F ORENSIC S TATISTICAL A NALYSIS

Medicare Overpayment Demands: Seven

Strategies to Help Your Client

Barraclough Ltd.∗

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Medicare Overpayment Demands Seven Strategies

Contents
1 The Setting 5

2 How the Process Works 5

2.1 Targeting of Health Care Provider . . . . . . . . . . . . . . . . . . . 6
2.2 Statistically Valid Random Sample . . . . . . . . . . . . . . . . . . . 6
2.3 Request for Claim Information . . . . . . . . . . . . . . . . . . . . . 6
2.4 Analysis of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Determination of Error Rate . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Application of Error Rate Against Entire Universe of Claims . . . . 7
2.7 Litigation Starts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Use of Coding Analysts . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.9 Redetermination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

3 Typical Problems with Auditor’s Analysis 10

3.1 Incomplete Explanation . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Misleading Explanations . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Critical Omissions in Explanation . . . . . . . . . . . . . . . . . . . . 11
3.4 Skipping Required Steps . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Cherry Picking of Cases or Providers . . . . . . . . . . . . . . . . . . 12
3.6 Attacking “Sweet Spots” in the Market for Audits . . . . . . . . . . 12
3.7 Providing Large Amounts of Irrelevant Information . . . . . . . . . 13

4 Should Dr. X Settle? 13

4.1 Revisiting the Decision to Litigate . . . . . . . . . . . . . . . . . . . . 15

5 Seven Points in Your Defensive Strategy 16

5.1 Combine Coding Analysis with Statistical Forensics. . . . . . . . . . 18
5.2 Ensure You Make Comprehensive Discovery Requests. . . . . . . . 18
5.3 Request Electronic Versions of Data, not Print-Outs. . . . . . . . . . 19
5.4 Double Check that Electronic Data is Complete, and Not Password
Protected or “Hidden”. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.5 Separate Out Boilerplate from Case-Relevant Data. . . . . . . . . . . 20
∗ Barraclough
Ltd. is a New York State corporation that specializes in providing Research
ArchitectureTM and expert advisory services, including forensic statistics for Medicare appeals.
Address: 135 East 54th Street 4-B, New York, N.Y. 10022-4509 Tel: (646) 416-6592

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Medicare Overpayment Demands Seven Strategies

5.6 Look for Selective Quoting of PIM. . . . . . . . . . . . . . . . . . . . 20

5.7 Look for Abnormalities in the Statistical Procedure Used. . . . . . . 20

6 Shopping in the Bazaar 22

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 Abstract
Medicare fraud is an important problem. Qualified Independent Contrac-
tors (QICs) and Recovery Audit Contractors (RACs) perform audits to re-
cover over-payments made to health care providers. The extrapolated refund
demand is the result of an analysis of a statistically random sample of your
client’s claims. Coding analysis is used to determine a general error rate for
claims submitted. This error rate is then extrapolated against the total uni-
verse of paid claims to create the final overpayment demand.
Forensic statistics can be used to expose errors made in the extrapolations
leading to the overpayment demand. This document reviews 7 strategies to
consider in order to get the best outcome possible for your client.

Keywords: RAC; Recovery Audit Contractor; CMS; Medicare Fraud; Audit;

Overpayment; Overpayment Demand; Statistics; Forensic Statistics; Defense
Strategy; Extrapolation
Medicare Overpayment Demands Seven Strategies

1 The Setting
After a recent Administrative Law Judge (ALJ) hearing, we were very pleased to
read the decision:

“The extrapolated refund demand is invalid.”

Out of the more than 100 pages comprising the ruling, these were the
words we were waiting for.
After much research and investigation, finally we had cracked some of
the statistical fog hiding behind the extrapolated refund demand. The work had
paid off, and the client was saved more than $2 million dollars.
Our client fit the typical pattern for many health care providers who
must endure an audit – small, efficient, and highly-specialized in a particular
procedure, in this case pain therapy. He was an exceedingly hard-working first-
generation immigrant who routinely turned in more than 13 hours per day. Let’s
call him Dr. X.
Perhaps his excessive amount of work was responsible for his practice PIM § 3.2 P 1
“deviation
being “tagged” as being “above the national average” for his particular type of indicators”

billing. No one knows. But tagged he was.

