Recovery Audit Contractors: Don't Be Left in the Dark

The Centers for Medicare & Medicaid Services (CMS) intends to implement the nationwide Recovery Audit Contractor (RAC) program in phases beginning in March 2008. Medicare providers should become informed about the RAC program and begin planning for its implementation.  In this post, aspects of the RAC program are highlighted to assist providers and others in understanding CMS's plans for the nationwide RAC program.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 directed the Department of Health and Human Services (HHS) to conduct a demonstration project using recovery audit contractors (RAC) to determine whether RACs would be a cost-effective means of identifying Medicare underpayments and overpayments and recouping the overpayments. 

In March 2005, the Centers for Medicare & Medicaid Services (CMS) launched the 3-year RAC demonstration project in the states of California, Florida and New York. In November 2005, CMS released a fiscal year 2006 status document revealing that the demonstration RACs had identified $303.5 million in improper payments at a cost of $14.5 million, and already returned $54.1 million to the Medicare Trust Fund.   

Although the CMS status document suggests that the use of RACs may be cost-effective, there has been concern regarding RAC practices (e.g., the application of Medicare policies).  There has also been concern regarding whether paying RACs on a contingency basis (i.e., paying RACs a portion of the overpayments they identify and collect) may distort contractor judgment.

Despite such concerns, Congress made the RAC program permanent when it enacted the Tax Relief and Health Care Act of 2006 (TRHCA).  In fact, the TRHCA directs HHS to expand the RAC program to all 50 states by 2010. To accomplish this objective, CMS intends to implement a nationwide RAC program in phases with the first phase beginning in March 2008.

This means that, absent some intervening event, a significant number of Medicare providers will be subject to RAC review in the near future. Therefore, Medicare providers should become informed about the RAC program and begin planning for its implementation. 

Aspects of the RAC program are highlighted below.  The highlighted aspects of the RAC program relate to RAC claim reviews as reflected in current CMS documentation (e.g., Statement of Work ). However, the RAC program may be modified or change before and after implementation.  Therefore, Medicare providers should continue to monitor CMS's plans for implementing and administering the nationwide RAC program.

What is CMS's expansion schedule for the nationwide RAC program?

For purposes of the nationwide RAC program, CMS has divided the United States into 4 geographic regions. A single RAC will serve each region and perform the recovery audit services for all Medicare claim types in that region.  CMS intends to phase in the RAC program starting in March 2008.  CMS has released a map reflecting the RAC expansion schedule and showing the projected implementation date for each state.

What improper payments will be subject to RAC review?

RACs may attempt to identify improper payments resulting from:

• incorrect payment amounts (except where CMS directs contractors otherwise);
• non-covered services (including services that are not reasonably necessary);
• incorrectly coded services (including DRG miscoding); and
• duplicate services.

For purposes of the RAC program, an "improper payment" will be an overpayment or underpayment.  Therefore, situations where a provider submits a claim with an incorrect code, but the mistake does not change the payment amount, will not be considered an improper payment.

What improper payments will not be subject to RAC review?

RACs may not attempt to identify improper payments arising from:

• services provided under a program other than Medicare fee-for-service;
• the cost report settlement process;
• claims more than 3 years past the initial determination date;
• claim paid dates earlier than October 1, 2007;
• claims where the provider is without fault;
• the random selection of claims;
• claims with special processing numbers (e.g., claims in Medicare demonstrations); or
• prepayment review.

How will the 3-year look back limitation work?

The look back period will be counted starting from the initial determination date and ending with the date a RAC issues a medical record request (for complex reviews) or the date of the overpayment notification letter (for automated reviews).  The initial determination date will be the claim paid date. However, RACs may not review claims with paid dates earlier than October 1, 2007.  Therefore, at the onset of the RAC program, there may be situations in which the look back period is initially less than 3 years.  For example, CMS intends to implement the RAC program in New York in March 2008.  In March 2008, the RAC serving New York will only be able to review claims with paid dates from October 1, 2007- March 2008.  However, by December 2008, the RAC serving New York will be able to review claims with paid dates from October 1, 2007- December 2008. 

What will prevent RACs and other Medicare contractors from reviewing the same claims?

CMS will provide RACs with access to a RAC data warehouse.  The data warehouse will be a web-based application and include all RAC identifications and collections.  The data warehouse will also include all excluded and suppressed claims, which will not be available for RAC review.  Before beginning a claim review, a RAC will be required to use the data warehouse to determine if a claim is an excluded claim (i.e., a claim that has already been reviewed by another entity). To ensure that RACs do not interfere with potential fraud reviews or investigations, RACs will also be required to use the data warehouse to determine if a claim is a suppressed claim (i.e., claim that is part of an ongoing investigation).

