This sub-regulatory guidance, entitled “Guidance Regarding the Use of Statistical Sampling for Overpayment Estimation” applies to all Medicare review contractors that use statistical sampling, i.e., Unified Program Integrity Contractors (UPICs), Recovery Auditors (RACs), the Supplemental Medical Review Contractor (SMRC), and Medicare Administrative Contractors (MACs).2 The updates were intended to ensure “that a statistically representative sample of the claim universe is drawn that yields an unbiased estimate of overpayment.”3
HCFA Ruling 86-14 established CMS’s formal policy on its contractors’ use of statistical sampling to project overpayments to Medicare providers and suppliers. HCFA Ruling 86-1 “held that the use of statistical sampling to project an overpayment is consistent with the Government’s common law right to recover overpayments, the Medicare statute, and the Department’s regulations, and does not deny a provider or supplier due process.”5 Although HCFA Ruling 86-1 allows Medicare contractors to use statistical sampling to estimate overpayments, the Ruling clarifies that providers and suppliers are afforded due process rights to appeal the validity of a statistical sample and the resulting overpayment.6 Specifically, pursuant to HCFA Ruling 86-1:
Sampling does not deprive a provider of its rights to challenge the sample, nor of its rights to procedural due process. Sampling only creates a presumption of validity as to the amount of an overpayment, which may be used as the basis for recoupment. The burden then shifts to the provider to take the next step.7 The provider could attack the statistical validity of the sample, or it could challenge the correctness of the determination in specific cases identified by the sample (including waiver of liability where medical necessity or custodial care is at issue). In either case, the provider is given a full opportunity to demonstrate that the overpayment determination is wrong. If certain individual cases within the sample are determined to be decided erroneously, the amount of overpayment projected to the universe of claims can be modified. If the statistical basis upon which the projection was based is successfully challenged, the overpayment determination can be corrected.8
Chapter 8, Section 8.4 of the MPIM provides instructions to Medicare contractors on their use of statistical sampling for overpayment estimation.9 Contractors always have been afforded significant flexibility to design statistical samples for the purpose of estimating overpayments. However, regardless of the process of sample selection employed, CMS has required and continues to require that it result in a “probability sample.” Pursuant to the MPIM, Chapter 8, Section 8.4.2:
For a procedure to be classified as probability sampling, the following two features must apply:
- It must be possible, in principle, to enumerate a set of distinct samples that the procedure is capable of selecting if applied to the target universe. Although only one sample will be selected, each distinct sample of the set has a known probability of selection….
- Each sampling unit in each distinct possible sample must have a known probability of selection. In the case of statistical sampling for overpayment estimation, one of the possible samples is selected by a random process according to which each sampling unit in the target population receives its appropriate chance of selection. The selection probabilities do not have to be equal, but they should all be greater than zero….10
Further, “If a particular probability sample is properly executed, i.e., defining the universe, the frame, the sampling units, using proper randomization, accurately measuring the variables of interest, and using the correct formulas for estimation, then assertions that the same or that the resulting estimates are ‘not statistically valid’ cannot legitimately be made. In other words, a probability sample and its results are always valid.”11
Frustratingly for providers and suppliers, CMS does not require that its contractors comply with all aspects of the guidelines set forth in the MPIM. As clarified by Change Request 10067 (upholding CMS’s longstanding policy), “Failure by a contractor to follow one or more of the requirements contained herein does not necessarily affect the validity of the statistical sampling that was conducted or the projection of the overpayment …. Failure by a contractor to follow one or more of the requirements contained herein may result in review by CMS of their performance, but should not be construed as necessarily affecting the validity of the statistical sampling and/or the projection of the overpayment.”12
B. Updates to the MPIM
Change Request 10067, Transmittal 828 amended Chapter 8, Section 8.4 of the MPIM to provide increased specificity in CMS’s instructions to Medicare contractors regarding the use of statistical sampling for overpayment estimation. In particular, clarifications were adopted and implemented concerning when Medicare contractors may use statistical sampling; how to define the universe, sampling unit and sampling frame; Medicare contractors’ documentation requirements; and recovery from providers and suppliers when the estimated overpayment exceeds $500,000 or is an amount greater than or equal to 25 percent of the provider’s/supplier’s Medicare revenue received over the preceding 12 months.