Dr. X received the standard letter requesting complete documentation
on a number of his cases. He was told that a “statistically valid random sample”
(SVRS) had been conducted across his “universe of claims” covering a period of
the past 5 years. The analysis of these claims revealed his practice had an “error
rate” of around 27 percent. As a result, when that error rate was applied to all of
the claims he had submitted during that period, he had been overpaid more than
$3 million dollars.
Dr. X went into shock, and after recovering, called his attorney.

2 How the Process Works

For a reader unfamiliar with the process, here is how it usually goes. As it is To skip this
section, go to
based on the 42 CFR 405, what we find is a more or less standard administrative page 15.

procedure.

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2.1 Targeting of Health Care Provider

Using a database containing the average billing for various medical procedures,
vast data mining programs sift through the claim records of thousands of health
care providers and identify those who present atypical billing patterns.
Although conceptually simple, in practice this is a difficult process. There
is an apple and oranges problem. What exactly constitutes a “coherent class” of
health care providers? How realistic is it to compare the billing practices? This ac-
tually may be one of the first problems with the ensuing audit; the targeted health
care provider may not fit well into the class they are said to represent.
Our Dr. X had this exact problem. He was focused solely on providing
pain therapy, usually by providing injections. What class was that again?

2.2 Statistically Valid Random Sample

After the health care provider is picked as a target, a statistical analysis is per- PIM § 3.10

formed on all of the claims they submitted during a fixed time period, usually
3-4 years. The purpose of this analysis is to identify a Statistically Valid Random
Sample (SVRS) of claims, then pull them out for further analysis.
The theory says there is no need to examine all of the thousands of claims
submitted by the health care provider. Providing the sample is valid, then a care-
ful analysis should give a reliable picture of the overall universe of paid claims.
So far; so good.

2.3 Request for Claim Information

Once the SVRS has been identified, the Program Integrity Manual, known univer-
sally as “the PIM”, gives the auditor authority to request complete information on
each claim in the sample.
Dr. X shuttered as the first letter came with this demand. He experienced §405.921(b)

the same type of feeling one gets when an IRS letter arrives: “Is it an audit?”
Next the office manager was asked to pull together the complete records
on each of the claims, get them photocopied, and then send them in for analysis.
There is no provision made in either the CFR or PIM for the expenses associated
with fulfilling this request. For small practitioners, it may be the doctor them-
selves who do this work.

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It is necessary to provide every record in the file, but the more informa-
tion provided, the more opportunity is given to the auditor to find fault.

2.4 Analysis of Claims

After the claims arrive, they are analyzed one by one. “Medical necessity” is one Coding Review

of the key screening criteria used. If the claim does not meet this hurdle, it then
is considered to be an error, that is, an overpayment. In addition to “medical neces-
sity”, there are many other reasons why claims might be placed in the “overpay-
ment” category.
Since claims are analyzed according to procedure codes, this phase in the
process many times is called “coding review”.

2.5 Determination of Error Rate

After the coding review is completed, an overall error rate is determined. For The Error Rate

example, if there were 100 claims in the sample, and 25 were found to have been
overpayments, then the analyst would report out an “error rate” of 25 percent.

2.6 Application of Error Rate Against Entire Universe of Claims

Once this “error rate” is established, it then is applied against the large “universe”
of claims that have been paid to the health care provider. There are statute of
limitations rules for how far back in time the auditor can go. Generally this is
around 4 years.
Here is an example: If Dr. X has been found to have an “error rate” of 25
percent, then 4 years of his claims would define the “universe”. How much was
paid out? If in those 4 years, $12 million dollars has been paid out, a relatively
simple calculation is taken:
 
! " Total Medicare ! "
Error Overpayment
x  Payments Received  =
Rate Amount
(4 Years)

Since $3 million dollars is 25% of the $12 million received, Dr. X receives
a letter demanding $3 million be returned.

