Overpayment audits of physicians are common place and, indeed, should now be expected.  When conducting such audits, Medicare auditors often include not only random sampling as an audit technique but have also extrapolated the results of that random sampling to arrive at overpayment claims that can be much larger.  But is extrapolation legal?

In a public payor (i.e., Medicare) audit, the answer is yes.  For example, the Medicare Managed Care Manual not only requires that Medicare Advantage plans develop auditing systems, it specifically recognizes that auditors may extrapolate the sampling results of that audit.

What about commercial payors?  For those payors, it is not that simple, nor is it necessarily a given that extrapolation is an authorized method that the payor may use to increase dramatically the dollar amount of an overpayment claim, sometimes by five to ten-fold.  What is the deciding factor?  At least one court, the Supreme Court of Rhode Island (Garden City Treatment Center, Inc. v Coordinated Health Partners, Inc., et al, 852 A.2d  535 (R.I. 2004)), used simple and straight forward contract law analysis to reach the conclusion that if the payor’s provider contract does not authorize extrapolation, then the payor may not extrapolate.

Other state courts, however, might reach different conclusions.  So the lesson to be learned is that providers should read the auditing language of their private payor provider contracts carefully.  If the contract does authorize extrapolation, then attempt to negotiate that provision out of the contract.  But even if it does not, it might be prudent to negotiate language that would expressly prohibit extrapolation without the provider’s consent.  And, if neither of these options are realistically available, providers should at least recognize that extrapolated random audit samples today may well result in unreliable and excessive overpayment claims by the payor tomorrow, and prepare accordingly.