Administrative Law Judges Discard Medicare Extrapolations Excluding Zero-Paid Claims

If overpayments are found, then the extrapolation recoupment number will go up; if underpayments are found, the extrapolation will go down.

EDITOR’S NOTE: This is Part II in a RACmonitor exclusive three-part series that exposes how some auditors can skew the universe of claims to their advantage by hiding zero-paid claims.

A review of recent administrative law judge (ALJ) decisions uncovered a number of Medicare statistical extrapolations being discarded because the samplings had screened out zero-paid claims.

These decisions are consistent with the letter and intent of the Medicare Program Integrity Manual (MPIM), but go against a common practice allowing auditors to bias extrapolations against healthcare providers.

When claims are submitted for payment, some are paid; some are not. Those claims submitted but not paid are known as “zero-paid claims.” § of the MPIM requires identification of all underpayments. Also, § requires all underpayments to be recorded as negative overpayments.

Audit recovery contractors have long fallen into the habit of screening out all zero-paid claims up front. This step in the statistical methodology is often hidden from the provider, and referred to only obliquely. The contractors present what’s left over as the “universe” file, but it is not the true universe. The auditor in fact takes its sample from a pseudo-universe.

Why Most Audits are Biased
In a recent RACmonitor article, we wrote…“this practice of hiding the zero-paid claims has gone on for years and it needs to stop.”

The contractors never report the details of this sneaky procedure. During the appeals process, when the healthcare provider receives from the contractor documentation about the statistical methodology, it already is too late to see what has happened, because these zero-paid claims have been hidden away before statistical sampling started. Any third-party neutral expert called in by the healthcare provider to review the contractor’s statistical work also is left in the dark.

Yet as noted, recent ALJ decisions have started to recognize this problem. In a recent ruling, an ALJ wrote:

“The MPIM requires universes and frames to include unpaid services in at least 12 different sections. But the frame generated by [the contractor] only included services for which the amount paid was greater than zero. … For this reason alone, the extrapolation in the audit … is invalid.”

In another decision, another ALJ wrote:

“The ZPIC (Zone Program Integrity Contractor) failed to include zero-paid service lines in violation of the MPIM; MPIM Chapter 8, §, regarding the composition on the universe of claims, cannot be interpreted to allow the removal of the unpaid or zero-paid service lines from the universe.”

It is perhaps too early to rest easy. Since this abusive practice has been so commonplace, auditors have grown used to employing it as a matter of standard practice. Someone is sure to appeal these decisions, because so much work done by the auditors is at stake – and so much commission revenue is to be skimmed off from the recoupment payments. 

Nevertheless, for the time being, this represents a positive trend towards fairness in the Medicare statistical extrapolation process.

Programming Note: Listen to the live reporting of Edward M. Roche this coming Monday on Monitor Mondays, 10 Eastern.


Edward M. Roche, PhD, JD

Edward Roche is the director of scientific intelligence for Barraclough NY, LLC. Mr. Roche is also a member of the California Bar. Prior to his career in health law, he served as the chief research officer of the Gartner Group, a leading ICT advisory firm. He was chief scientist of the Concours Group, both leading IT consulting and research organizations. Mr. Roche is a member of the RACmonitor editorial board as an investigative reporter and is a popular panelist on Monitor Mondays.

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