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Hospitals have fired their first salvo against efforts by Utah's Medicaid program to crack down on fraud, waste and abuse.

Three IASIS Healthcare Inc. facilities — Davis Hospital & Medical Center, Salt Lake Regional Medical Center and Jordan Valley Medical Center — are suing Medicaid's new Office of the Inspector General (OIG), saying the agency has no authority to demand repayment of $2.7 million in allegedly overpaid emergency department charges.

The state informed IASIS of the overbillings in a letter on Oct. 7. The bills were for services provided between 2008 and 2009, according to documents filed Wednesday in 3rd District Court in Salt Lake City.

According to the filing, the state argues the bills were overpaid for technical reasons, hinging on the misuse of diagnostic codes. In some claims, the reason listed for the emergency visit was not a Medicaid-approved diagnosis, in others, the cause of the emergency was not listed in the first diagnosis position on claim forms.

IASIS denies overcharging Medicaid, saying hospitals followed billing instructions provided by the Utah Department of Health.

But the for-profit hospital chain's legal arguments don't end there. IASIS also takes aim at the scope of the Inspector General's policing authority to recoup misspent funds.

Utah law permits the OIG to hold payment on charges suspected to be in error, but not claw back already paid bills, the chain charges.

In fact, in 2009 when IASIS tried repaying the state for mistakes hospitals discovered on their own, the Department of Health refused the money. The errors were linked to inconsistencies in published coding instructions provided them by the state.

IASIS also takes issue with the state's demand letter, which gave the company two choices: pay up, or appeal the findings. Failure to respond by a certain date would result in the state not paying future claims to make up the difference, the letter said.

IASIS appealed but when executives arrived at a pre-hearing conference, Administrative Law Judge Carol Clawson told them that the OIG had not yet adopted administrative rules required to judge the case. Clawson has not ruled on their request to dismiss the case.

The oversight raises "due process" concerns for IASIS, which argues that without rules, "it is unclear whether the [administrative judge] is the ultimate decision maker, and if not, who will be the decision maker to whom the [judge] makes her recommendation."

The governor's office, which oversees the OIG, declined to comment.

But state law says the OIG, "shall...recoup costs, reduce costs, and avoid or minimize increased costs of the state Medicaid program; [and] ... seek recovery of improperly paid Medicaid funds."

Medicaid — and how to fund the $1.8 billion low-income insurance program — is of continuing concern to lawmakers, who on Thursday reviewed health officials' progress on curbing costs.

Legislative audits last year unearthed tens-of-millions in overpayments blamed on loose controls. But new fraud, waste and abuse measures are predicted to save taxpayers $18.1 million this year, according to a Legislative Audit report unveiled Thursday.

The battle over policing Medicaid

For a look at Utah's past efforts to attack Medicaid fraud, waste and abuse — and the state's new Inspector General:

The battle over policing Medicaid

For a look at Utah's past efforts to attack Medicaid fraud, waste and abuse — and the state's new Inspector General: