HHS I.G. Audit: 'Medicare Contractors Were Not Consistent in How They Reviewed Extrapolated Overpayments in Provider Appeals Process'

WASHINGTON, Aug. 31 -- The Health and Human Services Inspector General issued the following audit report (No. A-05-18-00024) entitled "Medicare Contractors Were Not Consistent in How They Reviewed Extrapolated Overpayments in the Provider Appeals Process" for the Centers for Medicare and Medicaid Services. Here are excerpts of the report issued on Aug. 25:

Why OIG Did This Audit

When an overpayment is identified in Medicare Part A or Part B, providers have the right to contest the overpayment amount using the Medicare administrative appeals process. If a statistical estimate of an overpayment (an extrapolated overpayment) is overturned during the administrative appeals process, then the provider is liable for the overpayment identified in the sample but not the extrapolated amount. Given the large difference between overpayment amounts in the sample and extrapolated amounts, it is critical that the process for reviewing extrapolations during an appeal is fair and reasonably consistent. In the first and second levels of the appeals process, such extrapolated overpayments are reviewed by Medicare administrative contractors (MACs) and qualified independent contractors (QICs), respectively.

Our objective was to determine whether the Centers for Medicare & Medicaid Services (CMS) ensured that MACs and QICs reviewed appealed extrapolated overpayments consistently and in a manner that conforms with existing CMS requirements.

How OIG Did This Audit

We surveyed the contractors about their processes for reviewing extrapolated overpayments. In addition, we interviewed the statistical groups at three contractors about their experiences with the appeals process. We audited three separate nonstatistical samples of appeals cases.

Medicare Contractors Were Not Consistent in How They Reviewed Extrapolated Overpayments in the Provider Appeals Process

What OIG Found

Although MACs and QICs generally reviewed appealed extrapolated overpayments in a manner that conforms with existing CMS requirements, CMS did not always provide sufficient guidance and oversight to ensure that these reviews were performed in a consistent manner. The most significant inconsistency we identified involved the use of a type of simulation testing that was performed only by a subset of contractors. The test was associated with at least $42 million in extrapolated overpayments that were overturned in fiscal years 2017 and 2018. If CMS did not intend that the contractors use this procedure, these extrapolations should not have been overturned. Conversely, if CMS intended that contractors use this procedure, it is possible that other extrapolations should have been overturned but were not. In addition, CMS's ability to provide oversight over the extrapolation review process was limited because of data reliability issues in the Medicare Appeals System (MAS). Of the 39 appeals cases we reviewed that were listed in the MAS as involving extrapolation, 19 cases did not actually involve statistical sampling. Improving the accuracy of the information in the MAS would potentially assist CMS with ensuring that extrapolated overpayments are reviewed by the MACs and QICs in a consistent manner.

What OIG Recommends and CMS Comments

We recommend that CMS: (1) provide additional guidance to contractors to ensure reasonable consistency in procedures used to review extrapolated overpayments during the first two levels of the Medicare Parts A and B appeals process; (2) take steps to identify and resolve discrepancies in the procedures contractors use to review extrapolations during the appeals process; (3) provide guidance regarding the organization of extrapolation-related files that must be submitted in response to a provider appeal; (4) improve system controls to reduce the risk of contractors incorrectly marking the extrapolation flag field in the MAS; and (5) update the information in the MAS to accurately reflect extrapolation amounts challenged as part of an appeal, whether the extrapolation was reviewed by a contractor, and the outcome of any extrapolation review.

In written comments on our draft report, CMS concurred with our recommendations and described the actions that it has taken or plans to take to address them.

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TABLE OF CONTENTS

INTRODUCTION ... 1

-Why We Did This Audit ... 1

-Objective ... 1

-Background ... 1

--The Medicare Program ... 1

--Statistical Sampling and Extrapolated Overpayments ... 2

--Medicare Parts A and B Fee-for-Service Appeals Process ... 3

--Appeal of Extrapolated Overpayments ... 4

--The Primary Medicare System for Tracking Parts A and B Appeals Case Information ... 4

-How We Conducted This Audit ... 5

FINDINGS ... 6

-Medicare Appellate Contractors Generally Conformed With Requirements But Were Not Entirely Consistent in How They Performed Their Reviews ... 6

