OIG Hospice Audit – Despite Extremely Low Error Rate, OIG Claims Significant Refund Liability on Basis of Extrapolation

In an audit posted by the HHS Office of Inspector General (OIG) on October 9, 2014, the OIG reported on its audit of 100 randomly selected beneficiary-months from The Community Hospice, Inc., a New York hospice, related to an audit universe of 9,147 beneficiary-months. OIG, working with Medicare Administrative Contractor (MAC) NGS for clinical record review support, found that 93 of the 100 beneficiary-months met Medicare criteria, but that 7 months did not. The hospice disagreed with that finding for 3 of the beneficiary-months and refunded Medicare payments for 4 of the beneficiary-months.

With the ultimate error rate remaining in legitimate dispute based upon a number of legal arguments advanced by the hospice as well as disagreement whether appropriate documentation supports the claims, OIG observed that CMS “will reexamine all cases that we [OIG] have recommended disallowing and determine whether an overpayment exists and if the limitation of liability provisions apply.” (OIG Audit Report A-02-11-01016, p. 6.)  In other words, OIG concedes that whether overpayments actually exist for the 3 beneficiary-months in dispute will be left to CMS.  With a financial error rate of 5.62% at the high end (if the hospice does not prevail on its appeals) and 2.68% at the low end (if the hospice does prevail), the hospice argued that OIG should not seek to extrapolate its findings to the universe when reporting its findings. The hospice cited to the Medicare Program Integrity Manual that prohibits Medicare contractors from extrapolating audit findings in the absence of a high or sustained level of payment error or if the contractor has provided educational intervention previously that failed to correct the error rate.  Remarkably, OIG dismisses that argument stating it is not bound by CMS rules since OIG is not a CMS contractor.   So instead of crediting these arguments, OIG stood pat on its original findings, estimated that the hospice “received at least $447,467 in Medicare reimbursement for hospice services that did not comply with certain Medicare requirements” and recommended that the hospice refund that extrapolated amount to Medicare.  

What is The Significance of This OIG Audit Report?

OIG consistently recommends in its audit reports where statistical sampling is employed that the providers refund to Medicare an extrapolated amount.  Providers generally decline to do so and resolve potential overpayment matters with their respective MAC.  OIG continues to recommend refunds at the extrapolated amount largely for consistency.  But OIG consistency only goes so far since OIG does not always audit providers using a randomly selected statistical sample and for those audit reports when other sampling techniques are used, OIG does not extrapolate its audit findings.  See e.g., two recent audit reports for Tulare Regional Medical Center (A-09-13-02052) (posted 09/04/14); Tyler Prosthetics, Inc. A-06-13-0049 (posted 08/19/14). OIG decides when to use statistical sampling and extrapolation and when it does not – it is largely determined by the audit staff planning the audit protocol for that particular audit or series of audits.  

Notwithstanding inconsistencies in its audit approach of providers, with regard to this hospice report it is notable that OIG clings to its tenuous position that, even with its concession that CMS will determine the overpayment amount, the hospice was overpaid “at least $447,467.”  This suggests OIG is driven to show Congress that it will continue to “come down hard” on hospices, even those with very low error rates.  

So why does OIG insist on using a statistical sampling plan and extrapolate its findings here, notwithstanding a very low error rate?  The jaundiced view is OIG wanted to issue an audit report that garnered more attention and “Medicare recoveries” than a report with a small overpayment finding, especially given that this is its first hospice audit report in years.  In its Operation Restore Trust Audits in 1996 and 1997, OIG reviewed multiple hospices but did not seek to extrapolate any of its sampled audit findings.  But that was then and this is now.  In recent years, OIG has expressed serious program integrity concerns in the hospice sector.  Issuance of hospice audit reports with extrapolated findings will further OIG’s interest in the so-called “sentinel effect” – a critical audit report of one hospice may put others on notice that they could be next.  

Hospices that find themselves the subject of such OIG audits should use extra vigilance in defending their positions.  While challenging the use of extrapolation in the final audit report may feel like tilting at windmills, it is nonetheless important to do so.  Additionally, ensure auditors are furnished all relevant documentation, including from other providers that may have a bearing on the level of care furnished and clinical eligibility.  A finding of low error rates in hospice may well cause OIG to shift its limited audit resources elsewhere.  One last observation – both OIG and Community Hospice agree that it is a good idea to improve procedures to ensure appropriate documentation from other providers (e.g., hospitals, physicians, nursing homes, etc.) is included in the patients’ medical records.  That may be the most important lesson for hospice providers from this OIG audit.   

Posted by: Howard Young, Esq., Morgan Lewis & Bockius (hyoung@morganlewis.com; 202.739.5461)

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