Schuldt Chiropractic Wellness Center v. Sebelius
MEMORANDUM AND ORDER- The Motion for Summary Judgment submitted by Plaintiff Schuldt Chiropractic Wellness Center ("Schuldt") (Filing No. 38 ), is denied; The Motion for Summary Judgment submitted by Defendant Kathleen Sebelius, in her c apacity as Secretary of the U.S. Department of Health and Human Services ("HHS") (Filing No. 36 ), is granted; The Plaintiff's Complaint (Filing No. 1 ) is dismissed, with prejudice; and A separate Judgment will be entered. Ordered by Chief Judge Laurie Smith Camp. (MKR)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
SCHULDT CHIROPRACTIC WELLNESS
KATHLEEN SEBELIUS, in her capacity as
Secretary of the U.S. Department of
Health and Human Services,
CASE NO. 8:13CV4
This matter is before the Court on the Motions for Summary Judgment submitted
by Plaintiff Schuldt Chiropractic Wellness Center (“Schuldt”) (Filing No. 38), and Defendant
Kathleen Sebelius, in her capacity as Secretary of the U.S. Department of Health and
Human Services (“HHS”) (Filing No. 36). For the reasons discussed below, Schuldt’s
motion will be denied, HHS’s motion will be granted, and the decision of the Medicare
Appeals Council (Filing No. 1-4) will be affirmed.
The parties’ briefs (Filing Nos. 37, 39, 42, 43, 44, 45) and the HHS Administrative
Record (Filing Nos. 17, 18, 19, 20, 21, 22, 32) reveal that there are no genuine issues as
to any material facts for purposes of this Court’s ruling on the parties’ motions.
Schuldt is a health care provider that received reimbursement for chiropractic
services it provided to Medicare beneficiaries. Wisconsin Physician Service (“WPS”) is a
Medicare Zone Program Integrity Contractor for HHS that conducted an expanded postpayment medical review of claims submitted by Schuldt for chiropractic services furnished
to 75 beneficiaries, from January 2008 through March 2010, with payment dates from
January 2008 through April 2010. The review was conducted by statistical sampling of 214
claims representing 445 services billed, out of a “universe” of 5,098 services billed for 154
beneficiaries. The review caused WPS to conclude that payments to Schuldt by HHS in
that time frame had a 99.55 percent error rate, equating to an actual overpayment of
$11,376.13 for the 445 service claims submitted. Using that data for guidance, WPS
extrapolated a projected total overpayment to Schuldt for the universe of claims in the
amount of $126,041.31.
On February 7, 2011, WPS notified Schuldt of the alleged overpayment in the
amount of $126,041.31; and on March 2, 2011, Schuldt appealed. On May 4, 2011, on
redetermination pursuant to 42 C.F.R. § 405.954, WPS affirmed its earlier decision,
following a review by a different examiner, using the same statistical method, who
determined that more of Schuldt’s claims should be denied. Schuldt timely requested
reconsideration by a qualified independent contractor (“QIC”) under 42 C.F.R. §
405.974(a), and the QIC, C2C Solutions, Inc., af firmed the WPS decision.
On September 19, 2011, Schuldt requested a hearing before an Administrative Law
Judge (“ALJ”) pursuant to 42 C.F.R. § 405.1002. On April 26, 2012, ALJ William J. Cowan
conducted a telephonic hearing to review the independent contractor’s decision. The
record before the ALJ included WPS’s expanded post payment medical review and
analysis of records of statistically selected beneficiaries, the WPS redetermination, and the
QIC reconsideration. No representative, agent, or witness appeared on behalf of HHS.
Upon independent review of the 445 services billed, and considering issues of
coverage, liability, and overpayment waiver, the ALJ found that 344 of the services billed
were properly submitted and Schuldt should be paid for them. Considering the opinion of
Schuldt’s statistical expert, Dr. Bruce Kardon, Ph.D., and the ALJ’s own statistical expert,
Dr. John Adams, Ph.D., the ALJ concluded that W PS’s “statistical sampling method and
extrapolation and results were insufficiently reliable to be used for the purpose of
estimating an overpayment to a larger universe than the sample itself.”
