Win or Lose, Medicare Pays the Legal Fees : Study: Millions in tax dollars have gone to health care corporations regardless of outcome of disputes, GAO report says.

WASHINGTON —  The U.S. government is paying millions of dollars to health care corporations under a highly unusual federal policy that covers their attorneys’ fees in Medicare disputes--even when the corporations lose, according to a General Accounting Office report.

As the debate over Medicare reform rages in Congress, the Department of Health and Human Services is allowing nursing homes and home health care providers to bill the government for their attorneys fees when disagreements arise over the legitimacy of their billings.

Nobody knows exactly how much money Medicare pays to these attorneys, but a sample audit conducted by the GAO suggested that the costs could reach into the tens of millions of dollars every year.

Until recently, the fees were apparently overlooked in annual Medicare spending, which totaled more than $180 billion last year. But as Congress zeroes in on Medicare fraud, waste and abuse, it has discovered that the Medicare system has one of the most unusual--and seemingly lax--policies in government for underwriting legal proceedings against taxpayers.

Rep. Ron Wyden (D-Ore.), who requested the report, said Thursday that the practices are “a metaphor” for the widespread waste and abuse in the Medicare system. Wyden said he would seek to outlaw the attorneys fees next week as part of reform legislation.

“At a time when seniors are going to be paying more co-payments and deductibles, these attorneys fees are the last bill the government should be paying under Medicare,” Wyden said. “It is misguided . . . absurd . . . unacceptable.”

Other federal agencies, such as the Department of Defense, reimburse firms for legal costs in fighting the government, but typically only when contractors win their cases.

The GAO report concluded that the HHS policy probably encourages Medicare providers to become litigious, because they have nothing to lose by contesting every instance where their billings are disallowed.

But Darrel Grinstead, chief counsel of the Health Care Financing Administration, the agency that runs Medicare, disputed the GAO findings, saying its figures are “suspect” since the agency is still examining industry billings from 1994.

Grinstead added that if Medicare did not pay the industry’s legal costs, it might discourage firms from filing legitimate claims against the government. Nonetheless, Grinstead acknowledged the agency is now reconsidering its policy.

The controversial policy is among the last vestiges of the days when Medicare reimbursed all health care providers for their actual costs. Now, the system has prescribed limits for doctors and hospitals, but nursing homes and home health care providers still submit their actual costs for payments.

The billings are scrutinized by so-called “intermediaries,” usually major health insurers that work under contract for the government, and a portion of the billings are typically rejected.

The nursing homes and home health firms can appeal those rejections back to the intermediary and then file an administrative law case before the Provider Reimbursement Review Board, a branch of HHS. Ultimately, the disputes can be elevated to federal court and a few cases have gone as far as the Supreme Court, generally at great legal expense to taxpayers, according to GAO Medicare experts.

GAO auditors found that in a four-state region, in which they examined cost reports submitted for 1994, the legal billings amounted to $6.5 million and had “dramatically escalated” in some cases. On average, the legal costs represented 3.3% of total Medicare payouts to nursing homes and home health care providers in the sample.

Congressional staffers said the nationwide costs almost certainly reach into the tens of millions of dollars annually. Grinstead said he could not dispute that, but added that the four-state region examined in the GAO report was in the South, which has a higher concentration of nursing homes and home health care firms than the rest of nation.

GAO relayed its finding to Wyden by letter in July and Wyden recently made a copy of the letter available to The Times. The GAO findings have not been previously disclosed.

Wyden said the GAO report shows that the efficiency of the Medicare system could be substantially improved without the drastic action proposed by Republican lawmakers, who are seeking sharp cuts in the system’s spending.

But Guy Collier, a Washington attorney specializing in health care issues, said it was not obvious that the government should not pay for such costs, adding: “Unless it is clearly frivolous, why should the provider not get legal costs paid? Why isn’t that a legitimate cost?”

First American Health Care, which was indicted along with its top executives on fraud charges earlier this year, received the most attorneys fees of any of the firms surveyed by the GAO. The report does not name the firm, but congressional sources identified First American as the firm in the report that received $2.8 million in legal fees during 1994.

First American spokesman Jeff Stives said the GAO report had a “number of fundamental errors in logic” and left “begging many of the questions they were seeking to answer.” First American legal expenses have risen slower than its revenue over the past seven years--revenue were up 5,000% while legal expenses were up 2,000%, he said.

The firm’s attorneys fees are “legitimate expenses,” Stives said, adding the federal government had wrongly targeted the firm. “We are constantly under assault,” he said.