Fifth Circuit Court of Appeals Sustains Use of Sampling and Extrapolation in Medicare ‘Lack of Medical Necessity’ Audit Finding
On June 22, 2017, the United States Court of Appeals for the Fifth Circuit, in Maxmed Healthcare, Inc. v. Price, upheld an administrative determination by a Medicare Administrative Contractor (MAC) based on an audit of a sample of 40 home care claims. From its sample findings, the MAC extrapolated to a universe of 130 claims and determined that the home care agency under audit had been overpaid almost $800,000 on the grounds that the sampled patients were not homebound or the services provided were not “medically necessary.” The Maxmed Court’s endorsement of sampling and extrapolation involving medical-necessity reviews may have broader implications for the use of that tool in False Claims Act (FCA) investigations and lawsuits.
Among other arguments, Maxmed Healthcare, the home care agency under audit, maintained that any overpayment based on lack of medical necessity “should only be determined after a review of each beneficiary’s specific claims, and it is fundamentally at odds with extrapolation concerning home health care claims.” Citing to the federal Centers for Medicare and Medicaid Services (CMS) Medicare Benefit Policy Manual and the Medicare Act, the Fifth Circuit held, to the contrary, that Congress and CMS contemplated the use of sampling and extrapolation in post-payment audits, where “there is a sustained or high level of payment error.” Citing 42 U.S.C. § 1395ddd(f)(3)(A).
In defending against FCA actions premised on the alleged lack of medical necessity of services, providers have argued that disputes over medical necessity involve essentially subjective differences in medical opinion as opposed to the “objective falsity” of Medicare or Medicaid claims, and that a medical-necessity determination requires a particularized claim-by-claim review, specific to each patient, that does not allow for extrapolation to a universe of hundreds or thousands of other claims. Those arguments may be more difficult to sustain under the Eleventh Circuit’s holding in Maxmed. To avoid the reach of Medmax, providers in FCA cases will likely try to distinguish the “garden variety” audit liability involved in Medmax from the liability imposed under the False Claims Act – with its per claim penalties and treble damages – premised as it is on a finding of falsity among other rigorous elements.