Government Audits: Extrapolation and its Financial Impact

Government Audits: Extrapolation and its Financial Impact

by | Jun 30, 2025 | Billing - General, Compliance and Regulatory - Directors, Patient Eligibility, Regulatory Compliance

Hospice agencies are under increasing scrutiny by government auditors. A particularly concerning and financially devastating aspect of government audits is the use of statistical extrapolation. Understanding the extrapolation process is essential for providers to safeguard the financial healthof their agencies and ensure compliance with all regulations.

What is Government Extrapolation in Hospice Audits?

Extrapolation is a statistical methodology used by auditors, particularly the Office of Inspector General (OIG). Extrapolation can significantly amplify the financial implications of audit findings. The process of extrapolation is governed by the Medicare Program Integrity Manual, Chapter 8. This chapter of the manual outlines the specific statistical methods and requirements for conducting extrapolation studies.

What is Extrapolation?

Extrapolation is a sampling technique used to project audit findings from a small sample of claims to an entire population of claims. Instead of reviewing every single claim that a hospice has submitted for payment, auditors select a statistically valid sample for review. They then use the error rate found in the sample to estimate overpayments across all similar claims in the population. This allows auditors to perform a detailed review of only a small sample of claims while estimating the total amount of improper claims across a large population.

Auditing every single claim in the population is impractical due to time and resource constraints. By examining a representative sample, auditors can make statistically valid projections about a much larger group of claims without having to review each one individually.

How Does the Extrapolation Process Work?

The extrapolation process typically follows the following key phases:

  1. Universe Definition:
    • Auditors define the “universe” or population of claims to be examined. This may be all Medicare hospice claims submitted by your agency within a specific period (e.g., all claims billed between January 1, 2024, and December 31, 2024) or a subset of claims (e.g., all General Inpatient Care claims).
  2. Sample Selection:
    • Using statistical sampling software, auditors select a statistically valid random sample from the universe. The term “statistically valid” is significant because it ensures that the sample accurately represents the entire population. This allows for reliable projections from the sample to the larger group. The industry standard software used to support sample creation is called RAT STATS (created by the OIG for the U.S. Department of Health and Human Services). Typically, samples consist of 100 claims, though this can vary.
  3. Medical Review:
    • Each claim in the sample is rigorously reviewed by independent medical contractors who determine whether the services provided met Medicare requirements for hospice eligibility and documentation. The auditors review the documentation for compliance with Medicare regulations, including patient eligibility, physician certifications, medical necessity for services, and appropriate billing for levels of care. Any claim found to be out of compliance is identified as an “error,” and the precise dollar amount of the overpayment for that specific claim is calculated.
  4. Calculation of Error Rate:
    • A monetary error rate is determined for the sample. This is calculated by dividing the total dollar amount of improper payments found in the sample by the total dollar amount of payments for all claims in the sample.
  5. Extrapolating to the Universe/Statistical Projection:
    • The calculated monetary error rate from the sample is applied to the entire “universe” of claims. This projects the estimated total overpayment across all claims in the defined audit scope. The estimated total overpayment is calculated as the monetary error rate of the sample multiplied by the total dollar paid for the audit universe.

How Does Extrapolation Impact a Hospice Agency?

Extrapolation can have a significant financial impact on hospice agencies. Even a small number of denied claims or identified overpayments in a sample can result in a large demand for repayment. This can pose a severe financial challenge. Further, responding to an extrapolated audit can pose a significant administrative burden on hospice agencies, requiring considerable time and resources from administrative and compliance teams.

Additionally, OIG audit findings are often publicly released. This raises concerns about agency reputational risk and may jeopardize relationships with referral sources and the community. An adverse extrapolated audit outcome can also lead to increased scrutiny in future audits and potentially trigger further investigative actions.

