New Extrapolation Restriction Already a Boon for Providers Facing Audit Scrutiny

The new rule also highlights how bad some auditors can be at explaining when offering a provider a rare bit of good news.

Earlier this year, I reported on the new extrapolation rules for all audits, including those performed by Recovery Audit Contractors (RACs), Unified Program Integrity Contractors (UPICs), Targeted Probe-and-Educate (TPE) auditors, Comprehensive Error Rate Testing (CERT), etc. You know, that alphabet soup.

The biggest change was that no extrapolation may be run if the error rate is under 50 percent. This was an exciting and unexpected new protection for healthcare providers.

A client of mine, an internal medicine facility in Alabama, received a notice of overpayment for over $3 million. This was the first case in which I saw the 50-percent error rate rule in action. Normally, I always tell clients that the first two levels of appeals are rubber stamps. In other words, don’t expect to win. The Qualified Independent Contractor (QIC) and the entity that conducted the audit saying “you owe money” are not going to overturn themselves.

However, in this case, we were “partially favorable” at the QIC level. “Partially favorable” normally means mostly unfavorable. However, the partially favorable decision took the error rate from over 50 percent to under 50 percent. We regrouped. Obviously, we were going to appeal, because the new extrapolation was still over $1 million. However, before our Administrative Law Judge (ALJ) hearing, we received correspondence from Palmetto saying that our overpayment was $0.

Confused, we wrote to the ALJ, pointing out that Palmetto said our balance was zero. The Judge wrote back, saying that certainly, the money has already been recouped, and the practice would get a refund if he reversed the denials. “Ok,” we said, and attended a telephonic hearing. We were unsuccessful at the hearing, and the ALJ upheld an alleged overpayment of over $1 million. We argued that the extrapolation should be thrown out due to the error rate being under 50 percent. The Judge still ruled against us, saying that the Centers for Medicare & Medicaid Services (CMS) has the right to extrapolate, and the courts have upheld it. Ok, but what about the new rule?

Later, we contacted Palmetto to confirm what the zero-balance meant. The letter read as if we did not owe anything, yet we had an ALJ decision mandating us to pay over $1 million. That was a seriously curious juxtaposition. After many hours of chasing answers, spending time on hold with multiple telephone answerers of Palmetto, we learned that apparently, because the error rate dropped below 50 percent after the QIC level, Palmetto “wrote off” the nominal balance. Since an extrapolation was no longer allowed, the miniscule amount that Palmetto thought we owed wasn’t enough to pursue. However, the letter sent to us from Palmetto did not explain, “hey, we are writing off your overpayment because the error rate fell below 50 percent.” No, it was vague. We didn’t even know if it was true.

It took us reaching out to Palmetto and getting an email confirmation that Palmetto had written off the alleged overpayment due to the error rate dropping to resolve the matter. Even the ALJ misinterpreted the letter, which tells me that Palmetto should revise its notices of write-offs.

If Palmetto unilaterally dismisses or writes off any balance that is allegedly owed, the letter should explicitly explain this, because providers and attorneys are not accustomed to receiving correspondence from a Medicare Administrative Contractor (MAC), CMS, Palmetto, or any other auditing entity with good news. If we get good news from an auditing entity, that correspondence should be explicit.

Regardless, this was a huge win for me and my client, who was positively ecstatic with the outcome. Tune in next week, during which I will tell a story of how we battled successfully a qui tam action against a facility of nine specialists due to a disgruntled employee who tried to blow the whistle on my specialists and their facility…falsely!