OIG Weighs-In on the Review of Extrapolated Overpayments in the Medicare Appeals Process

The financial stakes are often very high for providers when statistical sampling and extrapolation is used to calculate an alleged Medicare overpayment. In post-payment audits involving extrapolation, an actual claims denial in the thousands of dollars can balloon into an overpayment demand in the millions, potentially placing a provider’s cash flow and operational viability in jeopardy. While providers may appeal the validity of the statistical sampling and extrapolation (and the claim denials underlying the extrapolated demand) through the Medicare appeals process, the opportunity to stay recoupment of the alleged overpayment exists only for the first two levels of appeal. Because of this limitation, it is even more critical that the Medicare appeals process gives providers access to a meaningful review of the extrapolation during these initial appeal stages and that the standards for such reviews are reasonably consistent.

In a new report issued on August 25, 2020, the HHS Office of Inspector General (OIG) evaluated the review process for extrapolation during the first two levels of appeal by Medicare Administrative Contractors (MACs) and Qualified Independent Contractors (QICs). In generating its report, OIG evaluated 20 Medicare appeals cases involving an extrapolated overpayment demand and interviewed statistical experts from Medicare program integrity contractors, which commonly initiate audits using statistical sampling. OIG identified eight different procedures that were not performed consistently by all MACs and QICs, with the most notable inconsistency being the use of a type of simulation testing by three Medicare contractors (out of eight).  OIG also noted that the simulation testing was the only procedure associated with the overturn of overpayments (specifically, $41.5 million for FYs 2017 and 2018) which was not currently in use by all MACs and QICs. Because the use of simulation had such a substantial impact on the review process, OIG highlighted that the absence of any guidance from the Centers for Medicare & Medicaid Services (CMS) regarding the use of this procedure raised a question of whether these extrapolations should not have been overturned, or conversely whether there were other extrapolations which should have been overturned but were not because simulation testing was not used.

OIG added that CMS guidance is also generally limited on the steps that contractors must undertake when reviewing extrapolated overpayments and that CMS oversight of the review process is even less. MACs are not required to undertake any specific actions when assessing the validity of an extrapolated overpayment. Although QICs have a checklist of specific steps to perform in reviewing extrapolations, the QICs are required to monitor their own decisions to ensure consistency in decision-making.

OIG concluded its report with several recommendations, to which CMS concurred, including a recommendation that CMS should provide additional guidance to Medicare contractors to ensure reasonable consistency in the procedures used to review extrapolated overpayments and take steps to identify and resolve discrepancies in the procedures used by Medicare contractors to review extrapolations during the Medicare appeals process. In light of the OIG’s focus on discrepancies regarding the use of simulation testing, whether any future guidance issued by CMS will be beneficial to providers appealing extrapolated overpayment demands remains an open question.