What types of determinations may RACs make?

RACs may make any or all of the following determinations:

• coverage determinations;
• coding determinations; and
• other determinations (e.g., duplicate claim determinations).

Will RACs have to follow Medicare policies when making determinations?

When making determinations, RACs will be expected to comply with:

• national coverage determinations;
• coverage provisions in interpretative manuals;
• national coverage and coding articles;
• local coverage determinations;
• local coverage/coding articles in their jurisdiction; and
• relevant joint signature memorandums supplied by CMS.

How will RACs identify overpayments and underpayments?

CMS will supply the RACs with a data file containing claims history followed by monthly updates. RACs will use proprietary software to analyze claims for possible improper payments. RACs will primarily identify overpayments and underpayments through 2 claim review methods.  The 2 methods are referred to as "automated review" and "complex review." 

What is automated review?

Automated review will occur when a RAC makes a claim determination at the system level without human review of the medical record. RACs may use automated review when making coverage and coding determinations only when:

• there is certainty that the service is not covered or is incorrectly coded; and
• a written Medicare policy, article or sanctioned coding guideline exists.

However, if a RAC identifies a "clinically unbelievable" issue (i.e., where certainty of noncoverage or incorrect coding exists but no Medicare policy, articles or sanctioned coding guideline exists), a RAC may seek CMS approval for automated review. If there is certainty that an overpayment or underpayment exists, RACs may also use automated review for other determinations (e.g., duplicate claim determinations).

What is complex review?

Complex review will occur when a RAC makes a claim determination using human review of the medical record.  RACs will use complex review when:

• the requirements for automated review are not met;
• there is a high probability (but not certainty) that a service is not covered; or
• no Medicare policy, article or sanctioned coding guideline exists.

Will medical records be requested from providers for complex reviews?

Yes. However, CMS is expected to impose medical record request limits.  In fact, CMS may apply different limits for different provider types.  For hospitals, the limit may be based on the size of the hospital (e.g., the number of beds).  For example, CMS may limit a RAC medical records request to no more than 50 inpatient medical record requests for a hospital with 150-249 beds in a 45 day period. CMS may also impose a different limit for different claim types (e.g., outpatient hospital, physicians, suppliers, etc.).  Further, RACs will not be permitted to "bunch" medical record requests.  For instance, if the medical records request limit for a particular provider is 50 per month and a RAC does not request medical records in January and February, the RAC will not be able to request 150 records in March.

How long will providers have to respond to medical record requests?

A provider will have 45 days to respond to a medical records request by submitting copies of the medical records.  However, based on the RAC demonstration project, providers might be able to obtain an extension if an extension request is made within the 45 day response period.  It is important to note that, if a provider does not submit the requested medical records within 45 days, RACs may find a claim to be an overpayment.  However, before doing so, RACs will be required to initiate one additional contact with a provider.

Will RACs be required to pay for the medical records they request?

RACs will be required to pay for medical records associated with acute care inpatient prospective payment system hospital claims and long-term care hospital claims.  However, RAC are permitted (but no required) to pay for medical records associated with other types of claims.

What types of standards will CMS impose for complex reviews?

When making a claim determination in the absence of a written Medicare policy, article or coding statement (a so-called individual claim determination), RACs will be required to utilize appropriate medical literature and apply appropriate clinical judgment.  CMS will also require that a RAC's medical director be actively involved in examining all evidence used to make individual claim determinations. Similarly, RACs will be required to ensure that coverage/medical necessity determinations are made by RNs or therapists and coding determinations are made by certified coders.

Will providers receive the results of RAC reviews?

RACs will be required to advise providers of the results of automated reviews (including any coverage, coding or payment policy or article violated) only if an overpayment determination is made. However, RACs will be required to advise providers of the results of complex review (including any coverage, coding or payment policy or article violated) even if no improper payment is identified.

For complex reviews, what will be the time frame for notifying providers of any overpayments?

RACs will be expected to complete complex reviews and send a letter to providers with the complex review results within 60 days of the exit conference (for provider site reviews) or receipt of the medical records (for RAC site reviews).  However, if an extended time frame is needed, RACs may request a waiver of the 60 day period from CMS. 

How will underpayments be handled?

If a potential underpayment is found, a RAC will communicate the underpayment to the appropriate Medicare contractor. Once the underpayment is validated by the Medicare contractor, the RAC will sent a written notice to the provider that includes the claim(s) and beneficiary detail. The Medicare contractor (not the RAC) will make any claim adjustments. However, it is important to note that, RACs will not forward an underpayment to a Medicare contractor for adjustment if the underpayment is less than $1.00.  RACs will also be under no obligation to accept case files from providers for underpayment case review. Further, CMS reports that providers will not have any "official appeals rights" in relation to underpayment determinations.  However, CMS reports that a provider may use the RAC rebuttal process and discuss the underpayment determination with a RAC.