1. Determining When Statistical Sampling May be Used
Section 935 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA)13 limits the situations in which a Medicare contractor may use statistical sampling and extrapolation as follows:
(3) LIMITATION ON THE USE OF EXTRAPOLATION – A Medicare contractor may not use extrapolation to determine amounts to be recovered by recoupment, offset or otherwise, unless the Secretary determines that –
(A) There is a sustained or high level of payment error; or
(B) Documented educational intervention failed to correct the payment error.
One key clarification set forth in revised Chapter 8 of the MPIM relates to when statistical sampling shall and may be used. Pursuant to Section 126.96.36.199 of Chapter 8 of the MPIM, a contractor shall use statistical sampling when the criteria set forth in Section 935 of the MMA are satisfied, i.e., “when it has been determined that a sustained or high level of payment error exists.” The prior version of the MPIM did not quantify what error rate would constitute a “sustained or high level of payment error.” As revised, section 188.8.131.52 now specifies that a sustained or high level of payment error shall be determined to exist in a multitude of scenarios, including but not limited to the following:
- The contractor (or other medical review) identifies an error rate greater than or equal to 50 percent;
- The provider or supplier has a history of non-compliance for the same or similar issue;
- CMS may approve the use of statistical sampling in connection with a payment suspension;
- The contractor obtains information of payment errors via law enforcement investigations;
- Current or former employee(s) of the provider or supplier alleges that the provider or supplier has engaged in wrongdoing;
- The Department of Health and Human Services’ Office of Inspector General (OIG) identifies a sustained or high level of payment error during an audit or evaluation; and
- Data analysis.14
On the other hand, statistical sampling and extrapolation may be used “after documented educational intervention failed to correct the payment error,” i.e., if the provider or supplier does not demonstrate adequate improvement through the Targeted Probe and Educate (TPE) process.15
2. Defining the Universe, the Sampling Unit, and the Sampling Frame
Revisions to Chapter 8 Section 184.108.40.206 of the MPIM also clarified the definitions of an audit’s universe, sampling unit and sampling frame. “The universe includes all claim lines that meet the selection criteria. The sampling frame is the listing of sample units, derived from the universe, from which the sample is selected.” A universe may, under certain circumstances, include items excluded from the construction of the sample frame. These circumstances include but are not limited to the following: (1) where a claim or claim line has been subject to prior review; (2) where the sample unit as defined necessitates eliminating certain claims or claim lines; or (3) where a claim or claim line is attributed to sample units for which there is no payment. The “sample unit” often is a claim. However, other sampling units exist, e.g., “a cluster of claims, as, for example, the claims associated with a patient, the claims associated with a treatment ‘day,’ or any other sampling unit appropriate for the issue under review.” CMS requires that Medicare contractors maintain information necessary to recreate the sample frame and sample with its case documentation.16
Chapter 8, Section 220.127.116.11 of the MPIM requires the Medicare contractor to maintain complete documentation of the sampling methodology followed. Chapter 8, Section 18.104.22.168 of the MPIM requires that the Medicare contractor maintain all documentation to allow the overpayment calculation to be replicated and validated.17
4. Recovery from the Provider or Supplier
Via Change Request 10067, Transmittal 828, MPIM Chapter 8, Section 22.214.171.124 was revised to include safeguards to protect the business of an audited provider or supplier. Revisions to Section 126.96.36.199 include the following:
The contractor shall obtain approval from CMS prior to issuing a findings letter to the provider/supplier when the estimated overpayment exceeds $500,000 or is an amount that is greater than 25% of the provider’s/supplier’s Medicare revenue received within the previous 12 months. Accordingly, the contractor shall contact its BFL/COR prior to issuing the findings letter to the provider/supplier. The contractor shall provide the BFL/COR a summary of the investigation (if applicable), any prior history (if applicable), the medical review results (including denial reasons), and the extrapolated overpayment amount in a format agreed upon by the BFL/COR. Extrapolated overpayments meeting one of these criteria shall not be issued unless prior approval is supplied by the BFL/COR.18
Therefore, in those situations in which an estimated overpayment exceeds $500,000 or is equal to or greater than 25 percent of the provider’s or supplier’s Medicare revenues received over the preceding year, the MPIM requires that the contractor contact CMS via its BFL/COR representative to obtain approval to issue a findings letter. Prior to issuance of Change Request 10067, Transmittal 828 no such protections existed.
