The June 2016 issue of AHLA’s Fraud and Abuse newsletter includes an article by Powers Counsel Christina Hughes, “The Use of Extrapolation Under the 60-Day Report and Repay Requirement.” Read Christina’s article below.

The Use of Extrapolation Under the 60-Day Report and Repay Requirement
Christina A. Hughes
Powers Pyles Sutter & Verville PC
Washington, DC
As nearly every attorney working in health law is aware, the Centers for Medicare & Medicaid Services (CMS) recently issued its final rule on reporting and repaying identified overpayments under Medicare Parts A and B. The final rule was issued on February 12, 2016, nearly six years after the repayment obligation was passed into law under the Affordable Care Act (ACA). While the statutory requirement to repay any identified overpayments within 60 days has been effective since the ACA took effect, providers have lacked clarity on CMS’ final interpretation of certain key terms within the statute.
Briefly, some of the highlights from the final rule are:
• The 60-day repayment clock will begin to run only after the provider has identified the overpayment and quantified the amount, so long as the provider exercises reasonable diligence in doing so. • Reasonable diligence includes both proactive compliance activities designed to detect overpayments and reactive investigations designed to quantify overpayments in response to credible information.
• In nearly all circumstances, investigation and repayment should be completed within eight months—six months for investigation and 60 days (two months) for reporting and repaying after identification.

• Failure to exercise reasonable diligence causes the 60-day repayment clock to reference back to the date the provider received credible informa- tion of the overpayment.

