Corporate Integrity And Unallowable Costs

A Corporate Integrity Agreement (CIA) outlines agreed upon obligations, as part of a civil settlement, made in exchange for the OIG assurance not to exclude the entity from participation in Medicare, Medicaid or other Federal health care programs. Although CIAs have common elements, each one is tailored to address the specific facts of the case.  One significant feature of a CIA is the requirement to engage an Independent Review Organization (IRO) to verify that the entity is complying with the terms of the CIA.  The scope of the IRO engagement often includes a review of all “unallowable costs” or those costs incurred as a result of the governmental investigation.  Entities under a CIA may not include any unallowable costs in any cost or other report that results in payment by the government. A typical CIA states the following regarding unallowable costs:

“The IRO shall conduct a review of [entity] compliance with the unallowable cost provisions of the Settlement Agreement. The IRO shall determine whether [entity] has complied with its obligations not to charge to, or otherwise seek payment from, federal or state payors for unallowable costs (as defined in the Settlement Agreement) and its obligation to identify to applicable federal or state payors any unallowable costs included in payments previously sought from the United States, or any state Medicaid program. This unallowable cost analysis shall include, but not be limited to, payments sought in any cost reports, cost statements, information reports, or payment requests already submitted by [entity] or any affiliates. To the extent that such cost reports, cost statements, information reports, or payment requests, even if already settled, have been adjusted to account for the effect of the inclusion of the unallowable costs, the IRO shall determine if such adjustments were proper. In making this determination, the IRO may need to review cost reports and/or financial statements from the year in which the Settlement Agreement was executed, as well as from previous years.”

Examples Of Unallowable Costs

• Matters covered by the settlement agreement
• Government audit and civil investigation of matters covered by the CIA
• Provider’s investigation, defense, and corrective actions related to the matters covered by CIA, including attorney’s fees
• Negotiation and performance of the settlement agreement
• Payment the provider made to the government pursuant to the agreement
• Any payments that are made to a qui tam relator, including their costs and attorneys’ fees
• Seeking and retaining an IRO

Steve Forman, CPA, has performed cost report reviews for several CIAs.  Forman notes that the added expenses associated with IRO performance of this review can be considerable.  When the review is undertaken, organizations are not only surprised by this portion of the CIA but also by the amount of work needed to comply. However, Forman notes that this review takes place only for the first year of the CIA. Tom Herrmann, JD, who has helped negotiate and manage many IRO engagements, suggests that more time should be expended on the issue of unallowable costs during CIA negotiations.  He states that it would be useful to try to avoid having this review included as part of the IRO scope of work by presenting an accounting of those costs to the OIG.  The following are some added thoughts and tips in addressing unallowable costs.

1. Determine the starting point for incurring costs that would be determined unallowable under a CIA. This is when the organization first became aware of the issue that resulted in an investigation, not when it the matter was disclosed to the government or when the government made notification of an investigation. It may be the date a hotline call was received that identified the matter with any costs incurred on or after that date.

2. Take steps to understand what costs must be excluded from the cost reports submitted to the government. The OIG does not permit costs incurred internally, and also external costs associated without side attorneys, accounting firms, and consultants.

3. Take steps now to exclude the unallowable costs from the cost report. The easiest way involves assigning costs to a cost center that is not distributable to a government cost report.

4. If the matter under investigation leads to a CIA, that includes a review of all unallowable costs separately, do not include it the cost reports as an expense. Most CIAs don’t require a separate audit of cost reports, only verification that they do not include unallowable costs.

For more information regarding the process of negotiating CIAs and engaging IROs, join in a free webinar on “CIAs: Negotiating Terms, Selecting and IRO, Meeting Obligations”.