Extrapolation – Coming to a Hospital Near You

by John W. Kaveney

A review of the OIG’s daily bulletins reveals the common use of extrapolation in its audit of hospitals. Subsets of records identified by the government as statistically valid are regularly reviewed at hospitals across the country and then the identified error rate projected out across all reimbursement for the facility. As a result, $600,000 worth of identified overpayments within a subset is routinely extrapolated to a demand for repayment of over $10 million. One such recent example occurred at the University of Cincinnati Medical Center. This leaves hospitals in the precarious position of deciding whether to challenge the government’s error rate and risk revealing an even greater percentage of overpayments or accepting a repayment the facility knows is not based on a review of all claims composing that $10 million figure.

This controversial practice of extrapolation has been around for decades as courts have permitted the practice by government agencies and their contractors. Courts have recognized the importance of extrapolation as a means of performing realistic and practical audits, given the enormous number of claims at issue and the limited resources of the federal government to investigate. See e.g. Ratanasen v. California, 11 F.3d 1467 (9th Cir. 1993); Yorktown Medical Laboratory, Inc. v. Perales, 948 F.2d 84, 89–90 (2d Cir. 1991); and Chaves County Home Health Service, Inc. v. Sullivan, 931 F.2d 914 (D.C. Cir. 1991). As previously discussed on this blog, the United States District Court in Tennessee has even go so far as to allow extrapolation as a means of establishing liability in a False Claims Act litigation.

Extrapolation does have its limits and Congress has specifically stated that “[a] medicare contractor may not use extrapolation to determine overpayment 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 has failed to correct the payment error.” However, there is no such express limitation on audits conducted by the OIG, which is what has caused concern for many hospitals and the American Hospital Association (“AHA”). The concern is that the government is using the OIG as a proxy for CMS and the Medicare Administrative Contractors to perform extrapolation despite no determination by the Secretary that “there [was] a sustained or high level of payment error” or that “documented educational intervention [had] failed to correct the payment error.” Thus, by having the OIG perform the audits, this prerequisite to extrapolation is avoided. The AHA has argued that the MAC has been using the OIG as a sort of subcontractor and impermissibly attempting to do an end-run around the congressionally-imposed limits on the MAC’s ability to utilize extrapolation. To date, challenges to the practice have been unsuccessful and thus the practice continues.

Thus, hospitals must be proactive in identifying and correcting errors before the auditors arrive. A review of recent OIG audits reveals a pattern of common areas of problems that are being seized upon by the government. These areas include inpatient short stays, incorrectly billed inpatient stays and improper DRG coding. For additional information please see our prior posts discussing these areas of focus by the OIG audits and our discussion of the new additions to the OIG Work Plan for 2015, both of which will provide some insight into where the government is focusing its efforts.

Extrapolation appears to be here to stay and therefore hospitals must be proactive in their compliance efforts and in coordinating the proactive internal reviews necessary to identify and correct these issues before the OIG auditors knock on the door.