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Medicare Audit and Appeal Process from A to Z: Challenging Extrapolated Overpayments

ZPIC auditBy: Matt Fischer

Medicare claims are processed by organizations (i.e. Medicare Administrative Contractors (“MACs”)) that contract with the Centers for Medicare & Medicaid Services (“CMS”) to act as liaisons between the Medicare program and providers and suppliers.  As CMS continues to evolve its enforcement strategies to reduce fraud and abuse in the system, post payment reviews utilizing statistical sampling still remain as one of its key methods.  These reviews are conducted not just by MACs but also by Zone Program Integrity Contractors (“ZPICs”).  When a review is completed, providers and suppliers often face large extrapolated overpayment amounts based on the analysis of a small sample of claims.  Therefore, providers and suppliers need to understand the process and most importantly, how to effectively navigate the system.

ZPICs are a part of Medicare’s integrity program and took the place of Program Safeguard Contractors (“PSCs”) that operated with the same goal in the past.  ZPIC reviews initiate in various ways such as from whistleblower complaints, through ZPIC investigations (e.g. using data mining), and from referral from the Office of Inspector General (“OIG”).      

Title 42, Part 405 of the Code of Federal Regulations sets forth the determinations and appeal process.  In short, once a determination is made on a claim, a provider or supplier has the right to appeal the decision.  The appeal process will involve the following steps and correspondence:

The Record Request Letter

When a provider or supplier is selected for audit, the contractor will initiate the process by first sending a record request letter.  This letter will ask for medical records for a definitive number of claims.  These claims will be from a “random” sample of claims selected from a multi-year period.  Once the requested documents are produced, the contractor will review the records to determine whether the applicable coverage requirements are met.

The Review Results Letter

The next step in the process is the receipt of a review results letter from the contractor.  This letter will set forth the contractor’s findings including a specific breakdown of which claim was covered, denied, or down coded.  The letter will also provide an explanation of the statistical methodology used and how the results of the sample were extrapolated to the universe of claims.  Most importantly, the letter will indicate the overpayment amount at issue.  This amount, however, is not due at this time nor has the party’s appeal rights begun.  The amount will officially be due and appeal rights will be available once a demand letter is received from the region’s MAC.

The Demand Letter and Request for Redetermination

Once the review results letter is processed by the MAC, the contractor will issue a demand letter.  This letter will indicate the overpayment amount due and explain the party’s appeal rights.  A party has 120 days from the date of the demand letter to submit a request for redetermination.  This request is submitted to the MAC; however, the appeal will be reviewed by a different department within the organization.  This appeal should be submitted within the first 30 days of receipt of the demand letter.  If so, recoupment will not occur pending the resolution of the appeal process.  Otherwise, recoupment will begin regardless if an appeal is filed.

Remaining Appeal Process – Levels 2 through 5

There are five levels in the Medicare Appeal process.  The first level, a request for redetermination is addressed above.  The second level is an appeal to a Qualified Independent Contractor (“QIC”).  This appeal is called a request for reconsideration.  If a party receives an unfavorable or partially favorable redetermination decision, a party will have 180 days to submit an appeal to the QIC.  Generally, a decision from the QIC is received within 60 days.  If the QIC is not able to render a decision within that time, it will send a letter giving the party the opportunity to “escalate” the appeal to the next level without further delay.  The next level of appeal is the U.S. Department of Health and Human Services (“HHS”), Office of Medicare Hearings and Appeals (“OMHA”).  The appeal to OMHA must be made within 60 days of the date of the QIC’s decision and will be reviewed by an Administrative Law Judge (“ALJ”).  At this point, the party has a decision to either have the ALJ 1) make a decision based on the record (i.e. an “OTR” request) or 2) conduct a hearing.  By regulation, a decision must be issued by OMHA within 90 days.  However, this deadline is never met.  OMHA currently has a large backlog of appeals with a wait period of over two years.  Once an ALJ decision is rendered, the next option is an appeal to the Medicare Appeals Council.  This appeal must be submitted within 60 days of the ALJ’s decision.  Finally, the last level is judicial review by a federal district court.

The OMHA Backlog

Congress established the administrative appeals process and directed OMHA to complete the process within a specified time frame.  However, buried under an ever-growing backlog of appeals, HHS has failed and continues to fail to meet this mandated deadline.  As a result, the American Hospital Association (“AHA”) sued HHS seeking an order from a federal court to force the agency to clear the backlog and follow the mandated deadline.  At the end of 2016, the U.S. District Court for the District of Columbia granted summary judgment in favor of AHA and ordered HHS to clear a percentage of the backlog by the following dates: 30% reduction by December 31, 2017; 60% reduction by December 31, 2018; 90% reduction by December 31, 2019; and elimination of the backlog by December 31, 2020.  This was a positive sign for appellants trapped in the process.  However, when an end to the massive delay was insight, the U.S. Court of Appeals for the District of Columbia reversed the ruling in August 2017 and remanded the case back to the District Court for further consideration.  Thus, the backlog continues and providers and suppliers should expect long delays if an appeal is submitted to OMHA.

Key Points to Remember
  • Plan Ahead: Devote time to making sure all records can be easily located and are detailed as possible when created. Proper planning and clear expectations can help minimize frustration and anxiety.  It happens often that a provider will receive a record request after many years of practice without ever being subject to an audit and can face large extrapolated overpayment amounts.
  • Know Your Coverage Requirements: This includes not only regulations but Medicare policy manual provisions, local coverage determinations (“LCDs”), national coverage determinations (“NCDs”), and CMS transmittals. The common argument of “I’m close enough” or substantial compliance rarely prevails.
  • Submit Detailed Appeal Requests: This is your chance to put your best foot forward. When I worked as an attorney at OMHA, I saw many providers and suppliers submitting one sentence appeals stating “requirements are met, please reprocess for payment.”  Appeal requests should clearly state why the party disagrees with the determination and explain why the applicable coverage requirements are met with the medical record at issue.
  • Obtain an Expert: Contractors have statistics experts on staff that create the “random samples” and calculate the overpayment amounts. An expert should be retained at least by the OMHA appeal level.  An expert can submit written expert reports and provide testimony at the ALJ hearing.  If the sampling process is successfully challenged, the overpayment liability will be limited to the claims in the sample only.

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