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"They treated me like a criminal"


A Medicare audit showed that oncologist John F. Kiraly III "made too much money." Here's the story of his fight to clear his name--and what it cost him.


"They treated me like a criminal"

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Choose article section... "Dr. Kiraly made too much money" The fuzzy math—and logic—of extrapolations One final appeal produces complete victory Worried about an audit? Here's some help

A Medicare audit showed that oncologist John F. Kiraly III "made too much money." Here's the story of his fight to clear his name—and what it cost him.

By Anne L. Finger
Senior Editor

California oncologist John F. Kiraly III vividly recalls his arrival at a hearing before an administrative law judge. "I was electronically frisked for weapons, but my office manager and consultant weren't. We were conducted through two sets of locked doors, down a desolate corridor reminiscent of The Green Mile."

But the doctor's ordeal is behind him now, and his battle with government auditors ended in a slam-dunk victory. The nearly $58,000 that Medicare claimed he owed was reduced to zero.

Kiraly's alleged misdeed? Upcoding. Stories like his are bound to rekindle physician fear that auditors with an imperfect knowledge of what happens in a medical practice can nevertheless make doctors' lives miserable—perhaps even destroy their careers.

How did Kiraly emerge victorious—career intact? His step-by-step progression through the auditing process shows how anyone victimized by overreaching reviewers can fight back.

"Dr. Kiraly made too much money"

Kiraly's baptism by paper began on April 1, 1998, when National Heritage Insurance Company, his Medicare carrier, requested complete medical records for 30 patients in the Lodi, CA, practice. Kiraly's wife, Rena, who is his office manager, immediately called NHIC to ask why he was being audited. "The reviewer, a licensed vocational nurse, told my wife, 'Dr. Kiraly made too much money last year,' " reports the doctor.

Although Kiraly had been practicing hematology and oncology for 20 years, he was listed with NHIC as a general internist. Repeated attempts to clarify his status—both prior to and after the announced audit—proved fruitless.

The audit involved a variety of issues, but upcoding was paramount. NHIC audited 2,694 claims that Kiraly had sent in connection with the 30 patients. "Most of these patients are on chemotherapy, and some were coming in almost weekly over six months," he says. "Each visit involved a dozen different codes for technical and professional services and for each drug, type of administration, and solutions. So the claims added up."

Fortunately, Kiraly says, his record-keeping was "meticulous." The doctor, his wife, and a staff member conducted their own audit: "We pulled all our original billing records and compared them with our chart notes, records, and documentation to make sure we had billed appropriately," Kiraly says.

They found six instances where a chart note didn't support the level of charges, or the documentation had been omitted. But they also discovered about $4,000 worth of services they had failed to bill for. Kiraly decided not to pursue those.

Kiraly copied everything. "Some doctors have mistakenly submitted records for an audit and not set aside their own copies," he says. Then he mailed off a box about 18 inches deep—and waited. Kiraly felt confident he'd made a strong response.

The fuzzy math—and logic—of extrapolations

Kiraly's confidence was shattered on Jan. 7, 1999, with the arrival of the "Preliminary Notice of Audit Results." NHIC had determined it overpaid Kiraly for the audited services by $34,806.17. After applying a "statistically valid random sampling," NHIC claimed his total "extrapolated overpayment" was $57,975.93. "How was I going to pay?" he recalls wondering. "What would I have to sell or mortgage?"

But Kiraly wasn't giving up. He fumed that the reviewer had failed to understand the complexity of the services he'd provided and the documentation that supported them. "She stated that this was NHIC's first experience doing oncology audits," he says, "and the company wasn't sure it would do them again. To me, that was an admission that they were in over their heads." And he concluded that the extrapolated overpayments were merely "a neat way for Medicare to recover funds without having to prove every case."

An NHIC representative declined to comment on the specifics of Kiraly's case, citing privacy concerns.

The carrier gave Kiraly 30 days to either accept the determination or respond in writing. He decided to fight "to the very end, if necessary. I was hurt, I was angry, and I didn't sleep for two nights with the audit results spinning in my head."

Joined by his practice management consultant, whom he flew in from Kentucky, Kiraly and his wife spent three full days compiling their detailed rebuttal. "We had a score sheet from our practice that documented the different elements required to achieve a certain level of billing. We scored each of the progress notes with this score sheet and stapled them together," Kiraly says.

The effort succeeded—somewhat. In June, NHIC's "final" audit results reduced the overpayment to $13,194.37. But with a new extrapolation, that amount morphed into $23,576.61

If payment was not received in 30 days, NHIC declared, annual interest of 13.375 percent would kick in, a rate that Kiraly regarded as too punitive for him to risk withholding the money. The check went in the mail, "and staff bonuses and pension contributions went up in smoke," Kiraly says. He requested a hearing from NHIC.