C. Successful Challenges to the Validity of Statistical Samples and Extrapolation
Increasingly, after an Administrative Law Judge (ALJ) has issued a decision ruling a statistical sample to be invalid, CMS has decided, on its “own motion,” to review the ALJ’s decision – alleging that it contained an error of law material to the outcome of the claims, and/or alleging that the decision is not supported by the preponderance of the evidence.19 Acknowledging the flexibility within the MPIM, Council decisions often overrule ALJ decisions that rule a statistical sample and corresponding projection to be invalid.20
Relying on language within the MPIM that “Failure by a contractor to follow one or more of the requirements… should not be construed as necessarily affecting the validity of the statistical sampling and/or the projection of the overpayment,”21 the Council’s position seems to be that there are few, if any, errors or omissions that a contractor could make in performing a statistical sample and projection that would be significant enough to invalidate a contractor’s sample and projection to estimate an overpayment. In other words, if the contractor produces enough information to describe the process followed by the contractor in conducting its sample and projection, the Council has demonstrated reluctance to find the process invalid, even when confronted by the opinions of experts in the field of statistics to the contrary.22
Despite the high bar set by the Council for a provider or supplier to successfully challenge the validity of the sample and a corresponding projection to estimate an overpayment, attorneys representing providers and suppliers appealing an extrapolated overpayment determination should exercise their procedural due process rights to challenge the validity of the sample and corresponding projection.
1. Request Copies of the Entire Contractor Case File
As noted above, the MPIM requires Medicare contractors to maintain documentation to allow another to recreate the sample frame and sample, including information regarding the sampling methodology followed.23 The contractor also must maintain documentation to allow an overpayment calculation to be replicated and validated.24 When the contractor provides such information to an appellant, the information is invaluable to the statistical expert retained to assist with the appeal. If the contractor fails to provide such information or if there are discrepancies within it, the Council has used this failure to maintain and provide appropriate documentation to an appellant as a basis to not uphold a statistical projection. For example:
- In the case of Podiatric Medical Associates, Docket Number M-10-230 (decided June 22, 2010), the Council found:
It is well-established that due process affords an appellant provider the right to examine audit results in order to mount a proper challenge in the appeals process. Not only was pertinent audit-related information withheld from the appellant, the inaccessibility of the CDs in the record forwarded to the Council by the ALJ leads to the conclusion that the record upon which the ALJ relied in upholding audit extrapolation was incomplete. An ALJ decision must be based on evidence offered at the hearing or otherwise admitted into the record. 42 C.F.R. § 405.1046(a). Absent supporting evidence, the appellant is deprived of its ability to review the extrapolation in question.
For these reasons, the Council reverses the extrapolation of the audit results at issue here.25
- In the case of Global Home Care, Docket Number M-11-116 (decided January 11, 2011), the Council found:
The record in this case does not contain complete documentation to support the use of statistical sampling and extrapolation to calculate Medicare’s overpayment to the appellant. The sampling frame cannot be recreated from the documentation present. Without this basic documentation, a provider does not have the information and data necessary to mount a due process challenge to the statistical validity of the sample, as is its right under CMS Ruling 86-1.26
- In the case of John Sanders, M.D., Docket Number M-11-869 (Decided May 12, 2011), the Council found:
[T]here were two sampling issues raised by the appellant, which were neither sufficiently explained nor corrected by the [contractor], and which were the subject of testimony from the independent expert statistician. These two errors are not addressed in or rebutted by the CMS memorandum. The errors are: 1) the [contractor] provided the independent statistical expert with sample data which assigned some claims to the wrong stratum; and 2) the [contractor] provided the independent expert with a second CD containing an Excel set of sample data with significant discrepancies from the first set up data, and the [contractor] was unable to clarify the discrepancies, to identify which set of data was applicable, or to explain the significance of the second set of data. The Council finds that these errors and inconsistencies in the original sampling preclude use of the sample to extrapolate an overpayment to the full universe of claims.27
2. Engage an Expert in Statistics
When a Medicare contractor chooses to use a statistical sample and projection to estimate an overpayment, MPIM Chapter 8, Section 188.8.131.52 requires the sampling methodology to be reviewed and approved by a statistician (or person with equivalent experience in probability sampling and estimation). A contractor’s statistician must meet the following educational and professional qualifications:
- Have significant coursework in probability and estimation methodologies, and at least 10 years of experience applying methods of statistical sampling and interpreting the results.
- Possesses a Bachelor’s degree (e.g., B.A., B.S.) in statistics or in some related field (e.g., psychometrics, biostatistics, econometrics, mathematics) with significant coursework in probability and estimation methodologies, and at least 6 years of experience applying methods of statistical sampling and interpreting the results.