Chiropractic Wellness Ctr., ALJ Appeal No. 1-828654453 (HHS June 8, 2012) (“ALJ
Decision”) (herein, Filing No. 1-1, at 22).
On August 6, 2012, the Center of Medicare and Medicaid Services (“CMS”), a
division of HHS, filed a referral memorandum with the Medicare Appeals Counsel (“MAC”),
asserting that the ALJ’s decision contained an error of law material to the outcome of the
claim. The MAC, on its own motion, conducted a de novo review of the ALJ’s decision
pursuant to 42 C.F.R. § 405.1100© on the single issue of whether Schuldt met its burden
of proving that the statistical sampling methodology used by WPS was invalid and
insufficiently reliable to be used for the purpose of estimating an overpayment to a larger
universe of claims. The MAC issued its own decision on November 2, 2012, concluding
that the ALJ erred in finding WPS’s sampling methodology and overpayment extrapolation
to be invalid. Schuldt Chiropractic Wellness Ctr., ALJ Appeal No.1-828654453, Docket No.
M-12-2097, WL 10067325 (HHS Nov. 2, 2012) (“MAC Decision”) (herein, Filing No. 1-4).
The MAC reversed the ALJ’s decision in that respect alone, not addressing or disturbing
the ALJ’s findings with respect to issues of coverage, liability, or overpayment waiver.
On January 4, 2013, Schuldt filed this action, requesting a review of the MAC
decision. On January 31, 2013, WPS issued a “Recalculation of Projected Overpayment,”
applying the ALJ’s findings with respect to coverage, liability, or overpayment waiver to the
sample of 445 services billed, and determined that the overpayment by HHS to Schuldt for
the universe of claims was $37,580.00. Schuldt has paid that am ount to WPS.
STANDARD OF REVIEW
The Court’s review is limited to determining whether HHS’s action, reflected in the
MAC Decision, is supported by substantial evidence in light of the record as a whole.
42 U.S.C. § 405(g) (“The findings of the Commissioner of Social Security as to any fact,
if supported by substantial evidence, shall be conclusive . . . .”).
Statistical sampling, with extrapolation of results to the universe of all claims for
recoupment purposes, may be used to determine overpayments to Medicare and Medicaid
providers suspected of overbilling, “so long as the extrapolation is made from a
representative sample and is statistically significant . . . .” Chaves Cty. Home Health Serv.,
Inc. v. Sullivan, M.D., 931 F.2d 914, 922 (D.C. Cir. 1991). “[E]xtrapolation based on a
review of a relatively small sample is a valid audit technique in cases arising under the
Social Security Act.” Illinois Physicians Union v. Miller, 675 F.2d 151, 155 (7th Cir. 1982)
(addressing alleged Medicare overpayments). Sampling “only creates a presumption of
validity as to the amount of an overpayment which may be used as the basis for
recoupment. The burden then shifts to the provider to take the next step.” Chaves, 931
F.2d at 921 (quoting [CMS1] Ruling 86-1, at 11) (internal quotation marks omitted). This
regulatory scheme is not invalid “simply because it requires the protesting provider rather
than the agency to bear the burden.” Id. at 922.
Formerly Health Care Financing Administration (“HCFA”).
A provider may (1) dispute denials in the sample, as Schuldt successfully did before
the ALJ whose findings in this respect the MAC left undisturbed, or (2) challenge the
statistical validity of the extrapolation from the sample, as Schuldt also did to the
satisfaction of the ALJ, but not to the satisfaction of the MAC. See Chaves, 931 F.2d at
“[T]o challenge the accuracy of the extrapolation, a provider could separately
present evidence of a different random sample from the universe of claims that yields a
lower rate of denials or prove that the projection is not a true estimate of the rate of denials
in the non-sample universe.” Id. at 921. A provider may also “establish the validity of all
or a sufficient number of its actual claims to demonstrate that the HHS projection is
factually impossible of correctness.” Id.
Here the Administrative Record includes the opinions of two statistical experts, Dr.
