assigned an ALJ makes the playing field heavily slanted in favor of the large corporations and against small lab companies,” said the lab official. “The largest lab companies have the resources to fight these audits because they believe in most cases they will win at the ALJ level of appeal. Plus, if a provider wins, the provider gets the recoupment returned plus earns inter- est on those funds at a rate of 9.5%.

“Those providers may view the whole process as an acceptable risk, in part because, if the smaller provider organiza- tions cannot survive, then the larger providers have fewer competitors,” concluded Marotti.

Fearful of publicity

There is little public information about this situation. Pharmacogenomic lab companies that have undergone ZPIC audits and been hit with demands for recoupment totaling millions of dollars, or tens of millions of dollars are reluctant to discuss the details of these cases. They are fearful that making this information public may bias the appeals process against them.

But what is significant is that there are at least two pharmacogenomics labs that now face a recoupment demand of $26 million (for PGXL) and multiple millions for the unnamed lab that provided information for this story. Other labs undergoing ZPIC audits are invited to contact THE DARK REPORT in confidence to share information about their audits’ outcomes.

ZPIC Audits of PGx Labs Raise Serious Questions

DETAILS IN THE CASE OF PHARMACOGENETICS Diagnostic Laboratory LLC (PGXL), are similar to those of the unnamed lab hit with an audit and demand for repayment.

In October, CGS Administrators, LLC—the Medicare contractor for region J15 that serves Louisville—sent a letter to PGXL, demanding payment of $26,333,173. In the letter, CGS said this amount was an overpayment based on an audit conducted by AdvanceMed, an auditor for Medicare’s Zone Program Integrity Contractor initiative.

A molecular diagnostic testing lab for physicians, clinics, and hospitals, PGXL has 21 employees and expected gross revenue of $8.8 million in 2016. On Nov. 8, PGXL filed for bankruptcy protection in U.S. Bankruptcy Court for the Western District of Kentucky.

According to court documents, when reviewing PGXL’s claims, AdvanceMed did a post-payment audit of 30 patients’ records that were filed between January 1, 2012, and September 23, 2015. After reviewing these 30 claims, AdvanceMed decided that CGS should not have paid any of those claims. Then, AdvanceMed took that 100% denial rate for the 30 claims and applied it to all claims PGXL had submitted in those 45 months. As a result, AdvanceMed decided that all payments to PGXL in that time should not have been paid. By extrapolating in this manner, CGS concluded that it had overpaid PGXL by $26.3 million.


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