Generally, it is after the first level of appeal. This rule is about to change, so that the RACs will get their fee only after the matter is completely decided, after the second appeal, or perhaps beyond.
What is the timing involved? Generally, a first level appeal takes 100 days. This means that the RAC gets their fee in about three months. But if the new rules come into effect, then the RAC will need to wait to see if their audit withstands the second-level appeal, but that is an average of 400 days long — more than one year!
So obviously this would have an effect on the cash flow for the RACs.
This “second appeal” proposed rule appears to be a compromise because these matters often are decided at the Administrative Law Judge (ALJ) level at a hearing. When does that take place? The data is fuzzy, but it appears to be frequently more than 750 days, that is, more than two years later.
If the health care providers had their way, then the RAC would not get paid until a final decision is made. Yes, the RAC would have to wait to get its money, it would not have the “free use” of money that it can hold until a final decision.
This is important because many ALJ decisions over-turn RAC audits.
Two RACs evidently have protested this new rule. The protestors include HMS Holdings (HealthDataInsights) and CGI Federal (which was fired after it botched the roll-out of the Obamacare enrollment website). This new rule, after all, would disturb their financial model because they would not get paid until they actually earn their money.
What is the right answer to this?
There is no answer that is acceptable to everyone, but lets look at the dynamics. Under the current “100-day” system, the RAC has every incentive to rush as quickly as possible through the first level of appeal. In that way, it gets its money as fast as possible. But after the first level appeal, the RAC has zero incentive to do anything but drag its feet and slow down the process. It is incentivized to delay the process, because the longer the delay, the more it can hold on to money that later might be taken away should the final decision go in favor of the health care provider.
This delay behavior frequently is done through the standard practice of taking every day of available time to fulfill even the smallest request. Even if something takes 10 minutes of work, if the RAC has 60 days to do it, then it will complete the 10 minutes of work on the 60th day. The longer the RAC delays, the longer it holds on to its money.
The health care provider, however, suffers immensely from this practice. It is guaranteed that the RAC will work for as long as possible and using every possible tactic to lengthen the appeal time. There is little if any attention given to the difficulties faced by the health care provider.
So under the proposed system, the RAC will have have incentives to operate efficiently up through the second level appeal, then it can continue to drag its heels beyond that.
It is a compromise.
Barraclough has been in dozens of cases involving the statistical extrapolation part of Medicare appeals. It always has amazed us how long it takes for the RACs to respond to even the most basic information. This lack of responsiveness slows down the process, harms the health care provider, and perverts the course of justice. Anything that can be done to curb these practices is a good thing.
So we thought we would reproduce the ruling here, but with only the portions that deal specifically with statistical sampling and extrapolation.
Hospital Insurance and Supplementary Medical Insurance Benefits (Parts A and B) Use of Statistical Sampling to Project Overpayments to Providers and Suppliers
Purpose: HCFA and its Medicare contractors may use statistical sampling to project overpayments to providers and suppliers when claims are voluminous and reflect a pattern of erroneous billing or overutilization and when a case-by-case review is not administratively feasible.
. . . As result of a subsequent audit of the provider’s Medicare claims, the intermediary discovered a large number of bills for medically unnecessary services. . . . The cost of identifying and calculating each individual overpayment itself would constitute a substantial portion of the amount the intermediary might reasonably be expected to recover. . . .
The intermediary notified the provider that, because of the volume of records and the costs of retrieving and reviewing all records for the period as discussed above, it intended to project the overpayment by reviewing a statistically valid sample of beneficiary records and that if it were determined that the provider had been overpaid for the sample cases, it would project the results (again using statistically valid methods) to the entire population of cases from which the sample had been drawn. This would result in a statistically accurate estimate of the total amount the provider had been overpaid for services to these beneficiaries.
[Next are the complaint items filed by the health care provider.]
The provider objected to the intermediary’s use of sampling to project the overpayment on the following grounds:
1. There is no legal authority in the Medicare statute or regulations for HCFA or its intermediaries to determine overpayments by projecting the findings of a sample of specific claims onto a universe of unspecified beneficiaries and claims.
2. Section 1879 of the Social Security Act, 42 U.S.C. 1395pp, contemplates that medical necessity and custodial care coverage determinations will be made only by means of a case-by-case review.
3. When sampling is used, providers are not able to bill individual beneficiaries not in the sample group for the services determined to be noncovered.
4. Use of a sampling procedure violates the rights of providers to appeal adverse determinations.
5. The use of sampling and extrapolation to determine overpayments deprives the provider of due process.
(The succeeding presentation of our decision and supporting facts is applicable also to the use of sampling to project overpayments to suppliers (including physicians) whose claims are processed by Medicare carriers when 100 percent readjudication would be excessively costly or impractical.)
