Learn How Exclusion of Zero-Paid Claims Works Against Providers: Part I

If overpayments are found, then the extrapolation recoupment number will go up; if underpayments are found, the extrapolation will go down.

EDITOR’S NOTE: This is Part I in a RACmonitor exclusive three-part series that exposes how some auditors can skew the universe of claims to their advantage by hiding zero-paid claims.

When claims are submitted for payment, some are paid, while some are not. Those claims submitted but not paid are known as “zero-paid claims.” Often, in a computer record of a provider, a zero-paid claim will have all of the customary information, such as patient name, identification number, the doctor’s name, the procedure billing code, the dates of service, and the value of the procedure. But instead of showing a payment received, the record will show a zero. The healthcare provider was paid nothing. Why is that? That’s not in the record.

When the statistical part of an audit takes place, the contractors have long ago fallen into the habit of screening out all of these zero-paid claims up front. They do this when they pull the claims from the master database of all claims submitted. This step in the statistical methodology is hidden from the provider, and only obliquely referred to. 

With these extracted claims, the auditor creates what it usually refers to as a “universe” file. These are the claims that will be the subject of the audit. But note, this list of claims is not the true universe. Instead, it is an extract of the actual universe, but with the zero-paid claims excluded. They are hidden from sight.

After this pseudo-universe file is created, the auditor then pretends this is when the statistical process begins. It proceeds to take the sample and analyze the claims.

The auditor starts to look for overpayments. These are claims that were paid, but should not have been. Each claim in the sample is subjected to the strictest possible interpretation of the rules. Here, the auditor has one single objective: finding something wrong with a claim so it can be rejected. Even the most minor of matters will be blown up into a full rejection of the claim. A simple typo can lead to tens of thousands of dollars in penalties. In 90 percent or more of the audits, claim rejections have nothing whatsoever to do with fraud. This is how the auditor will then come up with an outrageous extrapolation number.

Yet in Section 8.4.4.4. of the Medicare Program Integrity Manual, the Centers for Medicare & Medicaid Services (CMS) standard calls for identification of all underpayments – not only overpayments, but also underpayments. And in Section 8.4.5.2, it calls for the auditor to record underpayments as negative overpayments when performing the extrapolation.

What this means is that the Program Integrity Manual demands that the auditor look not only for overpayments, but also carefully look for any underpayments.

If overpayments are found, then the extrapolation recoupment number will go up; if underpayments are found, the extrapolation will go down.

But if the auditor is looking only for overpayments, then it means the extrapolation number can only go up – and against the provider. The recoupment demand can only grow larger, and the provider never will receive credit for claims that should have been paid, but were not. It is a one-way street, always going uphill against the provider, never downhill.

Where are those claims that should have been paid? What we find is that they are not there. They are hidden away, missing in action. When all zero-paid claims are screened out at the beginning of the audit, it forgoes the provider ever getting credit for a claim not paid that should have been. These claims are never even considered by the army of coders and evaluators. They are not even listed in the universe file.

A more accurate name for this so-called “universe” file provided by the auditor is “the file where all claims that might give you credit have been screened out.”

If the auditor was fair, then all submitted claims would be in the “universe” file from which the sample is taken. That is often not what happens.

This practice of hiding the zero-paid claims has gone on for years, and it needs to stop. 

Programming Note: Listen to the live reporting of Edward M. Roche this coming Monday on Monitor Mondays, 10 Eastern.