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The auditor gets a “take” of the pie, reaping as much as 12.5% of what-
ever monies are recovered. Here, this would be $500,000 dollars for the auditor,
with the remaining $2.5 million being returned to the Medicare Trust Fund.
Theoretically at least, all of the parties benefit from this arrangement.
The Medicare Trust Fund gets back monies that were wrongfully paid out. The
auditor receives a commission to sustain its operations, and by the way make a
comfortable profit.1
In fact, there is more subtlety to the statistical analysis than reported here.
For example, most calculations are given with a number for their confidence in-
terval, usually given as 10-90. But we will skip over these details here.

2.7 Litigation Starts

The only problem arises if Dr. X does not trust the analysis, or does not believe the
process was fair.
For the vast majority of health care providers, the piles of supporting
documentation, combined with the inpenetrable statistical analysis convince them
to pay up without a fight. For others, the result may be different.
Many believe the analysis is wrong, but by simply comparing the amount
in controversy against what they perceive to be the possible legal costs for filing
an appeal, they go ahead and pay anyway, just to get it “off their back”.
Here we are concerned with those health care providers who decide to
litigate. For them, the CFR has set out a clear procedure of appeal. Apart from a
few variations here and there, the steps are as follows:

1. Initial Determination (42 CFR §405.920)

2. Redetermination (42 CFR §405.940)

3. Reconsideration (QIC Review) (42 CFR §405.960)

4. ALJ Hearings (42 CFR §405.1000)

5. Medicare Appeals Council Review (MAC) (42 CFR §405.1100)

6. Federal Court (42 CFR §405.1132,1134,1136)

1 By use of repetitive analytical sequences, the contractor is able to “mass produce” its work,
and thus reap economic rents for its method of work.

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7. USSC

For all practical purposes, the bulk of overpayment appeals are taken up
only to the ALJ level.
Although there are many avenues for appeal, 99% rely upon a robust
argument that the coding review of claims was faulty.
In effect, the appellant argues that many of the claims classified as over-
payments, that is as “errors”, were in fact justified.
ALJ hearings may go on for hours as each claim from the sample is dis-
cussed and reevaluated de novo.

2.8 Use of Coding Analysts

Most if not all appellants use a specialist in coding to counter the analysis done
by the Qualified Independent Contracter (QIC).
Coding analysis is the process by which an independent third party re-
views each and every claim in the sample. Essentially, they re-do the work already
done by the QIC auditor.
If the auditor has made any mistakes, these are identified.
There are many ways in which a coding analysis can help improve the
prospects for the appellant health care provider. Regulations may have been
wrongly interpreted; arbitrary decisions could have been made regarding med-
ical necessity; some claims possibly were rejected on spurious or absurd grounds
— all of these and more can form the basis of the appellant’s argument.
The results of the coding analysis are then bundled together with any
other basis for an appeal and then sent for redetermination.
A review of the statistical analysis may be developed at this stage in the
process.

2.9 Redetermination
After all of these documents are assembled into a record they are sent up to the
next level in the appeal process. A neutral third party then revisits the entire
matter. This is called the “redetermination”.
The results are published into three categories:

Favorable: Each of the appellant’s objections raised are agreed to.

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Partially Favorable: Some of the objections are agreed to; but for the others, the
redetermination agrees with the original assessment.

Unfavorable: Nothing raised by the appellant is agreed to. All of the errors re-
main as errors. Time to think about paying up.

At this point, many health care providers settle; but what factors deter-
mine if an appellant settles or not?
One factor may be whether or not the auditor’s analysis is credible. Here,
the problem is that often they have failed to make their case.