• The lookback period for making repayment is six years from the date of reporting and repaying (formerly proposed to be ten years).
As many commentators have noted, the final rule retreats from some of the most onerous aspects of CMS’ original proposal. That does not mean that the final rule is easy to comply with, nor does it mean there are no hidden pitfalls for providers to stumble into if care is not taken.
One such potential danger relates to the interplay between the 60-day report and repay requirement (60-Day Rule) and the contractor audits many providers encounter on a routine basis. The final rule makes clear that unfavorable determinations made by Medicare contractors as part of an audit may serve as credible information triggering further investigation by the audited provider. CMS grants a small amount of leeway in exercising reasonable diligence at the conclusion of an audit, allowing providers to complete the administrative appeals process before investigating other possible overpayments on the same issue. The risks associated with the 60-Day Rule are compounded, however, when the contractor audit uses statistical sampling and extrapolates the results of the audit.
Extrapolation is one of the most punitive tools available to CMS. It reduces the burden on the contractors to actually review medical records submitted by providers and maximizes the return on a contractor’s auditing efforts. It also significantly impairs a provider’s ability to successfully appeal the entire amount of an unfavorable determination by tying large amounts of alleged overpayments to a relatively small number of claims on a proportional basis. Only the specifically identified claims may be appealed. The immense power of extrapolation is recognized, and limited somewhat, by the requirement that certain findings be made before a contractor can use extrapolation for assessing an overpayment. Notwithstanding this limitation, extrapolation continues to be used by contractors and, increasingly, by the U.S. Department of Health and Human Services Office of Inspector General (OIG) in its provider audits. Thus, the interplay between extrapolation and the 60-Day Rule bears closer examination.
The Prevalence of Extrapolation in Audits
As noted, extrapolation is a tool that continues to be used by contractors in assessing overpayments against providers under the Medicare program. Once, it was a tool almost exclusively used by the Zone Program Integrity Contractors (ZPICs). Tasked with identifying fraud, waste, and abuse, the ZPICs were a relatively natural fit for using such a tool. Gradually, however, other contractors have utilized extrapolation for the purposes of identifying overpayments, including Medicare Administrative Contractors (MACs). Even Recovery Auditors are ostensibly granted the ability to
use extrapolation, though only under approval from CMS.
In addition to Medicare contractors, OIG has ramped up its use of sampling and extrapolation in its Medicare compliance reviews as well. The majority of compliance reviews issued by OIG over the past year have incorporated extrapolation of at least some issues for the purpose of quantifying the final overpayment amount. OIG’s use of extrapolation is potentially more problematic for providers than when used by Medicare contractors because OIG does not appear to be limited in using the tool only under certain circumstances (e.g., in the event of a high or sustained error rate) and because OIG merely “recommends” that a provider refund the alleged overpayment amount.
While possible, it would be foolhardy for a provider to simply ignore OIG’s recommendation to refund the alleged overpayment. OIG’s role outside of the usual claims review and auditing process becomes significant if the provider disagrees with OIG’s findings and wishes to appeal. Where extrapolation is used, the provider can only appeal those claims specifically denied, and only after making a very careful refund to the MAC in which each denied claim is identified in order to preserve future appeal rights. The provider has no means of challenging the entire alleged overpayment and must instead rely on the contractor to apply any denied claims reversed on appeal to a proportional amount of the extrapolated overpayment.
The other prevalent use of extrapolation is by providers conducting internal audits that result in voluntary refunds. By using statistical sampling and extrapolation, providers can use the efficiencies of the methodology to their advantage, eliminating the need for 100% claim review. It also can enable providers to refund overpayments related to billing errors with a high rate of occurrence without simply resorting to refunding all such claims. Generally speaking, when a provider makes a voluntary refund, the question of appealing is not an issue, making extrapolation all the more attractive.
Impact on the 60-Day Rule on Extrapolations Conducted by the Government
With respect to Medicare contractor audits, the most important element of the 60-Day Rule is the fact that the audit results serve as credible information about a possible overpayment. Therefore, depending on the nature of the overpayment identified during the audit, a provider may have a duty to investigate with reasonable diligence. For extrapolations, the population of claims covered by the audit may help reduce the scope of any follow-up investigation, but the contrac- tors remain limited to the four-year reopening period for conducting their own audits. Since providers are required under the final rule to look back for six years,  providers may be forced to conduct further investigations going back an additional two (or more) years, even when the contractor uses extrapolation. However, a provider also has the right to appeal the audit results, which tolls the provider’s responsibility to investigate until the appeals are concluded.
For OIG audits, all audit reports trigger the need for providers to make at least some amount of “voluntary” repayment. However with respect to audits involving extrapolation, a provider’s rights and responsibilities get significantly more complicated and correspondingly less clear. The fact that a repayment that flows from an OIG audit is technically voluntary does not eliminate a provider’s right to appeal any specifically identified claims. (Convincing the MAC of that, and figuring out when the appeal rights and related deadlines begin, can unfortunately be a murky exercise in persistent communication.)
OIG audits also come with the complication of the three- year recovery period. In its audits using extrapolation over the past year, OIG has limited its repayment recommendations to the three calendar years preceding the release of the audit report, regardless of how far back the actual claims audited go. This creates much confusion over which claims are actually included in the recommended repayment, both in terms of specifically denied claims and extrapolated amounts. For providers seeking to appeal some, but not all, of the claims alleged to be overpaid, this creates yet another obstacle to exercising those rights.
Impact of 60-Day Rule on Provider Use of Extrapolation
Extrapolation is generally used by providers when an internal audit is conducted and uncovers a fairly wide- spread issue requiring repayment. By using extrapolation,
the provider reduces the amount of resources it must devote to actually quantifying the problem. The final rule provides useful parameters for conducting such extrapolations by establishing the six-year lookback period and setting a time- frame for finalizing a report and making repayment.
Given the heightened risks associated with failure to adhere to the 60-Day Rule (i.e., False Claims Act liability), providers may be inclined to be overly cautious, especially in light of the final rule’s affirmation that appeal rights exist even for those claims repaid voluntarily. This may lead providers to make overly inclusive or even unnecessary reports and repayments. However, using extrapolation for such repayments could leave providers without the ability to effectively appeal the repayments once they are made, since only specifically identified claims that are repaid may be appealed.
However, providers may not repay a subset of claims from a sample that should be extrapolated and then appeal those repayments, thereby tolling the requirement to make further repayment. Though not explicitly stated, it is likely that CMS recognizes the risk of allowing such appeals considering the current status of the administrative appeals process at the Administrative Law Judge (ALJ) level. Under usual circumstances, allowing providers to seek an appeal determination on a subset of claims prior to initiating full repayment would have minimal risk for the government, but given the current multi-year delay for providers seeking an ALJ hearing, such a process would risk losing the entire amount of claims due to be repaid as the lookback period expired while the appeals remain pending.
The processes and expectations established under the 60-Day Rule certainly have greater clarity since the release of the final rule. The provisions of the 60-Day Rule establish the necessary parameters for providers to avoid running afoul of the requirement to report and repay accidentally, even as they create situations where a contractor audit of a single year of claims can trigger a provider’s investigation of an additional five years’ worth of claims.
More troubling problems arise when extrapolation is used with denials involving subject determinations of medical necessity. For such cases, including determinations of whether inpatient care was appropriate or a patient was covered for inpatient rehabilitation services, the use of extrapolation is arguably inappropriate due to the variable facts of each claim. This has not stopped contractors or OIG from using extrapolation to seek recovery of large overpayments against providers. Given the subjective nature of the reviews involved in determinations of medical necessity, such audits can prove very exasperating to a provider. In these instances, a provider may choose to hold out for contractor audits to identify any alleged overpayments, thereby avoiding the need to use extrapolation in an internal audit and potentially impairing any right to challenge the determination on appeal.
Thus, while the clarifications provided by CMS under the final rule are useful in assisting providers with complying with the 60-Day Rule, there remain a number of opportunities for providers to make costly mistakes. The final rule makes it explicitly clear that providers are now subject to a requirement to follow up on contractor audits with investigations of their own to determine if other related overpayments exist. The extension of the reopening timeframe for providers making repayments under the 60-Day Rule opens providers to risks associated with audits, particularly extrapolated ones that are necessarily limited to either the three-year recovery period or the four-year reopening window.
Furthermore, the implications of the 60-Day Rule for providers subject to extrapolated audits are multiplied by the very nature of extrapolation. As with all extrapolations, inaccuracy in determining the applicable error rate and double-counting are risks. These can be amplified when the provider is placed under a duty to further investigate the matter. With extrapolated audits, appeals are more difficult and time-consuming, and they carry higher stakes in the form of proportional amounts of the extrapolated overpayment tied to each specifically identified claim at issue.
Luckily, the 60-Day Rule also clarifies the impact of administrative appeals on providers’ duty to follow up on contested audit findings. The one silver lining for providers tied to the appeals backlog is the potential for their duty to make further inquiries into audit results, extrapolated or not, to be delayed (or extinguished) while appealed denials are pending. This one benefit, however, does little to offset the significant hurdles providers face in all aspects of the current auditing environment: appeal delays, extrapolation, and the burden of the 60-Day Rule.
For more information, contact Christina Hughes at Christina.Hughes@ppsv.com.

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