Kardon and Dr. Adams, who both concluded that the methodology used by WPS was not
reliable and should not be used for purposes of extrapolating the findings to a larger
universe beyond the samples. The central area of agreement between the experts was
the principle that “correlation” could have skewed the WPS sample, because individual
beneficiaries in the sample may have had multiple claims for similar services. To avoid
that problem, the experts suggested that a larger sample of claims should have been used,
or samples should have been selected from a larger number of beneficiaries.2
Although Dr. Kardon criticized WPS’s use of stratified random sampling, Dr.
Adams found it to be a sensible approach and the ALJ ag reed, citing the Medicare
Program Integrity Manual (MPIM), ch. 8 (Eff. May 1, 2008). (ALJ Decision at 18.)
The experts’ concern, upon which th ALJ relied, relates to the precision of the
methodology used by WPS, i.e., if a larger number of claims had been sampled, or if the
claims had been selected from a larger number of beneficiaries, the potential for skewing
due to correlation of multiple claims for similar services provided to individual beneficiaries
would have been reduced. While the experts’ observation is no doubt true, the HHS
Medicare Program Integrity Manual (MPIM) allows for smaller statistical samples with less
precise results, offset by the direction that overpayments be assessed at the lower level
of confidence intervals, giving the benefit of the doubt regarding the range of overpayment
to the medicare provider. MPIM, Ch. 3, § 3.10 (Eff. May 1, 2008). The MAC notes that 42
C.F.R. § 405.1062 requires that ALJs and the MAC give “substantial deference” to manual
Here, the question before the Court is whether the MAC’s conclusion, that Schuldt
failed to meet its burden of demonstrating that WPS’s sampling methodology and
overpayment extrapolation were invalid, is supported by substantial evidence in light of the
record as a whole. While the ALJ’s Decision is thorough and well-reasoned, and this Court
might reach a different conclusion were this matter before it de novo, there is substantial
evidence in the record as a whole to support the MAC’s conclusion that Schuldt failed to
meet its burden of demonstrating that WPS’s sampling methodology and overpayment
extrapolation were invalid.
The sampling methodology was based on a stratified random sample design,
consistent with MPIM guidance. Schuldt presented no “evidence of a different random
sample from the universe of claims that yield[ed] a lower rate of denials or prove[d] that the
projection [was] not a true estimate of the rate of denials in the non-sample universe.” See
Chaves, 931 F.2d at 921. Neither did Schuldt “establish the validity of all or a sufficient
number of its actual claims [in the non-sample universe of claims] to demonstrate that the
HHS projection [was] factually impossible of correctness.” Id. Neither of those tasks
should have been onerous in this case, where WPS’s sampling methodology indicated that
between 99.55 percent and 100 percent of services for which Schuldt claimed
reimbursement through Medicare had been paid in error.
“A court reviewing an agency's adjudicative action should accept the agency's
factual findings if those findings are supported by substantial evidence on the record as a
whole.” Arkansas v. Oklahoma, 503 U.S. 91, 113 (1992). Viewing the Administrative
Record as a whole, including the WPS Statistical Sampling Worksheet, Calculation of
Projected Overpayment, Sampling Design and Methodology, Sampling Results and
Overpayment Estimates, and Formulas and Calculations (Administrative Record, at Filing
No. 17-4), the record contains substantial evidence to support the MAC’s finding that
WPS’s expanded post-payment medical review of claims was made from a representative
sample of claims that was statistically significant to the universe of claims, and that Schuldt
did not meet its burden of proving otherwise.
IT IS ORDERED:
The Motion for Summary Judgment submitted by Plaintiff Schuldt
Chiropractic Wellness Center (“Schuldt”) (Filing No. 38), is denied;
The Motion for Summary Judgment submitted by Defendant Kathleen
Sebelius, in her capacity as Secretary of the U.S. Department of Health and
Human Services (“HHS”) (Filing No. 36), is granted;
The Plaintiff’s Complaint (Filing No. 1) is dismissed, with prejudice; and
A separate Judgment will be entered.
DATED this 22nd day of January, 2014.
BY THE COURT:
s/Laurie Smith Camp
Chief United States District Judge
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