3 Typical Problems with Auditor’s Analysis

We have examined a number of claims against health care providers and found
a recurring pattern of what in the most generous terms can be characterized as
sloppy work, usually resulting in substantive and material errors.
Here are a few highlights of the most common problems:

3.1 Incomplete Explanation

According to the rules, the health care provider is owed a complete explanation
of the analysis that is behind the refund demand. Certainly this process is not
random, or subject to individual prejudices. At least it is not supposed to be.
Nevertheless, in more or less every case we have examined, the explana-
tion given for the refund demand, including the extrapolation of what is due back
is woefully in adequate. It is not uncommon to see entire parts of the analysis
eliminated altogether.

3.2 Misleading Explanations

Another common pattern we see is the use of extensive reference to complicated
statistical formulas, when they are either not actually used in the analysis, or if
they are, where there is zero explanation of how they were used.
In many cases, the auditor simply provides a photocopy of 6-7 key sta-
tistical formulas from a popular textbook.
The implication is that these formulas and their underlying valid statis-
tical methodology have been used in the estimation of how much is to be clawed

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back. However, upon subsequent more detailed analysis, we have never seen
even one case in which all of the formulas were used.
The implication is clear. The auditor has put in these formulas as a type
of “window dressing” to convince the reader that underlying their refund de-
mand lies a sophisticed statistical methodology.
In reality, it is rare that the judge can read or clearly understand these
mathematical notions, and the same can be said of the judge’s staff, or most if
not all of the attorneys involved. So the result is what would be expected: These
formulas receive little scrutiny, and accomplish their intended purpose of giving
the impression of a solid statistical analysis when in fact none may have been
performed.

3.3 Critical Omissions in Explanation

In some cases, the auditor provides a partial explanation, but omits to explain crit-
ical steps in the analysis. For example, the auditor may claim to be using certain
formula, but never show how the formula were used.
Claiming to use valid statistical formula is not the same as actually showing
that you did it.
The auditor is required to show their work. Merely providing a descrip-
tion of what the auditor claims was done is not sufficient.
It is not possible to get behind the motivations for this, but in a number
of cases, we have found that the auditor was using the formulas improperly. In
several cases, fake or manufactured data was being inserted into critical formulas Manufactured
Data
early on in the process. The effect was to generate an extreme bias later on in the
analysis — a bias against the health care provider.

3.4 Skipping Required Steps

The PIM requires that no matter what approach is taken, the auditor must use a
valid statistical procedure.
Unfortunately, it has been even more common to see evidence that the
auditors have skipped entire steps in the proedures specified by the PIM. For ex-
ample, there is a pronounced proclivity to take liberties in the sampling, particu-
larly as regarding the underlying error rates.

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But in numerous cases, we find that instead of taking a probe sample

to determine the underlying error rate in the universe of claims, instead critical
assumptions are made regarding this error rate, even before even a single claim
has been subjected to analysis. This is a remarkable lapse of due process.
After the skipping of critical steps is identified, then it becomes easy for
the trier of fact to see them. However, the auditors appear to have developed the
art of writing up a convincing explanation for their work in such a way that on
the first reading these flaws are not noticed.

3.5 Cherry Picking of Cases or Providers

Although it never has been proven, there remain strong suspicions regarding the
cases chosen. For example, if the initial cases picked for the audit have a high
error rate, then it naturally will bias the level of the refund demand.
These suspicions are prevalent particularly when the initial claims for
error approach 100%, as they frequently do. This means, in effect, that all of the
claims submitted have problems and must be rejected.
Such assertions are common in this field, but strain credibility.

