Medicare Refund Request Issued To AmeriPath, Inc

Demand for $2.95 million refund causes AmeriPath’s stock price to decline by 65%

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CEO SUMMARY: Regulators believe AmeriPath’s Ft. Lauderdale laboratory submitted claims during 1996 which were based upon improper procedure codes or lacked adequate documentation. AmeriPath “vigorously” disputes the situation. It is still uncertain as to whether this action represents a larger campaign that will target laboratories and pathologists for new issues involving Medicare billing and reimbursement.

PATHOLOGY’S LARGEST PHYSICIAN practice management (PPM) company was hit by a Medicare refund demand of $2.95 million for claims submitted in 1996.

AmeriPath, Inc. of Riviera Beach, Florida announced the news last week. The refund request came as a result of an April, 1997 site audit of the company’s Ft. Lauderdale laboratory.

An “Operation Restore Trust” team of federal and state regulators looked at 1996 claims submitted from the Fort Lauderdale site. Apparently the team used a random sample of 30 Medicare claims from 1996 as the basis for the refund request.

Improper Procedure Codes

“Medicare Program Safeguards (MPS)” sent AmeriPath the refund request with a statement that the Ft. Lauderdale facility “accepted payment for services which were either billed using an improper procedure code or were not adequately documented.”

AmeriPath “vigorously” disputes the findings of MPS, but declined to return telephone calls from THE DARK REPORT on this matter. AmeriPath states that it has not been given the “opportunity to present its case or be heard on the issues presented.”

The day following AmeriPath’s November 23 announcement, its stock price fell by almost 65%. In October 1997 AmeriPath stock hit its all time high of $19.00 per share. By the end of last week, share prices were trading around $5.00.

Wall Street analysts reacted with surprise and concern. Morgan Stanley Dean Witter cut its AmeriPath rating from “outperform” to neutral. Analyst Robert Lunbeck from Hembrecht & Quist also reduced his AmeriPath rating, from “buy” to “hold.” He said “If the government prevails, AmeriPath faces potentially serious implications for revenue and earnings. We believe such a worst-case scenario is not likely, but will be at least countenanced by investors.”

AmeriPath got additional bad news the following day. On November 25, the New York law firm of Wolf Haldenstein Adler Freeman & Herz announced that it was preparing to file a class action lawsuit against the company. The suit will represent purchasers of AmeriPath’s stock between October 22, 1998 and November 23, 1998. It claims violations of federal securities laws, centered around allegations that AmeriPath executives issued “false and misleading statements.”

Lawsuits such as these are frequently filed immediately after a company’s stock price suffers a precipitous and unexpected decline. Regardless of the merits of this particular case, AmeriPath executives will have to spend time and money dealing with it.

Government’s Actions

Preliminary indications are that the government’s actions against AmeriPath are not the first moves in a major audit effort focused on anatomic pathology. On the other hand, government regulators have a learning curve. As they understand more about specific billing practices in one segment of healthcare, they tend to use this knowledge to pursue other providers in the same clinical services area.

Government regulators used knowledge gained in the National Health Labs Medicare fraud case of 1993 to eventually accuse every large commercial laboratory of Medicare fraud. For this reason, the AmeriPath case bears watching to see if it leads government regulators to pursue other anatomic pathology providers.

Immediate Response

For AmeriPath, the Medicare refund demand of $2.95 million requires an immediate response. MPS seeks recoupment or refund of this money by December 10, 1998. MPS notified AmeriPath that, should the matter be unresolved, beginning December 20, 1998 it will “offset the alleged over payment (plus interest of 13.5%) against any pending or future Medicare payments.”

AmeriPath may face an uphill battle, regardless of the legal merits to its position. In Medicare cases relating to improper billing for laboratory services, government enforcers generally take a hard line and are intractable in negotiations. Further, the array of onerous penalties which government enforcers can bring to bear on healthcare providers like AmeriPath tilt the appeals process in the government’s favor.

Pathologists and clinical laboratory executives should follow the developments in AmeriPath’s Medicare billing case. Government enforcers may decide to look for similar violations in other laboratories.

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