Providers at a special healthcare policy forum in Washington received a sobering evaluation Monday for why they were hit with an average 11.1% cut in Medicare reimbursement starting Oct. 1.

A top long-term care official with the Centers for Medicare & Medicaid Services systematically rejected common complaints and excuses regarding the $4 billion take-back by the federal government. She also warned of increased scrutiny by various federal agencies and authorities.

“RACs (recovery audit contractors) will be increasing their audits, the DOJ (Department of Justice) and OIG (Office of the Inspector General) have been increasing their looks, and legislative changes are possible,” warned Sheila Lambowitz, CMS’s Director of its Division of Institutional Post Acute Care. “There is no such thing as a free lunch.”

Providers collected more than $4 billion in reimbursements that were not planned for under new resident assessment and payment formulas that went into effect Oct. 1, 2010, Lambowitz noted. Her comments hinted at widespread suspicions that providers had incorrectly taken advantage of the new system. Contract therapy providers need greater scrutiny, she added in what was her final pre-retirement appearance after 11 years with CMS.

“If you’re seeing increased lengths of stay to keep patients longer, ask, ‘Is this the best outcome?’” she counseled providers at the Washington Convention Center. “Contracted therapy providers get paid every day. Look, maybe therapy is given only three to four days a week, but you’re paying them seven days a week.”

She cautioned against trying to profit from “co-therapy” arrangements. And she told of a medical director of a “major chain” who brought CMS voluminous documents, implying that “more therapy is always better.” She also said skeptically that although therapy providers pushed group therapy heavily in the past, “we’re being told this year, group therapy will not be done at all” [apparently in response to new reimbursement rates].

Lambowitz also shot holes in other rationales her agency had heard from providers regarding unexpectedly high payouts, including, “You just provided an incentive and we jumped on it.” Her response: Not every incentive should be exploited. “We pay more for Stage IV pressure ulcers. Does that mean you should let everyone get to Stage IV to get it?” she said.

She added that federal authorities will be asserting more powerful means of examining billing practices in the future. Distribution of RUGs, intensity of services, compliance with assessment schedules and “looks at starts and stops in therapy services” all will get more in-depth scrutiny, she noted: “It used to take a lot more time, but now we can do it much more quickly.”