In two new cases, federal courts have ruled that providers are entitled to all the documentation used by CMS and its program integrity contractors to calculate overpayments, which is a win for providers pushing back on extrapolation, an attorney said. But one court concluded that Medicare auditors aren’t required to include zero-paid claims in the “target universe” of claims, which can affect the fate of the statistically valid random sampling and extrapolation, and the other court hasn’t ruled yet on the inclusion of zero-paid claims.
They are cases of “first impression,” which means they’re the first time that federal courts have ruled providers have a due process right to compel completion of the administrative record, said attorney Stephen Bittinger, with K&L Gates, who represented the providers in the cases.
“We have about 20 of these cases ongoing in U.S. courts in nine jurisdictions,” he said. They focus on program integrity contractors failing to produce documentation that allows providers to replicate overpayment findings and the removal of zero-paid claims. Without the documentation, he said providers and suppliers don’t have the tools they need to mount a valid challenge to random sampling and extrapolation “or even determine if they should.” While one of the courts didn’t agree that Medicare auditors should be required to include zero-paid claims in statistical sampling and extrapolations, both courts “came to the correct factual distinction” between zero-paid claims, which are claims that have been adjudicated but have a payment amount of zero, and unpaid claims, which have been submitted but not adjudicated.
In the most recent decision, the U.S. District Court for the Southern District of Florida on March 25 vacated two extrapolated overpayment demands that were upheld by an administrative law judge (ALJ) against MedEnvios, a durable medical equipment, prosthetics and orthotics supplier (DMEPOS).[1]
The court ruled that “failure to produce sufficient documentation to support the extrapolation is a violation of due process.” That means every time Medicare auditors do a recalculation of overpayments, “we have to get the underlying work that supports the new number,” Bittinger said.
MedEnvios was audited by a zone program integrity contractor (ZPIC), which determined it owed Medicare an extrapolated overpayment of several million dollars plus interest, Bittinger said. The DMEPOS supplier appealed all the way up the food chain, and while the overpayment amount was reduced, the ALJ “upheld the general design of the audits and their sampling in both appealed matters.” MedEnvios appealed the findings to federal court.
Statute Doesn't Permit ‘The Logical Jump’
MedEnvios argued it was entitled to summary judgment because CMS violated its due process rights on the grounds (1) it improperly excluded zero-paid claims from the statistical sampling and extrapolation process when determining whether and how much MedEnvios was overpaid and (2) CMS and its contractors didn’t “provide sufficient evidence supporting the recalculated overpayment amounts.”
In terms of zero-paid claims, MedEnvios argued that the calculated overpayment amount could have been lower because claims that should have been paid but weren’t may have lowered the net overpayment. While this is likely true, the court said the question is whether excluding zero-paid claims violated MedEnvios’s due process rights because CMS was required to include them by law. CMS said no and MedEnvios said yes, and the court agreed with CMS. On balance, the court ruled, “the statute does not permit the Court to make the logical jump that all Medicare program integrity contractors are required to include these claims in all of their audits.”
But the court sided with MedEnvios about CMS’s failure to provide documentation to support overpayments that were recalculated after partially favorable appellate decisions. When a provider or supplier has a partial victory on appeal, the contractor is required to recalculate the extrapolated overpayment based on individual sampled Medicare claims and send the provider or supplier a revised demand letter. MedEnvios argued that “without the requested underlying documentation showing how the contractor arrived at the new amount,” it didn’t have the information needed to challenge the recalculations and couldn’t replicate the calculations and decide whether and on what basis to appeal the determinations. The court agreed MedEnvios’s due process rights were violated.
Court Favors Provider on Zero-Paid Claims
In the other case, the U.S. District Court for the District of South Carolina ruled that Goose Creek Physical Medicine (GCPM)—a former provider of physical medicine services—was entitled to documentation missing from the administrative record and operationally defined zero-paid claims.[2]
“I’m excited about Goose Creek because the judge’s ruling on the motion to compel accurately articulated the legal positions and facts,” Bittinger said. “Our argument was we are legally entitled to the target universe, including zero-paid claims evidence in the target universe, and the court agreed with us and ordered CMS to produce the target universe including zero-paid claims.” He noted it’s an interim decision and is still awaiting the merit decision.
GCPM was audited by a ZPIC over its billing for a nerve block procedure (CPT 64450). After auditing 67 claims and 210 CPT line items from a stratified statistical sample, the ZPIC said it initially found an error rate of 89.5%. After voiding 16 zero-paid claim lines, the ZPIC increased the error rate to 94%, according to the decision.
The ZPIC sent GCPM a CD with the overpayment extrapolation report, but it supposedly didn’t contain the actual universe of claims. In 2014, Palmetto, the Medicare administrative contractor, issued a $337,693 demand for repayment.
GCPM appealed all the way. The ALJ determined the statistical sampling and extrapolation of the overpayment were valid, although it ordered the recalculation of the overpayment amount because of the overturned claims, which was reduced to $280,018. In its appeal to federal district court, GCPM said it was unable to fully demonstrate its case because the administrative records were missing documentation that was necessary “to replicate the statistical sampling and extrapolation.” Although the ZPIC provided a CD with certain documents in response to a Freedom of Information Act request, GCPM said “Specifically, the Universe File produced in the FOIA request included only fully and partially paid claim lines, meaning that all zero-paid claims had been removed,” according to the decision.
HHS countered that the court should deny GCPM’s request to complete the administrative record, saying its review must “be limited to assuring itself that there was substantial evidence in support of facts the ALJ found and that the ALJ's analysis comported with the applicable principles.”
The court sided with GCPM, granting its request to complete the administrative record. But GCPM is still waiting for a legal determination that the missing records are a due process violation, Bittinger said.
“These rulings will help providers and suppliers in the administrative appeals process secure the necessary documentation in unbiased reviews—looking at zero-paid claims at a lower level—so they can challenge extrapolations,” he said. Otherwise, the deck is stacked against them because zero-paid claims are typically removed, he added.
Contact Bittinger at stephen.bittinger@klgates.com.