- Possesses a Master’s degree (e.g., M.A., M.S.) in statistics or in some related field with significant coursework in probability and estimation methodologies, and at least 4 years of experience applying methods of statistical sampling and interpreting the results.
- Possess a Doctoral degree in statistics or in some related field with significant coursework in probability and estimation methodologies, and at least 1 year of experience applying methods of statistical sampling and interpreting the results.28
In challenging the validity of a statistical sample and projection to estimate an overpayment, it is essential to engage a qualified expert to review the contractor’s case file and opine regarding the validity of the statistical sample and projection. The appellant’s expert statistician should satisfy the educational and professional qualifications required of the contractor’s statistician. An adjudicator’s determination as to whether a statistical sample and projection is valid is based on a comparison of the experts’ testimonies.29 The appellant’s expert statistician should prepare a written report analyzing the validity of the sample and projection, which should be submitted as soon as possible in the appeals process (as, at times, a statistical sample and projection may be found to be invalid at stages in the appeals process prior to the ALJ stage of appeal). It is also important that the appellant’s expert statistician is able to explain to the ALJ, in lay terms, the rationale for his or her findings should the appeal proceed to the ALJ stage of appeal.
3. Use Medicare Appeals Regulations
a. Requests for ALJ Hearing
On January 17, 2017, the Department of Health and Human Services (HHS) issued a final rule entitled “Medicare Program: Changes to the Medicare Claims and Entitlement, Medicare Advantage Organization Determination, and Medicare Prescription Drug Coverage Determination Appeals Procedures” (Final Rule).30 The Final Rule established new regulatory requirements for requests for ALJ hearing involving statistical sampling and projection, which are codified at 42 C.F.R. § 405.1014 (a) (3).
Pursuant to 42 C.F.R. § 405.1014 (a) (3), an appellant’s request for ALJ hearing (involving statistical sampling and projection to estimate an overpayment) must: (1) include all of the identifying information for each beneficiary in the sample as set forth in paragraphs (a) (1) and (a) (2) of 42 C.F.R. § 405.1014;31 (2) be filed for all appealed claims within 60 calendar days from the date the party receives the last reconsideration for the sample claims (if the sampled claims were not addressed by a single reconsideration); and (3) set forth the reasons the appellant challenges the validity of the statistical sample and extrapolation. The Final Rule contemplates that, if an appellant is unable to summarize his or her reasons for disagreement with the statistical sampling methodology and/or projection, the appellant may submit a position paper or other documentation to explain its rationale for the challenge.32 This may be accomplished via the submission of the expert statistician’s report.
b. Contractors’ Participation in an ALJ Hearing
The Final Rule also placed limitations on the number of Medicare contractors permitted to serve as a participant or party in an ALJ proceeding, and it clarified the roles for ALJ hearing participants and parties.33 The following chart sets forth the roles and responsibilities of a contractor if it chooses to participate in the ALJ proceedings as a non-party participant or as a party:
|Non-Party Participant 42 C.F.R. § 405.1010 (c)
||Party 42 C.F.R. § 405.1012 (c)
Roles and responsibilities
Participation includes filing position papers and/or providing testimony to clarify factual or policy issues in a case.
CMS contractor participation does not include calling witnesses or cross-examining the witnesses of a party to the hearing.
The CMS contractor may not be called as a witness during the hearing and may not be subject to examination or cross-examination.
The CMS contractor may provide testimony to rebut factual or policy statements made by a participant.
The ALJ may question the participant about its testimony.
Parties may file position papers, submit evidence, provide testimony to clarify factual or policy issues, call witnesses and/or cross-examine the witnesses of other parties.
During an ALJ hearing, attorneys representing providers and suppliers must be mindful of these regulations and be prepared to object to contractor participation that is outside of the scope of the contractor’s permitted activities. For example, if a Medicare contractor elects to participate in an ALJ hearing as a non-party participant, the contractor may not cross-examine the appellant (and vice-versa).
The reality for providers and suppliers appealing overpayment demands involving statistical sampling and extrapolation is that the presumption of validity is challenging to overcome. Change Request 10067, Transmittal 828 does little to provide a path forward for appellants contesting the validity of statistical samples and extrapolations. However, there is potential that contractor documentation deficiencies exist in connection with a statistical sample and extrapolation, which could increase the potential for a successful challenge.