--Federal Requirements ... 6

--Appellate Contractors Used Different Procedures To Review Extrapolated Overpayments ... 7

--Appellate Contractors Differed in Whether They Used Simulation Testing To Review Extrapolated Overpayments ... 9

--Qualified Independent Contractors' Procedures Generally Complied With Appendix B of the QIC Manual ... 10

--The Field in the Medicare Appeals System Identifying Appeals Cases With Extrapolated Overpayments Was Unreliable ... 10

RECOMMENDATIONS ... 11

CENTERS FOR MEDICARE & MEDICAID SERVICES COMMENTS AND OFFICE OF INSPECTOR GENERAL RESPONSE ... 11

OTHER MATTERS ... 12

-Opportunity To Improve the Processing of Appeals Cases Involving Extrapolated Overpayments ... 12

-Opportunity To Improve Contractor Understanding of Policy Updates ... 12

APPENDICES

A: Audit Scope and Methodology ... 14

B: Detailed Sampling Methodology ... 16

C: Related Reports ... 17

D: Federal Requirements ... 18

E: Centers for Medicare & Medicaid Services Comments ... 21

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INTRODUCTION

WHY WE DID THIS AUDIT

Providers have the right to contest assessments of Medicare Parts A and B overpayments, whether actual overpayments or extrapolated overpayments, using the administrative appeals process outlined in section 1869 of the Social Security Act (the Act) and 42 CFR part 405, subpart I. Providers can challenge overpayment assessments on appeal for several reasons, such as asserting incorrect coverage and medical necessity determinations, as well as alleging that statistical sampling and overpayment estimation was done improperly. If statistical sampling and overpayment estimation methodology are successfully challenged during the administrative appeals process, the provider may be liable for the actual overpayment identified in the sample but not the extrapolated amount. Given the oftentimes large difference between an actual overpayment (limited to the sample) and an extrapolated overpayment (projected from the sample), it is critical that the process for reviewing extrapolations within the administrative appeals process be fair and reasonably consistent. In the first and second levels of the appeals process, such extrapolated overpayments are reviewed by Medicare administrative contractors (MACs) and qualified independent contractors (QICs), respectively.

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OBJECTIVE

Our objective was to determine whether the Centers for Medicare & Medicaid Services (CMS) ensured that MACs and QICs reviewed appealed extrapolated overpayments consistently and in a manner that conforms with existing CMS requirements.

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BACKGROUND

The Medicare Program

Medicare provides health insurance for people aged 65 years and older, people with disabilities, and people with permanent kidney disease. Medicare Part A provides inpatient hospital insurance benefits and coverage for extended care services for patients after discharge. Medicare Part B provides supplementary insurance for medical and other health services, including coverage of outpatient hospital services. CMS administers the Medicare program.

The Act states that "no payment may be made under part A or part B for any expenses incurred for items or services which . . . are not reasonable and necessary for diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member."/1 Medicare providers must maintain the information necessary to support their claims./2 The U.S. Department of Health and Human Services (HHS) estimated that $31.6 billion in Medicare Parts A and B fee-for-service claims in Federal fiscal year 2018 were improper. This total represents one of the largest sources of improper payments within the Federal Government.

Statistical Sampling and Extrapolated Overpayments

The Federal Government relies on a diverse set of tools to help ensure the recovery of improper payments. One such tool is a postpayment claim review in which one or more claims are examined to determine whether they comply with Medicare requirements. Due to the high volume of Medicare payments, CMS sometimes uses postpayment claim review in conjunction with statistical sampling to identify and recover overpayments made by the Federal Government to providers.

Sampling involves selecting and reviewing a subset of claims from a larger population to make a total overpayment determination for all claims in that population. Chapter 8, section 8.4, of the Medicare Program Integrity Manual (PIM) contains specific requirements that program integrity contractors/3 must follow when using sampling to determine overpayments. During our audit period, section 8.4 and all of its subsections were the same as when originally published in the Medicare Program Integrity Transmittal 377/Change Request 6560 (issued May 27,2011; effective June 28, 2011), until amended by Medicare Program Integrity Transmittal 828/Change Request 10067 (issued Sept. 28, 2018; effective Jan. 2, 2019).

