Updated on: June 22, 2012

Extrapolations: The 10 Million Dollar Demand (Part 2)

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Original story posted on: November 17, 2009

rsconnolyhughesCBy: Ronald S. Connelly, JD, Principal
& Christina A. Hughes, JD, MHP

An extrapolated demand can be devastating to a healthcare provider. What starts as a relatively small audit by a Medicare contractor can become a real nightmare if a few dozen retroactively denied claims turn into a multi-million dollar demand.

This can happen when denials are used to calculate an error rate that then is applied to all of a provider's claims during a certain time period.  RACs have not extrapolated yet, but they have the power to do so if CMS grants permission. Other contractors, such as Program Safeguard Contractors (PSCs), frequently extrapolate, and the experience of providers with PSCs will be instructive when facing any extrapolation - whether by a PSC, a RAC, or other contractor.

 

In the last issue, we outlined the extrapolation process and some of the major issues tied to the matter. In this issue, we will focus on some strategies for fighting an extrapolated demand, including hiring statistical experts, involving attorneys, and assessing the clinical merits of each claim.

 

Hire a Statistical Expert

 

Any provider that faces a very large extrapolated demand should consider hiring a statistical expert to review the contractor's methodology and determine whether the sample and resulting extrapolation followed generally accepted statistical principles. A hospital can obtain underlying data and information on the contractor's methodology through a request made under the Freedom of Information Act (FOIA). Your expert then can evaluate the methods used to determine whether the contractor complied with Medicare rules on extrapolation and other professional standards. The expert's report can be submitted to an administrative law judge (ALJ), and the expert usually can testify at an ALJ hearing.

 

When shopping for an expert, a provider should evaluate the individual's experience with Medicare rules governing extrapolation. These rules are spelled out in the Medicare Program Integrity Manual. Your expert should be prepared to assess whether a contractor has complied with the manual provisions. You also should ask if he or she is familiar with audit guidelines issued by the Department of Health and Human Services' Office of Inspector General (OIG), because these sometimes also are used by Medicare contractors.

 

Although it may seem obvious, you also should look for someone with outstanding credentials and years of experience. This is important to increase the chance that your expert does a good job, but keep in mind that your expert also may have to rebut the testimony of the contractor's statistician at an ALJ hearing. You want to win the battle of the experts.

 

Seek Legal Counsel

 

No provider facing a multi-million dollar demand should navigate the appeals process without the advice of counsel. Many providers have excellent in-house counsel that can assist. If in-house counsel is unfamiliar with rules governing Medicare appeals, extrapolation, and coverage, however, outside counsel will be needed. Regardless of who assists, ensure that your attorneys are steeped in Medicare law. Medicare consists of hundreds of pages of statutes, thousands of pages of regulations, and volumes of manual guidance. It is a highly complex technical program, and when the viability of the institution is on the line, you need more than a good lawyer. You need an experienced one.

 

Lawyers also should be consulted early in the process. This doesn't mean that a provider immediately should turn everything over to the lawyers, however, because that could overwhelm in-house counsel and be prohibitively expensive if outside lawyers also are retained. Rather, guidance should be sought early so that you and your attorneys can develop an overall strategy to maximize your chances of winning. In the early stages of appeal, you are unlikely to win most of your individual cases or get an extrapolation invalidated. Your best chance will come during an ALJ hearing, or the first level of appeal conducted independent of CMS. ALJs also are sensitive to due process issues that can arise in a large extrapolation case.

 

It is a mistake, however, to bring lawyers in for the first time just before an ALJ hearing. Your legal arguments and overall strategy should be formulated early. You don't want to have made the wrong arguments before the QIC, which can be used against you at an ALJ hearing.  Counsel should assist you to identify all the crucial documents to submit to the QIC, because Medicare rules generally prohibit submitting new evidence at ALJ hearings. You also will want to maximize the number of individual claims that you win prior to getting to an ALJ hearing. When claims are extrapolated, each becomes exponentially more expensive, so win early and often, whenever possible.

 

Counsel also is important at an ALJ hearing. This is a legal proceeding, and a lawyer is always helpful in navigating it. With an extrapolated demand, however, you also may be facing the contractor that audited you. Medicare contractors have the right to attend ALJ hearings. When only one claim is at stake, contractors rarely attend ALJ hearings, although the California RAC frequently attended during the demonstration project. Attendance is more common when there is a large extrapolated demand. PSCs, for example, frequently appear at ALJ hearings.

 

A Medicare contractor can attend a hearing either as a "participant" or as a "party." The rules are different depending on which status they choose. A hearing with a contractor in attendance can become vastly more adversarial. They will be there to defend their actions and to argue vigorously that you deserve to lose every dime that they have taken. A lawyer can help take the heat, protect your witnesses and work to keep the contractor in line.


 

Assess the Merits of Each Claim

 

This is an area where many providers already have the experience that they need, although there are some excellent consultants who can review your claims for medical necessity and/or compliance with other Medicare payment rules. Any time a provider is audited, it should assemble a team to evaluate each denied claim to determine whether the contractor was right to deny it. This is particularly true when claims are denied for lack of medical necessity. No one knows your patients better than you do, and you initially should not take the contractor's word that care was not covered by Medicare. Contractors rarely, if ever, employ physicians to review claims for medical necessity, and they often get it wrong.

 

When just a few claims are at stake, it is common to triage them and appeal the more high-value ones while foregoing payment for the less valuable claims. This makes good financial sense because appeals can be costly, even when not hiring outside consultants and lawyers.  Appeals can consume a lot of a hospital's in-house resources, taking staff away from their normal duties.

 

An extrapolated demand changes this calculation. A $2,000 claim can turn into a $40,000 claim, and a $10,000 claim can become a $200,000 claim. Winning as many appeals as possible becomes more important. The hospital's team should assess the merits of each denial and appeal every claim that the hospital believes was proper.

 

Conclusion

 

An extrapolated demand can be a life-or-death situation even for a financially healthy provider. When millions of dollars are on the line, a provider should develop a strategy quickly, and all parts of the team need to work together early in the process. The clinical experts, lawyers, and statisticians each play a crucial role in challenging the demand.

About the Authors

 

Ronald Connelly is a principal of the firm Powers, Pyles, Sutter & Verville PC.  Mr. Connelly leads the firm's RAC and coverage appeals practice and has successfully represented hospitals in hundreds of RAC appeals.  Mr. Connelly is lead counsel for Palomar Medical Center in a federal lawsuit challenging RAC reopening procedures that is currently pending before the U.S. District Court for the Southern District of California. Mr. Connelly's practice also includes Medicare cost report appeals and advising clients regarding federal and state health care regulations.  He has tried numerous cases before the Provider Reimbursement Review Board and has litigated Medicare matters before federal courts across the country. Powers Pyles Sutter & Verville is a Washington, DC-based law firm that focuses on health care, education and the law of tax-exempt organizations.

Christina A. Hughes is an associate with Powers Pyles Sutter & Verville, PC. Ms. Hughes's practice focuses on assisting healthcare organizations in complying with the federal Medicare and Medicaid programs, including issues related to reimbursement, fraud and abuse, and various business transactions. Over the past few years, Ms. Hughes has been centrally involved in orchestrating thousands of claims through the administrative appeals process, including issues raised by traditional Medicare contractors, Recovery Audit Contractors, and Program Safeguard Contractors.


Contact the Authors

Ron.Connelly@ppsv.com

Christina.Hughes@ppsv.com

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