3.6 Attacking “Sweet Spots” in the Market for Audits

If a dog bites an elephant, it can be crushed. If the same dog bites an insect, it can
win, but only a small victory. To be most effective, the dog must bite something
in the mid-range. In this way, it has the best chance of balancing success against
the maximum amount of nutrients it can get.
Auditors work on an incentive basis: They receive a commission of what-
ever is recovered. This provides an important incentive for them to make the
broadest claims possible. The more recovered, the richer they become.
Like the barking dog, if the target is too large, they can expect strong
push-back with a heavily financed army of attorneys. If the target is too small,
then the returns are too small to merit the effort.
Technically, there is no clear guideline regarding the size of those providers
being treated to an audit. It is clear the criteria are flexible, and can depend on ev-
erything from whistle-blowers to a comparison to peers (to see if they are charging
about the same across the sector. Nevertheless, it might be interpreted as a lack of

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due process if only certain parts of the market were chosen for the most intensive
audits simply because this would yield the highest revenue for the auditor.
For the time being, there is little if any discovery mechanism short of a
class action suite to investigate more fully how the targets are chosen.

3.7 Providing Large Amounts of Irrelevant Information

We also have seen a disturbing trend by some auditors to burden the health care
provider with an excessive amount of completely irrelevant information. For ex-
ample, in one case, as part of their justification for the statistical procedure used
the auditor includes more than 100 pages of a photocopied software manual.
We never learned what the response from the ALJ looked like, but can
only imagine. Was anyone supposed to actually read this material? Was it meant
to cover up the lack of a true explanation? One can only speculate as to the out-
come as the Judge realized this pile of irrelevant information had been inserted
into the record, thus requiring a careful but unnecessary reading by the trier of
fact.

4 Should Dr. X Settle?

In our case, Dr. X was asked to return $3 million dollars. This was because the
auditor determined there was a 25% claim error rate.
In reality, receiving a completely “favorable” result from the redetermi-
nation phase is rare. So lets assume that based on the redetermination, the under-
lying error rate was reduced from 25% to 12%. Now, Dr. X is asked to pay back a
different amount: ($12 million)x(12%) = $1,440,000 dollars.
Did litigation make sense?
As a result of retaining an attorney to navigate the appeal process, the
amount that must paid back has been reduced from $3 million to $1,440,000 dol-
lars, a difference of $1,560,000 dollars.
Lets assume that the price of hiring the coding expert was $15,000 dol-
lars, and the total charges from the attorney are around $28,000 dollars for a total
of $43,000 dollars.
In this case, Dr. X has spent $43,000 dollars so as to reduce what he must “Litigation Tax”

return by $1,560,000 dollars. This amounts to a “litigation tax” of a little less than
2.9% — a bargain!

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Figure 1: Auditors may pick a “sweet spot” in the market — health care providers
not large enough to defend themselves, but with claims large enough to make
audits worthwhile for the auditor (who works on a commission of what is recov-
ered).

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We should note, however, that as the amount in controversy decreases,

the litigation tax rises. At some point, litigation becomes such a high percentage
of what is saved, that it might not be worth it.
For example, here $1,560,000 was saved and the litigation costs were
around 2.9%. As the amount saved decreases, litigation costs become more ex-
pensive. If $877,500 is saved, litigation is about 5%. If only $277,646 is saved, then
litigation is more than 15%. At $117,132 dollars, litigation is about 35%, about the
same level as contingency work. As the amount falls further, then litigation be-
comes less cost effective. At $65,887 dollars, litigation is 65.3%. As we approach
$43,000 dollars, the litigation costs are 100%. If less than that is saved, then litiga-
tion costs become greater than the benefits to the appellant. For example, if only
$15,635 is saved, then litigation costs are 206%.
Of course, we have assumed that as a result of the “partially favorable”
result from the redetermination, the level of errors has dropped from 25% to 12%.
Unfortunately, there is no reliable published information on the average
percentage amount of reduction, and even if there were, there are so many vari-
ations in cases it likely would be meaningless. Anecdotally, a safer bet would be
that the most errors will be reduced is about a third, and only under exceptional
circumstances.
So going back to our numbers, still the “litigation tax” would amount to
less than 5 percent.
Of course if there is an “unfavorable” result, then nothing is saved, and
Dr. X is out by $43,000 dollars and still is obligated to pay back the $3,000,000
dollars.
As the amount in controversy balloons, the appellant can tolerate litiga-
tion that achieves a relatively smaller percentage reduction in what must be paid
back. Another way to say this is that for smaller cases, the attorney must be more
effective.

