1 February 2022

Still draconian, still unjust 

Medicare Medicolegal PSR

The PSR punishes for thousands of billings, based on a few. This ‘extrapolation’ makes a mockery of claims it affords natural justice.


On its 38th birthday Medicare is in trouble.

As an honour system, funded by taxpayers, there can be no question that policing of some description is required. However, evidence suggests that the current system designed to ensure the integrity of Medicare payments is expensive, old-fashioned, unnecessarily punitive, and ineffective.  

In a normal court of law “similar fact” evidence is tightly restricted under the rules of evidence. Just because someone committed an offence once, does not mean they committed this particular offence or any other. 

Yet that is how the Professional Services Review approaches penalising doctors found to have inappropriately billed.  

Late in 1993, the extraordinarily wide powers of the proposed new Professional Services Review Agency (PSR) came under criticism. Then federal shadow Attorney-General Darryl Williams QC described them as draconian and profoundly deficient in the rule of law domain of natural justice. Mr Williams delivered a blistering attack in his second-reading speech to Parliament, expressing grave concerns around what he perceived as the scheme making a mockery of natural justice principles, specifically identifying the following components of the new scheme: 

  • the fact that a person under review (PUR) could be assessed by a general body of peers as opposed to a specific body 
  • that statistical sampling could be applied to a whole class of services, meaning a PUR could be found guilty of an offence she/he did not commit 
  • that the mechanisms around entering into secret agreements with the PSR Director were tantamount to plea bargaining and not in the public interest 
  • that full legal representation was not permitted and should be, especially given the serious penalties able to be imposed 
  • that if a PUR fails to comply with certain directions, immediate and full disqualification from Medicare follows (he described these provisions as draconian) 
  • that the Determining Authority did not hear the evidence 
  • that the rules of evidence do not apply 
  • that the PSR can make findings of overservicing beyond cases specifically before the committee, which he described as “extraordinary in a penalty proceeding”.  
  • that proceedings would be conducted in private, therefore avoiding public scrutiny. 

In closing remarks, he stated: 

“This bill fudges the distinction between a prosecution on the one hand and an inquiry or investigation on the other hand. A review turns into a prosecution without the subject ever having been advised of that transformation or of the particular charge against the person being identified to him at the relevant time. That makes a mockery of the government’s assertion that the proposed legislation meets the principles of natural justice and procedural fairness …” 

While the PSR has evolved considerably since Mr Williams’s comments, many of his stated objections remain and, perhaps unsurprisingly, criticism of the PSR has not let up for over 25 years. 

One of the main criticisms of the PSR is its use of extrapolation – taking a small sample of billings, finding some inappropriate and punishing the practitioner for a vastly greater number of billings it has never looked at. This leads to manifestly unjust results.  

While researching how other countries manage medical payment integrity I found international research suggesting that using extrapolation in fee-for-service schemes is fundamentally misaligned because it is a crude method of prediction based on probability, which will sometimes be wrong. While deviation from an average may suggest questionable billing, it does not prove it. In addition, when adjudicators who may not have the same qualifications or experience as a doctor under investigation second-guess clinical decision-making based solely on records and recall, more harm than good may be done if doctors lose their livelihoods and patients end up without medical care. 

In the US, a complex system of appeals from Medicare payment determinations operates, which is not dissimilar to the Australian process of Medicare desk audits and their progression to PSR investigations. However, it is even worse for US doctors, because while they wait for their appeals to be heard, the US government recoups payment from them as if the government had already won the case.  

The US system of Medicare appeals is so broken that some doctors have successfully obtained restraining orders against the federal government for questionable exercise of extrapolation techniques.  

The evidence in one case alleged that an overpayment of $US152,000 meant a staggering $US8.6 million was immediately due and payable to the government based on: 

“(1) review of a sample of 100 claims for 95 beneficiaries for which there is an alleged overpayment of $152,000.00; and 

(2) a questionable extrapolation across Hospice Savannah’s universe of patient claims that Hospice Savannah owes CMS $8.6 million.” 

In that case the court also remarked that the plaintiff would be unlikely to receive a fair hearing for three to five years and had demonstrated it was likely to succeed on the merits. 

Similarly, in Australia, a recent PSR case report described a doctor being required to repay $900,000 for billing over 5000 item 12250s. The rebate for item 12250 at the time was $293.90, and assuming the PSR reviewed approximately 30 relevant records (general legal counsel of the PSR is on the public record stating this is the usual number of files reviewed), this equates to $8817, yet the doctor was required to repay $900,000. We do not know whether this doctor actually billed item 12250 incorrectly 5000 times, because only 30 records would have been reviewed, and PSR secrecy makes it impossible to research and examine this important area. 

It seems Mr Williams’s remarks were prescient. By applying statistical sampling to a whole class of services such as item 12250, this doctor was found guilty of offences we actually have no proof that he/she committed. We just think he/she probably committed them and that will do. In no other area of law would we find this acceptable because it basically flips the presumption of innocence and nullifies the requirement to apply the civil burden of proof. 

Interestingly, in my research I did not find any other country looking to emulate the PSR model. In fact, I found the opposite. Emerging health systems are adopting new, digital approaches to the problem of financial leakage, recognising that by leveraging technology and data analytics, incorrect payments can be prevented before they happen. A balance between some inevitable post-payment policing and increased pre-payment visibility is becoming a recognised approach to the prevention of improper payments.  

Many years after available technology could have enabled the Australian government to begin to address its Medicare blind spots, it has instead continued to support ineffective and old-fashioned post-payment audits and policing.  

This is not to suggest that policing is no longer required. Working in cooperation with law enforcement agencies to manage fraud and non-compliance is a crucial component of any compliance strategy.  

However, a more modern and balanced approach is now within our grasp, and if implemented well, outliers and bad actors who maliciously plunder Medicare will become more obvious and therefore easier to target, at less cost to taxpayers.  

Dr Margaret Faux is a health system administrator, lawyer and registered nurse with a PhD in Medicare compliance, and is the CEO of AIMAC, which offers courses and explainers on legally correct Medicare billing