No Judicial Review of Contractor’s Finding of a High Payment Error Rate, a Condition for Extrapolation

by Baker Donelson

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.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.