Mitigating Extrapolation Risk

Given these potential significant negative impacts of extrapolation, hospice agencies should consider proactive actions that could help mitigate the likelihood of negative audit findings. The most effective actions include:

  • Robust Compliance Program: Agencies should implement and strictly adhere to a comprehensive compliance program. This includes continuous staff education on Medicare regulations, thorough patient eligibility assessments, diligent documentation of physician certifications, and accurate coding for all levels of care.
  • Internal Auditing: Conduct regular, proactive internal audits of claims and medical records. Focus on high-risk areas identified by Medicare (e.g., General Inpatient Care (GIP) stays, long lengths of stay, live discharges). Identifying and correcting deficiencies internally before an external audit is crucial.

Looking Ahead

Government extrapolation in hospice audits represents a significant financial risk for hospice agencies. Understanding the statistical methodologies, maintaining excellent documentation practices, and implementing robust compliance programs are essential for surviving in this challenging regulatory environment.

Where Can You Find Out More

What is Face to Face Recertification?

What is Face to Face Recertification?

by | Aug 4, 2022 | Billing, Billing - General, Compliance and Regulatory - Directors, Documentation - Nurses, Financials, Hospice 101 - Aides, Hospice 101 - Chaplain, Hospice 101 - Nurses, Hospice 101 - Office Team, Intake, Patient Care, Patient Eligibility, Rules and Regulations - Nurses, Rules and Regulations - Office Team

A hospice face to face encounter is a step in patient recertification beginning with the third benefit period and each benefit period thereafter. The goal of hospice face to face patient encounter is to encourage greater involvement of the physician in the care of patients who have been on hospice for an extended period of time.  These patients will require a face to face visit from the physician or from a hospice nurse practitioner who will determine continued hospice eligibility.  The face to face encounter is one part of hospice recertification. As such, the face to face encounter will also occur prior to recertification.

When must a face to face encounter take place?

A  face to face encounter must take place within 30 days prior to the start of the patient’s third benefit period. It also must take place within 30 days prior to each subsequent benefit period. The requirement for a face to face encounter considers the patient’s hospice stays across all hospices. For example, if a patient spent 100 days at Hospice Agency A and then switched to Hospice Agency B, Hospice Agency B will need to conduct a face to face encounter within 50-80 days of the patient’s admission. That is, when the patient is admitted to hospice B the days of counting toward the face to face encounter begin from the first day that the patient entered any hospice care.

How will I know if the patient has had prior hospice care?

Upon admitting a patient, the hospice agency should check the Common Working File to determine the patient benefit period and whether a face to face encounter is required.

Who may conduct the face to face encounter?

Either the hospice physician or nurse practitioner (NP) may conduct the face to face encounter. The hospice physician may be an employee or contracted by the hospice agency. If the NP conducts the face to face encounter, the NP must be an employee of the hospice and is not permitted to be a contractor (since nursing is a core service).

What should the recertification narrative include?

The third benefit recertification – and each subsequent recertification – will need to contain clinical findings that support continued hospice eligibility.  The narrative must include an explanation of why the clinical findings support a life expectancy of six months or less. 

If the physician conducts the face to face, he or she will be responsible to write the narrative about the clinical findings regarding the patient’s condition and for certifying the patient’s continued eligibility for hospice.

If the nurse practitioner conducts the face to face encounter, he or she will report back the clinical findings to the interdisciplinary team as well as to the hospice physician who will certify as to whether the patient is eligible for continued hospice care. 

The recertification requires an attestation

The clinician who conducts the face to face encounter must attest in writing that the face to face encounter was performed with the patient and must include the date that the encounter occurred. 

If an NP conducts the encounter, the NP must attest that the clinical findings were sent to the certifying physician. 

The attestation is signed and dated in is included as a separate and distinct section of the recertification.  The recertification also clearly notes the benefit period dates for which the recertification applies.

What happens if the face to face does not take place timely?

If the face to face does not take place, the patient is considered no longer considered terminally ill and therefore is not eligible for the Medicare hospice benefit. The patient remains ineligible until such time that the face to face encounter occurs and it is confirmed that the patient is once again hospice eligible. The patient must be discharged from the hospice but can be readmitted once the face to face encounter occurs. Medicare does permit the hospice agency to continue to provide services at the agency’s expense until the patient’s eligibility is reestablished. However, this care will be provided outside of the Medicare hospice benefit.