Winning Medicare Audit Appeals

Winning Medicare Audit Appeals often depends on the RAC Statistical Extrapolation which determines how much you will owe in claims.

In this Guide, Barraclough LLC explains one of the more important aspects of the RAC review process: the RAC Statistical Extrapolation, which based on the review of a small number of billing claims, is applied to all of your claims for a number of years. Barraclough wants to remind you that it’s the extrapolation of the error rate of the claims that pushes the amounts so high.

Winning Medicare Audit Appeals

Barraclough’s Litigation Strategy is to show that the RAC extrapolation is incorrect. We disprove the validity of the statistics in your favor, so the amount you owe is either nothing or significantly less than originally asked for. This can mean that Winning the Medicare Appeal is a matter of looking at the numbers.

Medicare Audit Process Background

Medicare billing is investigated by subcontracted professional auditors. The Recovery Audit Contractor (RAC) program began in 2005. Medicare can and does investigate the medical billings of any practitioner who bills Medicare for services, including but not limited to: solo physicians, chiropractors, physical therapists, small or large medical practices, pharmacists, clinics or hospitals. This is referred to as the RAC review process.

RACs receive payment which is a percentage of what’s recovered for alleged billing errors. The remainder of the amount goes back to the Medicare Trust Fund.

Part 1:  RAC Statistical Extrapolation is a Key Determinant of Amounts

RACs use statistical sampling to calculate the overpayment demand following an audit. While the use of statistical sampling for overpayment estimation is limited by statute, the auditor will examine a small percentage of claims, and then extrapolation can range from the tens of thousands into the millions, depending on the size of the entity being audited.

Significant problems occur  because RACs  use faulty statistical methods. When this happens, health care professionals will be forced, unfairly, into paying large refunds that they  really do not owe.

The remedy for this is your own independent audit done by Barraclough’s experts.

How We Work:

Barraclough’s Litigation Strategy for Medicare Audit Appeal


Medicare Audit Appeal
Medicare Audit Appeal

Part 2: The Audit Notification

You’ve just received a notification that you are under investigation for Medicare billing claims. This is the first that you, the doctor or health facility, knows of the audit. An analysis of billing has taken place behind the scenes.

It’s unclear why you are being investigated.  Perhaps it was a whistle-blower or an anonymous tip. But for the most part, audit targeting appears to occur as large  data mining programs sift through the billions of claims in order to uncover allegedly suspicious billing patterns.

The next step in the RAC review process is a demand to see some of your patient records. When these are sent in, a team of auditors examine each record. Medicare rules in the strictest possible manner.

Many of your billing claims which are being examined in the RAC review process may be rejected because they were “not medically necessary.” Others may simply be a case of minor clerical errors in paperwork. We have yet to see a true fraud case.

But it is the case that any error, no matter how trivial, will be highlighted. It is not uncommon in the RAC review process for some rules to be applied incorrectly or for other rules appear suspect.

The result is that the auditor will come up with an “error rate” based on this sample of claims.  If one-third of the claims have problems, then your stated RAC review error rate is 33%.

What’s critical to understand is that then the auditor takes that error rate and applies it to all of your claims for a number of years. This is why winning an Medicare Audit Appeal can be so difficult.

The result is a letter to you demanding return of one-third of all Medicare payments you have received over this entire period.

So, it’s not just the Medicare audit, it’s the extrapolation of the error rate of the claims that pushes the amounts so high.  For many small practices and medium sized health facilities, like clinics, this is enough to bankrupt the entire business.

 Part 3: Barraclough Litigation Strategy

 Show that the RAC Extrapolation is Incorrect

Examining the RAC statistical work is the key; the goal is to disprove the validity of the statistics in your favor, so the amount you owe is either nothing or significantly less than originally asked for, i.e., just the amount on the original small sample of cases.

Barraclough statistical and medical experts prove where the Medicare audit is incorrect.

Because there is a defined window of opportunity to object to the extrapolation, you need to pursue this immediately after you receive the judgementAfter that,  you lose the right to ever appeal anything you have not mentioned before, such as these statistics.

That’s why, getting correct statistical  extrapolation soon as possible is critical to winning your case.

In Barraclough’s many cases, we have examined a number of these demand letters, and looked carefully at the underlying statistical work. Thus far, we have yet to find even a single demand (statistical extrapolation) that used flawless statistics.

Examples of the problems we have uncovered include:

  • The contractor may use the wrong formulas for basic calculations.
  • The contractor may skip entire parts of the statistical procedure and “wing it” by making up crucial numbers.
  • The contractor may make complete ludicrous claims, such as that a statistical sample with no stratification was “actually stratified, but with only one stratum”.