The Supreme Court has long recognized that the Federal Government possesses an inherent right to recover monies illegally or erroneously paid out. . . . The Government’s common law right of recoupment, and its corollary power of recovery by offset, are based on strong considerations of public policy. . . . The common law right to recover Federal funds has been specifically recognized as being fully applicable to the Medicare program. . . . Congress has affirmed the Government’s right to recover Medicare Trust Funds by reasonable means from those who have no right to retain them. . . .
[Next, the ruling makes the “administrative burden” argument.]
Since HCFA’s contractors process vast numbers of Medicare claims . . . A case-by-case review could require a significant diversion of staff from the ongoing claims process, and the cost of determining the amount of an overpayment would be prohibitively high unless a sampling method were used. . . .
We also do not believe that the statutory provisions limiting provider or beneficiary liability preclude the use of sampling.. . .
The use of sampling to determine overpayments for medically unnecessary services or custodial care does not deprive a provider of its right to bill those beneficiaries who knew or should have known that they were receiving these services. . . .
[There are also “public policy” used to justify sampling.]
As between the provider and the Government, strong considerations of public policy favor recovery.. . .
[Next, the famous shifting of the burden of proof is explained.]
Sampling does not deprive a provider of its rights to challenge the sample, nor of its rights to procedural due process. Sampling only creates a presumption of validity as to the amount of an overpayment which may be used as the basis for recoupment. The burden then shifts to the provider to take the next step. The provider could attack the statistical validity of the sample, or it could challenge the correctness of the determination in specific cases identified by the sample (including waiver of liability where medical necessity or custodial care is at issue). . . . If certain individual cases within the sample are determined to be decided erroneously, the amount of overpayment projected to the universe of claims can be modified. If the statistical basis upon which the projection was based is successfully challenged, the overpayment determination can be corrected.
The provisions of the statutes and regulations provide a constitutionally sufficient means by which the provider may challenge an overpayment determination. In cases of denials made through sampling which are based on medical necessity or custodial care, section 1879 of the Act, 42 U.S.C. 1395pp, permits the provider to assert the same appeal rights that an individual has under the statute when the individual does not exercise his rights to appeal. Under Part A, these rights include an opportunity for reconsideration (42 CFR 405.710- 405.716), an oral evidentiary hearing by an administrative law judge (42 CFR 405.720-405.722), Appeals Council review (42 CFR 405.701(c) and 405.724), and finally judicial review if the amount in controversy is $1,000 or more (42 CFR 405.730; 42 U.S.C. 139 5ff (b)(2)). In cases that do not involve medical necessity or custodial care, 42 CFR 405.370, et seq. sets out the applicable procedures through which current payments may be suspended (offset) to recover an overpayment under the Medicare program. . . .
In summary, the use of sampling is a reasonable and cost effective method of projecting overpayments under Medicare. It is not unfair to a provider or supplier to hold it accountable for the receipt of Medicare funds to which it is not entitled under the statute. . . .
Ruling: Accordingly, it is held that the use of statistical sampling to project an overpayment is consistent with the Government’s common law right to recover overpayments, the Medicare statute, and the Department’s regulations, and does not deny a provider or supplier due process. Neither the statute nor regulations require that a case-by-case review be conducted in order to determine that a provider or supplier has been overpaid and to determine the amount of overpayment.
Effective date: This Ruling is effective February 20, 1986.
So the question that arises is this: Are contractors free to employ any accuracy they wish in their work, or are there standards that have been suggested or published by the Federal Government?
As it turns out, there appears to be some guidance from two sources.
In the May 5, 2010, report by the Acting Administrator and Chief Operating Officer of the Centers for Medicare & Medicaid Services (CMS) On page 3 of that report, the section titled “Precision-level requirements” states:
“[Office of Management and Budget] OMBCircular A-123, Appendix C, states that Federal agencies must produce a statistically valid error estimate that meets precision levels of plus or minus 2.5 percentage points with a 90-percent confidence interval or plus or minus 3 percentage points with a 95-percent confidence interval.”
There is a note in the document: Under these assumptions, the minimum sample size needed to meet the precision requirements can be approximated by the following formula, which is used in the examples:
Where n is the required minimum sample size and P is the estimated percentage of improper payments (Note: This sample size formula is derived from Sampling of Populations: Methods and Applications (3rd edition); Levy, P. S. & Lemeshow, S. (1999); New York: John Wiley & Sons; at page 74. The constant 2.706 is 1.645 squared.
In the CMS-issued Federal Register, 72 Fed. Reg. 50490, 50495 (Aug. 31, 2007), the error estimate should meet precision levels of plus or minus 2.5 percentage points with a 90-percent confidence interval, and the State error estimates should meet precision levels of plus or minus 3 percentage points with a 95-percent confidence interval.”
So it appears that these standards, which are fairly good, have been twice promulgated by the Federal Government.
There were $2.3 billion claw-backs from health care providers. Audits also identified $109.4 million in underpayments, and these were paid back to the health care providers.
In other words, out of 100% improper payments, the auditors found that 98% were overpayments, and 2% were underpayments – this is a 49:1 ratio. For every $49 dollars clawed back, $1 dollar is returned.