Will there be a dollar amount threshold for overpayments?

RAC will not attempt to recoup, or forward a claim to a Medicare contractor for adjustment, if the amount of the overpayment is less than $10.00.  RACs will also not be permitted to aggregate claims of less than $10.00 in order to pursue overpayment recoveries from providers. 

Will RACs be able to compromise and/or settle overpayments?

RACs will not have the authority to compromise and/or settle overpayments.  If a provider presents a RAC will a compromise, settlement offer or consent settlement request, the RAC will forward the offer or request and related documentation to CMS for direction. CMS reports that, during the RAC demonstration project, less than 1 percent of the total collections resulted in a compromise or settlement.

How will overpayments be recovered?

When attempting to recover overpayments, RAC will be required to follow applicable CMS regulations and manuals as well as the Federal debt collection standards. In fact, RACs will basically follow the same practices as Medicare contractors when sending demand letters. However, the appropriate Medicare contractor (not the RAC) will make any claim adjustments.

Further, to recover overpayments, the RAC program will use recoupment (i.e., recovery of an outstanding Medicare debt by reducing present or future Medicare payments and applying the amount withheld to the indebtedness).  The recoupment activities will be performed by the appropriate Medicare contractor.  CMS reports that recoupment has been used in the majority of the overpayments identified during the RAC demonstration project.

However, RACs will be required to offer providers the ability to repay an overpayment through an installment plan.  RACs will have the authority to approve installment plans up to 12 months in length.  If a provider requests an installment plan over 12 months in length, RACs will be required to forward the request to the appropriate CMS regional office.  The CMS regional office will forward any installment plan requests over 36 months in length to the CMS central office for review and approval.  CMS reports that less than 1 percent of the overpayments in the RAC demonstration project have been repaid through installment plans.

As part of the overpayment recovery process, RACs will also initiate the process of referring debts to the Department of Treasury (DOT) for cross-servicing and collection activities.  In fact, RACs will issue a written notice to providers with the appropriate intent to refer language. Further, if an outstanding debt remains unresolved or not under a non-delinquent installment plan, RACs will send the debt to the appropriate Medicare contractor for referral to the DOT on or before the 130th day of delinquency. RACs will cease all recovery efforts once a debt is referred to the DOT.  CMS reports that, during the RAC demonstration project, less than 5 percent of the identified overpayments have been referred to the DOT.

Will interest accrue on overpayment determinations?

Interest will accrue from the date of the final determination and be charged on an overpayment balance or paid on an underpayment balance for each 30 day period that payment is delayed.  Any payments received from a provider will be first applied to any accrued interest and then to any remaining principal balance.

Will providers be able to utilize the Medicare appeals process?

Claims identified as overpayments will be subject to the Medicare appeals process.  However, providers should review CMS instructions, guidance and any appeals-related correspondence to determine if the appeals process will have any deviations under the RAC program.  For instance, the RAC demonstration project has included a RAC rebuttal process and slight differences for inpatient prospective payment hospital appeals.   

Are there any pending legislative initiatives that would delay, modify or prevent the implementation of the nationwide RAC program?

On November 7, 2007, House Representative Lois Capps introduced the Medicare Recovery Audit Contractor Program Moratorium Act of 2007 (H.R. 4105). If enacted, H.R. 4105 would suspend all further activities under the RAC program for a period of 1 year following enactment.  H.R. 4105 has been referred to the House Ways and Means and the House Energy and Commerce committees, and currently has over 40 co-sponsors.

How can providers prepare for the RAC program's nationwide implementation?

There are a number of activities that providers can undertake to prepare for the implementation of the nationwide RAC program, including:

• Examine the RAC demonstration project and CMS documentation on the RAC program to identify possible target areas;
• Educate organizational leadership, compliance committee and functions, and possible targeted services lines about the RAC program;
• Proactively audit or review perceived vulnerabilities and take corrective actions;
• Develop a plan and internal processes to respond to RAC medical record requests, reviews and determinations; and
• Know how to navigate the Medicare appeals process (and the possible arguments and defenses to RAC determinations).

Comments

[Evan Sade]

Interesting article. I'm trying to figure out if you are providers are entitled to interest on the money Medicare withholds when we win at the ALJ appeal level. I have won 4 ALJ hearings against HDI initiated overpayments. The current interest rate if a provider owes Medicare money is approximately 11%. But I doubt providers will get any interest paid to them.

Evan Sade
Sade Medicare Consulting
954-817-9402
evan.sade@gmail.com