4.1 Revisiting the Decision to Litigate

As discussed above, the decision to litigate is influenced by an assessment of how
much will be saved compared to how much will be expended in litigation. In
Figure 2 on Page 17, the amount that Dr. X must repay is shown as a function of
two factors: (1) the reduction in the demand that may take place with a “partially
favorable” outcome from the reconsideration phase; and, (2) the degree to which

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litigation can further reduce this number during the ALJ appeal process.
Obviously if Dr. X has received $12,000,000 in payments and there is a
100% error rate, and no appeal is taken, then all must be paid back. If an attor-
ney has been asked to assist, then it is possible that Dr. X might manage during
redetermination and reconsideration to get a 50% reduction.
Although there are no hard and fast numbers, an informal survey shows
that most “partially favorable” reconsideration outcomes are in the range of 75%–
90% of the original demand, leaving Dr. X still with a great amount to repay.
The next analysis is whether Dr. X can hire an attorney to move the re-
payment amount even further down the graph.
The only logical rule is that the amount spent in litigation L must be
less than the amount of overpayment reduction at the reconsideration and ADL
appeal stages. Assume O is the initial overpayment demand, OR is the Over-
payment demand remaining after redetermination & reconsideration, and O A is
amount of Overpayment remaining after the administrative appeal. Then for each
stage, litigation pays providing it is less than the amount of reduction. L < OR
and L < O A .
So Dr. X simply needs to make a guess as to whether or not the estimated
legal costs are less than what he thinks he can get from sticking to his position.
We will now turn to the different techniques used to slide down the
slope, and reduce even further the amount to be paid back.

5 Seven Points in Your Defensive Strategy

We have found three tactics to be useful in reducing or eliminating altogether the
overpayment demand:

Due Process: The attorney remains on alert for any failure in administrative pro-
cedures. Experience shows that these often come during the discovery pro-
cess, since QICs are reluctant to hand over their complete work and tend to
stall.

Coding Analysis: An expert is brought in to re-examine the coding work done

during either the initial or redetermination stage. The analyst is on the look-
out for biased interpretations of the reimbursement rules, particularly as re-
gards “medical necessity” and documentation.

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Figure 2: The Decision to Litigate. The effectiveness of litigation depends on how

much litigation is able to reduce the overpayment percentage after reconsidera-
tion and the ALJ hearing.

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Medicare Overpayment Demands Seven Strategies

Forensic Statistics: A mathematical statistics expert is brought in to examine the

underlying methodology used to find the initial sample of claims used to
define the error rate and extrapolate the overpayment demand.
Based on our experience in using forensic statistics to defeat overpayment de-
mands, we have developed a check-list of seven things the legal team can do to
obtain for their client the best possible outcome.

5.1 Combine Coding Analysis with Statistical Forensics.

It is a common error to ignore the statistical side and rely exclusively on coding
analysis.
Coding analysis is absolutely essential, but also “incremental” in nature
— it will allow Dr. X in each round to get a reduction in the error rate, and thus he
will have to pay less.
Forensic statistics works differently. Practice has shown that many sta- Eliminate
Entire
tistical mistakes made are extremely serious, and if exposed can work wonders Extrapolation

for the appellant. Instead of getting incremental reductions, it works to eliminate

altogether the validity of the extrapolation. When this strategy is successful, Dr. X
may end up being responsible for payment of the overpayments uncovered in
the sample, but the extrapolation to the overall universe of claims – a much larger
number – will be excluded.
The best strategy uses both types of attack and this doubles the chances
of delivering a substantially better outcome.

5.2 Ensure You Make Comprehensive Discovery Requests.

Although the C.F.R. provides for “good faith” in discovery, in the cases we have §405.1037(d)(1)

seen, what happens usually falls far short.

