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A federal appeals court has ruled that a government contractor may justifiably calculate the amount a provider owes for Medicare overpayments by conducting a limited audit and then extrapolating from those findings.  

Pennsylvania-based company John Balko & Associates Inc. lost an appeal challenging the right of Medicare administrator contractor SafeGuard to conduct an audit by “extrapolation method” after suspicious billing patterns surfaced. 

During the billing audit in 2008, SafeGuard relied on a statistical sampling to review the providers’ claims. This occurred per a practice outlined in the Medicare Program Intermediary Manual. 

From more than 5,400 involved beneficiaries, SafeGuard reviewed 581 claims from 81 beneficiaries, including podiatry and auditory services, according to court documents. From that sampling, the contractor determined that overpayment occurred in 99% of claims. 

In fact, according to court documents, Balko was found to be “the highest-paid provider rendering services to residents at nursing homes in Pennsylvania, and appeared to be providing certain services on a scheduled, periodic basis not eligible for Medicare payment.”

Balko argued SafeGuard’s extrapolation was unfair because it used the same sample to both determine the overbilling rate and extrapolate the amount of the overpayment. The Medicare Appeals Council, which handled an earlier appeal by Balko, and the federal appeals court, determined that a separate sample is not required for extrapolation. Court documents from the February 12 federal appeals court decision stated the Medicare Appeals Council’s decision against Balko was “supported by substantial evidence.” 

One benefit the appeals process did bring to Balko was a reduced Medicare bill. The amount Balko now owes is roughly $640,000, down from the initial $857,000.