Before a Medicare contractor can use extrapolation to determine an overpayment amount, the Medicare statute requires that it must make a finding that there is a sustained or high level of payment error or that documented educational interventions with the provider have failed. In Balko v. Sebelius [PDF],  the United States District Court for the Western District of Pennsylvania concurred with several other courts that have held that courts do not have jurisdiction to review a Medicare contractor’s finding of a high level of payment error, a prerequisite to extrapolation.

John Balko & Associates (Balko), a provider of podiatry, audiology and other services to residents of custodial care facilities, appealed the decision of its Medicare program safeguard contractor (PSC) to disallow virtually all of the Medicare payments to Balko for 2005-2008. The Administrative Law Judge (ALJ), on review of the decisions by the PSC, Balko’s Medicare carrier and the Medicare Qualified Independent Contractor (QIC), determined that the PSC’s decision to extrapolate its finding of overpayment was not consistent with the Medicare statute. Specifically, the ALJ held that there was insufficient documentation to support the PSC’s finding of “a sustained or high level of payment error” or failed “educational intervention” to correct the payment error, as required by 42 U.S.C. § 1395ddd(f)(3). The ALJ also indicated that the PSC’s sampling methodology was flawed, but did not articulate the specific errors due to its holding that the decision to extrapolate from a sample was inconsistent with the statute. Lastly, the ALJ upheld the QIC’s terminations with regard to the individual claim determinations and ordered Balko to repay only those amounts.

The Medicare Appeals Council (MAC): (1) reversed the ALJ’s decision with regard to the statistical sampling and extrapolation, finding no jurisdiction to review the PSC’s finding of a high level of payment error, (2) reversed the ALJ’s decision that the sampling methodology was flawed, and (3) upheld the ALJ’s determination supporting the QIC’s calculation of overpayment. The District Court reviewed MAC’s opinion and held that the clear language of 42 U.S.C. § 1395ddd(f)(3) bars any appeal of a contractor’s finding that there was a high payment rate, thereby in essence precluding the review of the decision to use extrapolation. The court also determined that the sampling methodology employed by the PSC – based on a sample of claims paid for 81 beneficiaries, out of a universe of 5,445 beneficiaries – was sufficiently precise to support the overpayment determination, and that there was sufficient evidence to support the ALJ’s determination that QIC’s calculation of overpayment was accurate.

Ober|Kaler's Comments

The Balko decision follows a trend of courts finding that they lack jurisdiction to review significant aspects of Medicare contractors’ determinations. In this case, the holding that a decision to apply a statistical sampling and extrapolation methodology was not subject to challenge, meant that the plaintiff could only present arguments with respect to the validity of the sample chosen, the extrapolation methodology applied and the factual basis for each individual disallowance. Given the deference extended to CMS and its contractors, a successful appeal on the basis of sampling and extrapolation methodology is often a difficult proposition, but there are some cases where the providers have prevailed in challenging contractors’ methodology. Likewise, the expense of appealing a contractor’s finding with respect to each individual claim can be prohibitive, which blunts the usefulness of an appeal on that basis. Thus, healthcare providers are faced with increasingly narrow options for challenging Medicare contractor disallowances.