Chapter 8, section 8.4.1.3 (Rev. 377) of the PIM states that the major steps in conducting statistical sampling are:

(1) selecting the provider or supplier;

(2) selecting the period to be reviewed;

(3) defining the universe, the sampling unit, and the sampling frame;

(4) designing the sampling plan and selecting the sample;

(5) reviewing each of the sampling units and determining whether there was an overpayment or an underpayment; and

(6) estimating the overpayment, as applicable./4

Transmittal 828/Change Request 10067 added the requirements that the program integrity contractor assess whether the sample size is appropriate for the method used and whether the selected statistical methodology is appropriate given the distribution of paid amounts in the sampling frame. Both versions of the PIM also place restrictions on when program integrity contractors may use statistical sampling for overpayment estimation and require that program integrity contractors consult with a statistical expert./5 (See Figure 1 for an example of a program integrity contractor's sampling methodology.)

Figure 1: Sampling Methodology Example A program integrity contractor obtained 127,000 claim lines for a selected service provided by a selected provider during the audit period. The PIM refers to this file as the "universe." The program integrity contractor grouped the claim lines by beneficiary identification number and date of service. These groups of claim lines are known as sampling units, or sample items. The list of all sampling units is known as the sampling frame. The sampling frame in this audit contained 64,000 sampling units. The program integrity contractor used statistical software to select 30 sampling units from the sampling frame and it found that the provider was overpaid $4,700 for these sampling units. The program integrity contractor used the sample results to estimate that the provider was overpaid at least $7 million for claim lines associated with the sampling frame.

Medicare Parts A and B Fee-for-Service Appeals Process

When CMS determines that a provider received an overpayment, the provider has the right to appeal the determination. At the first level of appeal, the MAC that originally processed the claim reviews the overpayment determination and any sampling methods applied. If the provider disagrees with the redetermination by the MAC, the provider may appeal any portion of the MAC review to the QIC. The QIC review, referred to as a "reconsideration," is performed without deference to the redetermination by the MAC. After the QIC review, the provider may further appeal the reconsideration to an Administrative Law Judge, the Medicare Appeals Council, and Federal court./6 This audit focuses on the first two levels of the appeals process, redetermination and reconsideration. We use the term "appellate contractors" to refer to the MAC and QIC performing their roles as appellate adjudicators in the first and second levels of Medicare appeals.

Appeal of Extrapolated Overpayments

When a program integrity contractor identifies an overpayment through statistical sampling and extrapolation, the provider may challenge the application of Medicare requirements (e.g., coverage requirements), the statistical methodology that the program integrity contractor used to estimate the overpayment in the sampling frame, or both. This audit focuses on the methodology challenges rather than challenges of individual claim determinations.

If an overpayment (a sample claim) is overturned during the administrative appeals process, then the extrapolated overpayment is recalculated given the updated sample results. The provider is liable for the revised extrapolated amount. In contrast, if the provider successfully challenges the statistical methodology, the provider is liable only for the overpayment amounts identified in the sample. For extrapolations calculated by program integrity contractors, the statistical methods are reviewed against the sampling criteria outlined in the version of the PIM in effect at the time the extrapolation was made.

During the first two levels of appeal, the MAC's or QIC's statistical expert assessing the validity of the program integrity contractor's extrapolated overpayment will consider any arguments submitted by the provider. The PIM states that a sample is valid if the program integrity contractor properly defines the universe, sampling frame, and sampling unit; uses proper randomization; accurately measures the variables of interest; and uses the correct formulas for estimation./7 However, even if a program integrity contractor follows these requirements, the extrapolated overpayment can still be overturned if documentation is not available supporting that these requirements were met or if the program integrity contractor fails to meet certain administrative requirements in the PIM. If statistical sampling and overpayment estimation methodology are found to be invalid on appeal, the provider may be liable for the actual overpayment identified in the sample but not the extrapolated amount./8

Extrapolation reviews at the QIC level are guided by the specific protocol published by CMS in Appendix B of the QIC Manual. This protocol lists the review steps necessary to verify that the program integrity contractor's extrapolated overpayment complies with the PIM. Currently, no similar unifying guidance other than the PIM exists for the MAC level of review.

