Underpayments and Unpaid Claims in Medicare Auditor Statistical Sampling Methods

The Law Offices of Steven Goldsobel regularly represents providers in healthcare post-payment review audits where auditors identified an overpayment.  Recently, an administrative law judge (ALJ) nullified a Medicare auditor’s statistical sampling method because it failed to include underpayments, and in an unrelated appeal the chief statistician for a Medicare administrative contractor (MAC) reached a similar finding. If their method of calculation gains traction, total overpayment amounts may be reduced in some circumstances.

In the first case, the ALJ sided with the appellant durable medical equipment (DME) supplier and held that the Medicare auditor breached the Medicare Program Integrity Manual by neglecting to include unpaid and underpaid service lines. The decision makes clear that when Medicare auditors are calculating audit samples, they should include both underpayments and outstanding claims. Failing to do so might “significantly skew” the audit from the outset.

The ALJ decision involved claims that were denied by a zone program integrity contractor (ZPIC) after a post payment review. The ZPIC utilized a process known as stratified random sampling, where paid amounts act as a proxy to stratify overpayment amounts, which are unknown before sampling. While the DME statistician provided many arguments for why the ZPIC’s sampling methodology was flawed, the appellant’s attorney stated the unpaid claims argument was the clear winner.

According to the ALJ opinion, the DME statistician argued that Chapter 8 of the Medicare Program Integrity Manual “cannot be interpreted to allow the removal of the unpaid or zero-paid service lines from the universe. As a result, the net overpayment was not considered, only the gross overpayment. Sampling size must include all underpayments and zero paid claims and all must be extrapolated to determine the net overpayment. AdvanceMed [the ZPIC] included claim numbers that had multiple individual codes and dates of service, then they removed the individual codes and dates that were not paid. When they remove zero paid line items, the claims are never audited and there is never the opportunity to review for mistakes and potential payment. By removing the zero paid claims they remove the possibility of finding an underpayment. Medicare requires that these zero paid items must be included and reviewed. Not a valid sample due to the lack of the zero paid claims. Sample not properly designed.” The ALJ agreed with the DME statistician and concluded that the statistical sample for the claims at issue is considered invalid.

The ALJ decision comes in light of a similar opinion from the chief statistician at CGS Administrators, a wholly separate MAC. In its appeal, the DME supplier’s statistical expert objected to HHS Officer of Inspector General’s (OIG) audit methodology. The MAC chief statistician agreed with some of the chief statistician’s arguments.

CGS Administrators contended that when a beneficiary is the sampling unit, as was the case here, “all lines for all claims for each beneficiary containing any of the codes of interest should be in the universe, including whole claims paid $0. These $0 paid claims, if they exist, are in the cluster of claims that make up a beneficiary sampling unit and cannot be omitted. The $0 paid claim would be reviewed for potential underpayment just as $0 paid lines must be reviewed when the sampling unit is a claim. Claims paid $0 dollar may not exist in this case, but I cannot determine that because the OIG filtered out claims paid $0 when creating the universe.”

The chief statistician supported her argument by stating that Chapter 8 of the Medicare Program Integrity Manual (Sec. 8.4.3.2) provides that “the sampling frame includes all sampling units which were paid” and “when sample units are clusters, there may be lines or claims included which did not individually generate payment.”

Bruce Truitt, a former faculty member at the Medicaid Integrity Institute stated, “In a nutshell, all overpayments are improper payments, but not all improper payments are overpayments. Some are underpayments.” He noted, “If you don’t include underpayments, you never get to the correct value of the claim. As a result, the true dollar value, and conceivably the claim count of the universe, is not properly determined.”

Truitt stated that initially, auditors “always maintain the single, unique and complete dollar value of the claim. If I have a claim with three line-items on it, one of which is an unpaid zero-dollar value item, one of which is a negative dollar adjustment and the other is a positive dollar amount, leaving out the negative dollar adjustment will affect the total dollar value of the claim. And, if I sample at the line-item level, leaving out the zero-dollar unpaid item will affect the total size of the sampling frame from which I pull the sample.”

The takeaway here is that providers should scrutinize the validity of auditor sampling and extrapolation methods early on.

Modified CIA Claim Review

Some government audits, such as audits conducted under the Improper Payments Elimination and Recovery Improvement Act, may include underpayments. Recently, however, many CMS and OIG auditors have stopped incorporating underpayments in random samples. For example, audits conducted in connection with OIG corporate integrity agreements (CIAs) no longer take underpayments into account.

The chief of OIG’s Administrative and Civil Remedies Branch stated that they altered their CIA “claims review approach from one that required a Discovery Sample and, if the error rate from that Discovery Sample was 5% or greater, a Full Sample, and that approach allowed for ‘netting’ of underpayments. In the current claims review approach, there is just a single sample of paid claims (usually 100) and the error rate is calculated based only on the overpayments as a percentage of the total amount paid.”

Further, OIG often reports audit findings as net overpayments, which is the result of overpayments minus underpayments. “For those audits that involve situations where, through medical review, it is determined that a provider could have been reimbursed more than it was for a particular service, OAS does take into consideration underpayments and nets those against any overpayments.”

Truitt believes Medicare auditors bias the game in their favor and do not give providers credit for some underpayments or claims. He believes this might be the case because the government’s purpose is to protect the Medicare Trust Fund as opposed to health care organizations.