There are other problems as well. The “explanation” to the doctor may be useless even though it’s full of lengthy statistical boilerplate, complete with a number of impenetrable formulas. In one case, the auditor even supplied a photocopy of a software manual as part of their justification.

Part 4: Reverse the Medicare Audit

Barraclough’s clients have had success in Medicare audit reversal because they have pushed back against these kinds of Medicare audit results.

Here are a few things you can do:

  1. As soon as you receive notice of an audit, contact an attorney who specializes in responding to Medicare Audits.
  2. Check to make sure they have specific and successful experience handling Medicare refund audits.
  3. Don’t expect the Medicare auditor to be forthcoming in providing you data.
  4. From the very beginning, insist on a complete statistical review of how all samples and calculations were made.
  5. No matter what you do, don’t settle for boilerplate.
  6. Make the auditor shows their work including every single calculation from beginning to end.
  7. Make them give you the spreadsheets.
  8. Challenge every single stage of the audit process from the initial targeting of your practice to the extrapolated refund demand.

Don’t take at face value anything written in your audit letter, especially the interpretation of the rules. Don’t expect your attorney or even the Judge to be able to understand the formulas. Instead, use a qualified statistical expert to review all materials.

With a successful statistical challenge, the extrapolation can be thrown out completely.

For More Information

RAC Audit Medicare Data Snapshot

RAC Medicare Audit  Data  From Senate Chairman Hatch

RAC Medicare Audits recovered over $3 billion

  • A large portion of the initial payment determinations are reversed on appeal.  The Department of Health and Human Services Office of Inspector General reported that, of the 41,000 appeals made to Administrative Law Judges in FY 2012, over 60 percent were partially or fully favorable to the defendant.
  • In Fiscal Year 2014, Medicare covered health services for approximately 54 million elderly and disabled beneficiaries at a cost of $603 billion.
  • Of that figure, an estimated $60 billion, or approximately ten percent, were improperly paid, averaging more than $1,000 in improper payments for every Medicare beneficiary.
  • The large number of appeals being filed can’t be put on the docket of the Office of Medicare Hearings and Appeals for 20-24 weeks.
  • In FY 2009, the majority of appeals were processed within 94 days.  In Fiscal Year 2015, the average for an appeal is 604 days.

Source: Hatch Statement at Finance Markup of the Audit & Appeal Fairness, Integrity, and Reforms in Medicare Act of 2015 (June 3, 2015) Senator Hatch (R-Utah) is the Chair of the Senate Finance Committee.

The Barraclough Blog features latest news on events and policies, as well as original Barraclough features and blogs  about Litigation support for Medicare and Medicaid appeals and statistical overpayment extrapolations.

Senate Acts on RAC Audits and Appeals Process

Audit Appeals Process Quagmire

Barraclough LLC  Dubious  of Senate RAC Actions

The Congress continues to try to fix Medicare’s arduous healthcare audit procedures, as the RAC audit process and healthcare providers continue to be locked into a claims remediation nightmare. The Audit and Appeal Fairness, Integrity, and Reforms in Medicare, or AFIRM, Act of 2015, was introduced on June 3, 2015.

Senator’s Wyden statement about the Finance Committee Markup of this bipartisan effort is that it “will streamline the appeals and audits process so cases are resolved quickly and at the earliest possible step.” The legislation provides for:

  • More HHS personnel resources pick up the pace in order “to keep up with the enormous increase in appeals.” The Office of Medicare Hearings and Appeals can currently adjudicate 77,000 appeals in a year, far below the 474,000 appeals OMHA received in 2014.
  • HHS can use its resources more efficiently and process more appeals because of a new track for lower-cost, less-complex cases to be considered by a different set of hearing officers than other cases.
  • Requiring CMS to better coordinate provider audits “to ensure the entire process is more transparent and efficient, including the creation of an independent Ombudsman position at CMS” in order to assist those considering appeals. Providers who consistently bill correctly are exempted for burdensome audits, as a reward for their business practices.

Although this markup provides some improvement by separating high value from low value cases, Barraclough LLC  is  dubious about the additional number of people on the CMS payroll to deal with the appeals backlog and the overall  impact of the Audit and Appeals Ombudsman which has yet to be fully explained.  RAC Audit Appeals would be better served with more data transparency,  a change in RAC auditors contingency fee payments, and the quality of initial determinations.

For the full text of Senator Wyden’s statement, click here.

As the  AFIRM legislation progress, Barraclough LLC will continue to analyze the impacts and make recommendations for the best course of action.