The Primary Medicare System for Tracking Parts A and B Appeals Case Information

The Medicare Appeals System (MAS) is an appeal processing system that allows submitted documentation to be stored and shared more easily by the entities processing the different levels of appeals. MAS is the system of record for MAC-level appeals of Part A claims and all QIC-level appeals. MAC-level appeals of Part B data are not included. The system includes an "extrapolation flag" field, which indicates for each appeals case whether the amount appealed is based on the overpayment identified in the sample or an extrapolated overpayment amount.

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HOW WE CONDUCTED THIS AUDIT

Our audit covered Medicare appellate contractor reviews of extrapolated overpayments that occurred from January 1, 2016, through January 31, 2019 (audit period), as part of the Medicare fee-for-service appeals process. Seven MACs and two QICs performed these reviews.

We requested and obtained information from the MACs and QICs about their processes for reviewing extrapolated overpayments.

In addition, we interviewed statistical experts at three program integrity contractors/9 to learn more about how their extrapolated overpayments were reviewed by the MACs and QICs during the appeals process.

We audited three separate samples of appeals cases.

* We audited documentation provided by the program integrity contractors for 10 cases in which $42 million in extrapolated overpayments were overturned on appeal. The documentation for each sample item included the decision letter from the MAC or QIC statistical expert that overturned the extrapolated overpayment. We used this sample to identify common reasons that extrapolated overpayments were overturned.

* We audited documentation provided by the MACs and QICs for 19 cases in which appellants challenged the sampling and extrapolation methodology used by the program integrity contractor without regard for whether the methodology was affirmed or overturned on appeal. The documentation for this sample included all case files that the MAC or QIC had concerning the review of the extrapolated overpayment. We used this sample to identify any inconsistencies in the procedures for reviewing extrapolated overpayments.

* We audited responses provided by the MACs and QICs concerning the status of 39 cases identified in the MAS as involving extrapolated overpayments. We used this sample to determine the accuracy of the MAS field that flags whether cases involve extrapolated overpayments.

We did not audit the overall internal control structure of CMS or its contractors. Rather, we limited our audit of internal controls to those applicable to ensuring consistency in the review of extrapolations during the first two levels of the Medicare fee-for-service appeals process.

We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix A contains the details of our audit scope and methodology, Appendix B describes how we selected our three non-statistical samples, Appendix C contains a list of related OIG reports on the Medicare fee-for-service appeals process, and Appendix D contains criteria related to our audit.

Content omitted: https://oig.hhs.gov/oas/reports/region5/51800024.pdf

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RECOMMENDATIONS

We recommend that the Centers for Medicare & Medicaid Services:

* provide additional guidance to MACs and QICs to ensure reasonable consistency in procedures used to review extrapolated overpayments during the first two levels of the Medicare Parts A and B appeals process;

* take steps to identify and resolve discrepancies in the procedures that MACs and QICs use to review extrapolations during the appeals process;

* provide guidance to the program integrity contractors regarding the organization of extrapolation-related files that must be submitted in response to a provider appeal;

* improve system controls to reduce the risk of MACs and QICs incorrectly marking the extrapolation flag field in the MAS; and

- update the information in the MAS to accurately reflect extrapolation amounts challenged as part of an appeal, whether the extrapolation was reviewed by a contractor, and the outcome of any extrapolation review.

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CENTERS FOR MEDICARE & MEDICAID SERVICES COMMENTS AND OFFICE OF INSPECTOR GENERAL RESPONSE

In written comments on our draft report, CMS concurred with our recommendations and described the actions that it has taken or plans to take to address them. The actions CMS described include: (1) updating its guidance on the use of statistical sampling for overpayment estimation and providing training to the MACs and QICs and determining what, if any, appropriate next steps are needed; (2) continuing to explore opportunities to identify and resolve any future discrepancies in the procedures that the MACs and QICs use to review extrapolations during the appeals process; (3) taking OIG's findings into consideration when determining whether more specificity regarding the maintenance of the required documentation is necessary; (4) modifying the MAS to reduce the risk of MACs and QICs incorrectly marking the extrapolation flag field; and (5) as resources allow, modifying the MAS to reflect the extrapolation amounts challenged as part of appeals and whether extrapolations are reviewed by a contractor.

CMS's comments are included in their entirety as Appendix E.

We commend CMS for the corrective actions it has taken and plans to implement to address our recommendations. These corrective actions should provide improved consistency for appealed extrapolated overpayments and conform with existing CMS requirements.