Audit contractors tend to provide “boiler plate” for much of their docu-
mentation. Also they tend to skip on providing details explaining how they used
statistical procedures.
As a consequence, your discovery requests must be comprehensive and
leave no wiggle room for evasion. Here is a reasonable example of a workable
discovery request:
“[A]ll statistical information, formulas, applications, spreadsheets, sam-
plings and extrapolations used in every step of the [Dr. X ] case.”

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By ensuring that all relevant information is requested up front, any fail-

ure by the QIC to provide such information raises a “good faith” question.

5.3 Request Electronic Versions of Data, not Print-Outs.

We have noticed that one “trick” used by the audit contractors is to respond to
discovery requests by providing paper print-outs of their work.
Should this occur, it is extraordinarily burdensome on your client:

1. It slows down the analytical process, because anyone looking at the statistics
manually must re-create the spreadsheet containing the data being analyzed.

2. It conceals how calculations were made. Instead of actually “showing their

work”, the QIC simply submits to you what they claim are the results of their
calculations.

Tricks like these burden your client with thousands of unnecessary dol-
lars in expenses because it complicates the statistical forensics process.

5.4 Double Check that Electronic Data is Complete, and Not Password
Protected or “Hidden”.
Another frequent “trick” is to provide electronic data, but to leave it password
protected. In one case, the contractor provided an electronic version of its calcu-
lations, but used the “hide column” software feature to cover up critical columns
in the spreadsheet.
When we eventually were permitted to see these columns of data and
formulas, it became clear why they were hidden.
If this type of problem is uncovered, the attorney immediately must go
back to the contractor with another discovery demand. After some more foot-
dragging, there usually is a response.
The effect on your client, however, also is negative – much valuable time
is wasted, your response time is shortened, and the expense meter continues to
click away.
The attorney always holds the threat of filing for sanctions, but in prac-
tice this rarely is allowed by the ALJ.

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5.5 Separate Out Boilerplate from Case-Relevant Data.

One check point we have found to be very useful is the weeding out of “boiler-
plate” information. This is done as soon as materials arrive from the audit con-
tractor. Here is how one of our experts put it:

“Many times more than 95% or more of the materials received from the
audit contractor are boilerplate. After a while, you start to recognize
the same stuff over and over. In once case, they even supplied a copy
of Chapter 3 of the RAT-STATS manual as ‘evidence’ of the quality of
their work.”

By identifying these materials ahead of time, you can save your client
significant money before the case is handed over to the forensic statistics team.

5.6 Look for Selective Quoting of PIM.

We have found numerous instances in which portions of the PIM have been quoted
selectively so as to bias the discussion in favor of the audit contractor. For exam-
ple, a popular quotation points out that “the statistical sample is not a basis for an
appeal”.
This convenient quotation leaves out important other accompanying lan-
guage that when examined may lead to a completely opposite rule.
We recommend that each and every instance of a PIM quotation be care-
fully analyzed to ensure the audit contractor has not twisted the meaning or
quoted without full context. Look for instances where although the quotation is
correct, the contractor’s interpretation of the language is arbitrary and prejudicial
to your client.
Advice: Double-check every PIM quotation.

5.7 Look for Abnormalities in the Statistical Procedure Used.

Getting a clear understanding of the mathematical statistics behind the QIC’s
work is the most crucial element to defeat an extrapolated refund demand. Doing
this is challenging and can be entrusted only to a trained expert possessing a great
deal of experience.

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Always keep in mind the following: Usually very few parties involved
have a sufficient knowledge of statistics. This includes your client, yourself as the
attorney (unless you are an exception), the QIC, and almost certainly the ALJ.
When faced with the dozens of pages of statistical analysis and boiler-
plate, the most common reaction is to wave it through and not question it.
Our experience has shown that this is exactly what many audit contrac-
tors count on. They send in page after page of statistical boilerplate, and at first
read, it always appears to be convincing.
Only a trained eye can see the cracks in the façade.
The key to discrediting a extrapolated overpayment demand is to show
that the audit contractor failed to use a “Statistically Valid Random Sample” when
it picked out the claims that later would be subjected to the auditor’s coding anal-
ysis.
Here are only a few of the many anomalies we have detected in analysis
of audit contractors’ work:

No Documentation: In some cases, even though as many as 100 pages may be

supplied, in fact the statistical procedures used are not even documented.
The forensic statistician is left completely in the dark about what has tran-
spired.

