By Duane C. Abbey, Ph.D., CFP

The RACs are allowed to use the statistical process of extrapolation, through which results from a limited sampling can be extended to a much larger universe. This process allows a RAC to perform a limited audit, yet reap the benefits of identifying large amounts of overpayment. But in order to achieve validity, the extrapolation process must be performed the right way.

While we can be concerned about the impact of such studies, you also can use this process before the RACs get a chance! If you find a potential problem, you can have such a study performed, identify overpayments (and possibly underpayments), repay overpayments and have your MAC remove the claims in the universe from consideration by your RAC. In other words, you can perform the extrapolation before the RAC gets a chance. While the results of your extrapolation and that of the RAC should be the same, the RACs tend to go overboard in their assessments and sometimes apply minimal guidance during the audit process. By using this approach, you can maintain a little more quality control, which, in the end, may be less expensive than going through an extensive appeals process.

Extrapolation Process

In order to use the extrapolation process, a formal set of steps must be followed carefully. The problem or situation being addressed must represent a systematic error; that is, an error that repeats itself. Episodic errors, or, those that randomly occur, don't lend themselves to this approach.

While there are different parameters that may be used, the process itself and the qualifications of personnel involved in this process are important. Here are the basic steps:

1. Identify the specific systematic problem for consideration.

2. Identify the universe of claims to be considered.

3. Engage a statistical expert to establish the statistical process.

4. Engage an Independent Review Organization (IRO) to conduct the audit.

5. Develop audit guidelines in cooperation with the IRO.

6. Perform a probe audit to determine the estimated error rate.

7. Calculate the sample size.

8. Randomly select the cases for the sample.

9. Conduct the audit on the sample.

10. Extrapolate the results of the audit to the overall universe.

11. Determine the amount to be repaid.

The statistician or mathematician will determine the appropriate parameters that will guide the overall process. For the case study we will consider, we will use the OIG's suggested statistical standards of a 90 percent confidence interval with a 25 percent precision level. As indicated in step 6, a probe audit of 30 cases will be used to determine the estimated error rate. This error rate is important in order to use the formulas to determine a statistically valid sample size so that the results can be extended to the entire universe safely.

This may seem like black magic, but actually the process is conceptually straightforward. What is needed is a statistical program that can perform all of these calculations to the desired degree of precision. The OIG has developed such a program, called RAT-STATS. The program can be downloaded free of charge from the OIG's Web site at http://www.oig.hhs.gov/; also, be sure to download the two manuals that come with it. Yes, the manuals are big, but you only will need certain parts of the program in order to perform extrapolation.