With a date set for November 1999, Kiraly's team reassembled all the still-disputed claims, adding further documentation and explanations. At the hearing, Kiraly made an opening statement and then turned over his defense to his team—keeping his own emotions in check. "For those embarking on this process," he advises, "I cannot emphasize enough how important it is to keep one's mouth shut and let the facts do the talking."

Although the hearing officer, an RN named Debra Bryson, worked out of the same office as the reviewer, she stressed her desire to be fair and impartial. Says Kiraly: "Sometimes we had to demonstrate what was going on when we administered chemotherapy, and what the sequence was, so that she understood. But I felt very positive because of the way she listened to our arguments and responded."

Jasbir Gill, a Stockton, CA, ob/gyn who was formerly president of the San Joaquin Medical Society and chairman of its reimbursement committee, attended the hearing to lend support. "I felt there had been a great misunderstanding on basic issues," he says. "For example, John would give a patient most of the medication in a vial. You can't keep an open vial. But Medicare wanted him to pay back money for the medication that wasn't used."

Two weeks later, Bryson rendered her decision: The actual overpayment was now $667.60. But with the extrapolation, it was $3,454.33—a 417 percent increase. "I was frankly mystified," Kiraly says. "Every time the actual overpayment went down, the extrapolation percentage went up."

One final appeal produces complete victory

After nearly two years, Kiraly was tiring of it all. "Is it worth going on for the final $3,000?" he asked himself. His wife prodded him on, so he appealed his case to an administrative law judge. In the meantime, Kiraly received a refund of the money he'd paid—without interest.

While waiting to learn when the final hearing would take place, Kiraly called upon Coburn Ward, a mathematics professor at the University of the Pacific. Ward found that the small sample size NHIC used in its extrapolation formula—records for only 30 patients—would yield an unfair standard error. "That's been true of all the Medicare cases I've looked at; they've all used a sample size of 30. But the initial regulations require sample sizes of more than 100," Ward says.

Ward also believed the insurance company hadn't followed HCFA's guidelines: "If the standard error exceeds a certain percentage of their estimate, the carrier is supposed to send a memo to HCFA seeking guidance. I don't believe one was sent."

Months later, the hearing was held in front of a black-robed administrative law judge. Despite the "Green Mile" entrance, the hearing itself was somewhat informal, Kiraly recalls. The doctor challenged the extrapolation formula, but conceded the $667.60 in services for which he lacked adequate documentation.

"When we finished the hearing, the judge asked what we thought about the process," Kiraly says. "He seemed to be asking for guidance. But he was very fair, and he paid attention to everything we said."

The ruling three weeks later was entirely in Kiraly's favor. "The judge even gave back the $667.60 we'd conceded," Kiraly says. "He found that recovery of overpayment would be against 'equity and good conscience.' "

Kiraly and his team had spent nearly two and a half years and $10,000 in expenses and lost income to reach this point.

Along the way, however, one bittersweet piece of news emerged. The particular red flag that had triggered the audit was removed when HCFA reclassified Kiraly as a hematologist/oncologist. "Therefore," a letter to him stated, "it would not be valid to compare your practice pattern to that of internists . . . who do not also perform as oncologists. . . . This reclassification will allow the carrier to offer you more accurate comparisons in the future."

Worried about an audit? Here's some help

You already know that the best way to avoid an audit is to document and code carefully and keep up to date with any changes in Medicare and insurance carrier guidelines. Your documentation should be clear, accurate, and legible so that Medicare can validate that the billed services were rendered, met reasonable standards for medical care, were appropriate for the patient's condition, and were billed under the most appropriate codes.

According to a government pamphlet on the Medicare Integrity Program, Medicare selects providers for audit based on (1) random reviews, (2) prior problems or atypical billing patterns, or (3) a particular kind of billing problem that the insurer is focusing on.

You can get this pamphlet (titled "The Medicare Integrity Program—Pay it Right!") on the Web at .

You can also get useful information on audits from the AMA. Go to You'll need a user name and password to access this Web page.

The ACP-ASIM has prepared a publication called Medicare Medical Review: Safeguards and Advice for Internists and Their Staff. It's free to ACP-ASIM members, who can download it at . Nonmembers must pay $25. Call ACP-ASIM Customer Service at 800-523-1546, ext. 2600.

The California Medical Association offers ACT SMART—Compliance Strategies for Physician's Office to Avoid Billing/Coding Problems and Deter Violations of the Law. It's free to CMA members, $100 to others. Go to and click to get a full product list. Then click on the publication's name.

There's some evidence that HCFA is seeking to address physicians' concerns about the tone and emphasis of its antifraud campaign. In February, it announced a multiyear Provider Education Project. In the first year, a press release announced, the agency will conduct "a national needs assessment to determine what types of educational resources will help providers and practitioners submit accurate claims for Medicare services, and, in turn, receive timely payment of those claims."

In the meantime, cross your fingers and hope that doing everything right is enough to prevent an audit.


Anne Finger. "They treated me like a criminal". Medical Economics 2001;9:114.

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