“Bait & Switch” Variables: Many times the audit contractor will describe a pro-
cess in which one variable is used as a so-called “proxy” for another. Al-
though this usually is explained in what at first appears to be a convincing
way, switching variables always raises a red flag and usually invalidates the
analysis.

Biased Assumptions: Always look for any statistical or numerical assumption

made in the analysis. Behind every number we find an assumption that has
an effect on your client. Understanding all assumptions and how they are
made is a key to unlocking material errors in the analysis. For example, it
is not uncommon to find an assumption of a 100% error rate built into an
analysis before even a single claim has been analyzed.

Mis-Use of Equations: Make sure that you understand every equation used. Then
go back and double-check each equation was used the exact way it was in-
tended. For example, you should be able to track down the source of each

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Medicare Overpayment Demands Seven Strategies

piece of data fed into every equation. We often have found mis-use of equa-
tions and discovered that if serious enough this may lead to throwing out
the refund demand altogether.

Those are only a few of the points to look for. There are many others that
can be discovered by a trained expert.

6 Shopping in the Bazaar

Bargaining in the Bazaar is not unlike negotiations over an extrapolated refund
demand. The price starts high, then courtesy of good legal representation is chis-
eled down. But like all negotiations, the trick is knowing where to start. The seller
in the Bazaar knows the answer — the higher the initial number, the higher will be
the eventual price agreed upon. One attorney returning from Istanbul reported:

“I was buying a simple brass coffee mug. The initial price was $550
dollars, many times its actual value. I huffed and puffed and the price
was lowered to $250 dollars. As the negotiations continued, I played
the game of acting less interested, and repeatedly threatening to walk
away. The price dropped from $250 to $150, then to $99, then to $50
dollars. The seller looked like he was going to die on the spot. He
was a great actor. Finally we decided on a price of $7 dollars, which
undoubtedly was 2-3 times its real value.

In the lengthy and cumbersome redetermination and appeals process,

defense teams rarely question that initial number; but if it is not questioned, by
default it is accepted.
These negotiations all too often work as a bargaining game. The first
party to specify a number has the advantage. Here, the advantage goes to the
QIC. Their strategy appears to be to get a high number out there, then during
redetermination have it knocked down somewhat. There is a convenient illusion:
The QIC has given a little and attorney has “saved” the client some money. But is
it enough? And does it exhaust the possibilities?
Our experience has shown that this first number is the most vulnerable to
a forensic statistics attack. If this first number can be knocked out, then everything
downstream also falls away.

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Medicare Overpayment Demands Seven Strategies

We argue that much more can be saved if a strong statistical challenge is

made to that initial high number.
The bottom line is this: Rather than focusing merely on reducing the
value of the initial extrapolated demand number, instead, focus on getting it invali-
dated altogether.
The only way to do this is through a statistical attack.
When you are successful, your client will become responsible only for
those claims that actually have been examined, not for an entire universe of unex-
amined claims subjected to a made-up “error rate”.
When this happens, the client benefits greatly. First, the large number is
taken off the table; Second, the attorney is able to demonstrate their legal fees are
only a small fraction of the amount saved. And that is good for everyone, except
perhaps the attorney . . .

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Medicare Overpayment Demands Seven Strategies

About the Author

Edward M. Roche, Ph.D., J.D. is the Director of Scientific Intelligence for Barr-
aclough Ltd.. He is a member of the California Bar and the American Health
Lawyers Association.

Barraclough Ltd. is an advisory firm that provides litigation support,

including forensic statistics.

Barraclough Ltd.
New York, NY 10022
Tel: (646) 416-6592
Web: http://www.barracloughltd.com
Email: info@barracloughltd.com

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