TEXARKANA, Texas -- A Texarkana medical supply alleges that figures used in a Medicare audit were extrapolated from a sampling, rather than by review of individual claims.

Arguing violations of the Social Security Act, Artex Medical Inc. filed suit against U.S. Department of Health and Human Services Secretary Kathleen Sebelius on April 30 in the Texarkana Division of the Eastern District of Texas.

Artex alleges only 221 claims were audited, and then the sample was extrapolated by the auditor to determine that Artex had been overpaid in the amount of $426,499.

The company argues that the statistical sampling and extrapolation are barred by federal statutes and are in violation of due process rights. The amount of Medicare overpayment can only be determined by individual review of each beneficiary's medical records, Artex states.

As a licensed Medicare Part B provider, from 2004 to 2007 Artex rented and/or sold durable medical equipment that included water circulating heating pads, electric heating pads and ankle-forth orthosis, to 1,191 individual beneficiaries entitled to Medicare benefits.

An auditor for Medicare conducted an audit of 221 claims within Artex's billing records, and determined Artex received an overpayment of $80,979.09 for the sampled claims but projected the sampling results to 1,191 claims for a total of $426,499.

Artex appealed the decision to the administrative law judge, who agreed in part that the use of statistical extrapolation is barred by statute.

The decision was then appealed to the Medicare Appeals Council who issued an opinion on March 8 that reversed the administrative judge's decision regarding the use of statistical extrapolation.

With its administrative remedies exhausted, Artex filed a civil lawsuit. The plaintiff is asking the court to reverse the decision of the Medicare Audit Council and rule that statistical sampling and statistical extrapolation is barred by statute and violates plaintiff's right to due process under the 14th Amendment.

Artex Medical is also asking the judge to rule that the amount of Medicare overpayment may only be determined by individual review.

Bradley W. Howard of Brown & Fortunato PC of Amarillo and Damon Young of Young, Pickett & Lee of Texarkana are representing Artex Medical. They have requested a jury trial.

U.S. District Judge David Folsom is assigned to the case.

Case No. 5:10cv00084

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