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Or How CMS Uses Statistics to Replace Reviews

Auditors always have to review the records, right? Unless they can find a way to use an average, instead of a sum. Then they can just multiply. And those numbers are even larger that the mere sums they get when they have to look at every record. The RACs have permission to do just that. They don’t have to look at a record to count it as an error. There’s a way for them to use statistics, and claim that you have been astronomically overpaid.

There are at least two specific programs we can name where CMS can use statistical sampling and extrapolation to identify overpayments: in May, 1999, CMS awarded contracts to twelve Indefinite Delivery – Indefinite Quantity (IDIQ) companies, as Program Safeguard Contractors (PSCs); and in October, 2008, CMS awarded contracts to four Recovery Audit Contractors (the RACs). (Hold your hand up, if the very name of that first program scares you more than the other?)

PSCs have been around for years now, and are known to use statistical sampling and extrapolation to “identify” overypayments to providers. Some observers claim that they actually “create” errors this way, rather than identify them. Either way, they are quite successful at recoupment.

Now come the RACs, and although none of the demonstration project contractors chose to do so, these contractors are also fully licensed to use exactly the same techniques. What does it mean? Big numbers. On those Demand Letters. Maybe on one you might receive.

Why Add When You Can Multiply?

Statistical sampling and extrapolation of sample results is a mathematical approach that allows an auditor to do a minimum of records review, yet yield maximum results. In short, little work, huge payoff, who doesn’t like that?

Why is this happening? Because there’s lots of money involved. Plus, it’s really a simple process. Here’s the short version:

1. They take a “random” sample of your Medicare filed claims.
2. They review those claims for errors.
3. They calculate what you were overpaid, less any underpayments.
4. They divide that amount by the number of claims sampled, to get an average.
5. They multiply that number by the number of claims you filed.
6. They tell you how much you owe them.

Concerned yet? Think this is unfair? We would agree. But a U.S. District Court, and a U.S. Court of Appeals don’t agree.

Watch for our next post, and we’ll show you how an auditor might find $3000 in errors and yet send you a demand letter for $108,000. No kidding.

recovery audit contractor