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Third Circuit Says DHHS IG Has Authority To Conduct PATH Audits Of Teaching Hospitals


HLD, v. 31, n. 12 (December 2003)

Third Circuit Says DHHS IG Has Authority To Conduct PATH Audits Of Teaching Hospitals

The Department of Health and Human Services (DHHS) Inspector General (IG) may move forward with its Physicians at Teaching Hospitals (PATH) audits, the Third Circuit held October 17. The appeals court affirmed a lower court's order enforcing certain administrative subpoenas issued by the IG after The University of Medicine and Dentistry of New Jersey (University) refused to go ahead with the audit and moved to enjoin the IG from doing so. "[T]he PATH audits are of a kind that is squarely within the broad authority of the inspector general to audit providers for the purpose of preventing fraud and abuse within the Medicare program," the appeals court said.

The appeals court also agreed with the lower court that it lacked jurisdiction over the University's action to enjoin the audits. The appeals court concluded that the action was not "fit" for judicial review because the IG had only initiated an investigation and had yet to take a final enforcement action. "While the hospitals have raised profoundly serious questions about the wisdom and fairness of the PATH audits, the audits are within the broad authority of the inspector general, and any challenges are properly made when they have led to action against the hospitals and their employees, if any," the appeals court wrote.

The IG launched the PATH initiative in 1996 to investigate the prevalence of certain alleged billing problems at teaching hospitals nationwide. One of the issues under examination was the billing by physicians under Medicare Part B for work performed by residents at teaching hospitals. PATH audits focused on billing years before regulations governing physicians at teaching hospitals were changed in 1996 to expressly require a physician's physical presence. Although some healthcare providers complained that the PATH audits amounted to a retroactive application of the 1996 rule, the IG contended that the rules had always required the physician's physical presence for Part B payments.

The IG informed the University that it planned to initiate a PATH audit. Although the University initially agreed to have the audit conducted by an independent auditor at its expense, it later refused and instead filed an action in federal district court to enjoin the audits, contending they were unlawful. The IG then issued administrative subpoenas for the relevant records. When the University failed to comply with the subpoenas, the IG brought an action to enforce the subpoenas.

The federal district court granted the IG's motion to enforce the administrative subpoenas. The court also determined that it lacked jurisdiction over the University's claims because the decision to initiate the audit was not "final" and because the case was not sufficiently "ripe" to permit judicial review. The University appealed.

On their face, the purpose behind the PATH audits--to prevent and detect fraud and abuse in teaching hospitals' Medicare Part B billing--comes within the authority and wide discretion afforded inspectors general under the Inspector General Act of 1978 (Act), the appeals court observed.

The university argued that the PATH initiative constituted "routine compliance audits" because they were not based on specific fraud allegations and therefore violated the Act, which prohibits the transfer of agency "program operating responsibilities" to inspectors general. But the appeals court saw no reason the IG's authority could not overlap with that of the department, so long as DHHS did not abdicate its responsibilities entirely. The key issue here is not whether the IG is doing something that DHHS also is doing, but whether the PATH audits are within the IG's authority under the Act, the appeals court said. "The inspector general's mandate to prevent and detect fraud and abuse is not limited by HHS's--or its agents'--own efforts to prevent and detect fraud and abuse," the appeals court explained.

Affirming the district court's judgment, the appeals court held the University's claims were not "fit" for judicial review because the IG's action was not a final one. The appeals court pointed out that the University had not been charged with fraud, nor had any enforcement proceeding been commenced. "No matter how decisive the inspector general's determination to initiate a PATH audit of the University of Medicine and Dentistry of New Jersey under its stated standard was, it was only a decision to initiate an investigation of the University's prior billing practices," the appeals court noted.

The appeals court also held that the University failed to show the PATH audits would result in sufficient "hardship" to support judicial review. The University argued that complying with the audits would disrupt its daily operations and cost over one million dollars. These burdens, however, do not support a finding of finality, the appeals court said. The appeals court acknowledged that healthcare providers are at a "precarious juncture" in which placing additional burdens "on already taxed hospitals may have serious consequences for access to healthcare." But, the appeals court continued, "these considerations are, in the first instance, ones for the inspector general, who has been charged with uncovering fraud and has been given the authority to determine when audits are appropriate to that end."

The Univ. of Med. and Dentistry of N.J. v. Corrigan, No. 03-1268 (3d Cir. Oct. 17, 2003).

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