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

The Centers for Medicare & Medicaid Services (CMS) intends to implement the permanent Medicare Recovery Audit Contractor (RAC) program in phases beginning in March 2009. Medicare providers should become informed about the RAC program and prepare for its implementation. In this post, aspects of the nationwide RAC program are highlighted to assist Medicare providers in understanding the program.

Background

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 directed the Department of Health and Human Services (HHS) to conduct a 3-year demonstration project using RACs. The purpose of the demonstration was to determine whether RACs would be a cost-effective means of identifying Medicare underpayment and overpayments and recovering the overpayments.

In March 2005, CMS launched the 3-year RAC demonstration in the states of California, Florida and New York. The RAC demonstration was later expanded to the states of Massachusetts, South Carolina and Arizona, and was ultimately completed in March 2008.

In July 2008, CMS released a report evaluating the 3-year RAC demonstration. According to the report, the demonstration resulted in RACs correcting more than $1.03 billion in Medicare improper payments at a cost of $187.2 million, and returning $693.6 million to the Medicare Trust Funds. Of the improper payments identified, 96 percent (or $992.7 million) were overpayments and only 4 percent (or $37.8 million) were underpayments repaid to providers.

Before the RAC demonstration was completed, 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 January 1, 2010. To accomplish this objective, CMS intends to implement the nationwide RAC program in phases beginning in March 2009. Therefore, Medicare providers should become informed about the RAC program and prepare 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. However, the RAC program may be modified or change before and after implementation. Therefore, providers should investigate and continue to monitor CMS's implementation and administration of the RAC program.

(Note: This post was first published on January 28, 2008 but has been revised. From time to time, this post may be updated with more current information on the nationwide RAC program. So, periodically check this post and the Medicare Update weblog for new developments associated with 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. Except as described below, 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 March 1, 2009. CMS has released a revised map reflecting the RAC expansion schedule and showing the projected implementation date for each state.

Who will serve as contractors for the nationwide RAC program?

In October 2008, CMS announced the contractors for the nationwide RAC program. The RACs and their respective regions are:

Diversified Collection Services, Inc. - Region A
CGI Technologies and Solutions, Inc. - Region B
Connolly Consulting Associates, Inc. - Region C
HealthDataInsights, Inc. - Region D

However, CMS reports that PRG Schultz, USA, Inc. will serve as a subcontractor to HealthDataInsights, Inc., Diversified Collection Services, Inc. and CGI Technologies and Solutions, Inc. in Regions A, B and D. CMS also reports that Viant Payment Systems, Inc. will serve as a subcontractor to Connolly Consulting Associates, Inc. in Region C. Each subcontractor has negotiated different responsibilities in each RAC region (including some claim review).

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 nationwide RAC program, there may be situations in which the look back period is initially less than 3 years. For example, if CMS implements the RAC program in Indiana in March 2009, the RAC serving Indiana will only be able to review claims with paid dates from October 1, 2007- March 2009. However, by December 2009, the RAC serving Indiana will be able to review claims with paid dates from October 1, 2007- December 2009.

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 issues to review for improper payments?

RACs will use proprietary software to analyze claims for possible improper payments. Based on the RAC demonstration, RACs may also investigate issues already highlighted in HHS Office of Inspector General, U.S. Government Accountability Office and comprehensive error rate testing reports. However, before pursuing a new issue, RACs will need to obtain CMS approval. CMS has contracted with Provider Resources, Inc. to serve as a validation contractor. CMS expects that the validation contractor will work with CMS to review and approve new issues.

Will providers be informed about the issues RACs intend to review?

RACs will post the issues they intend to review on their respective websites. However, CMS reports that, if a RAC is investigating a new issue, a provider might receive a medical record request letter for an issue not identified on a RAC website. According to CMS, such a request should be for a small sample size and used to make a decision on a RAC performing a widespread review.

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 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.

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 will impose medical record request limitations. CMS has released a document outlining FY 2010 additional documentation limits for DRG validation. CMS reports that it will post the limits for all other reviews at a later date.

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

A provider will have 45 calendar days to respond to a medical records request by submitting copies of the medical records. However, providers may be able to obtain an extension if an extension request is made within the 45 day response period. If a provider does not submit the requested medical records within 45 days, a RAC may deem a claim to be an overpayment.

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

CMS reports that 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, RACs are permitted (but not 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 involved in examining the 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. A provider may request the credentials of the individuals making medical review determinations and request to speak to a RAC's medical director regarding a claim denial.

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 calendar days of the receipt of the medical records. However, if an extended time frame is needed, RACs may request a waiver of the 60 day period from CMS. If an extended time frame for review is granted by CMS, a RAC will notify the provider.

How will underpayments be handled?

If a potential underpayment is found, a RAC will communicate the underpayment to the appropriate Medicare contractor. The Medicare contractor (not the RAC) will make any claim adjustments. However, RACs will be under no obligation to accept case files from providers for underpayment case review. CMS documentation also suggests that providers may not have official appeals rights in relation to underpayment determinations. Nevertheless, a provider may use any RAC rebuttal process and discuss the underpayment determination with a RAC.

What if a RAC finds both overpayments and underpayments?

In situations where a RAC identifies both overpayments and underpayments for a provider, the RAC will offset the underpayment from the overpayment.

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 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).

Will RACs be permitted to review claims related to physician evaluation and management services?

The review of evaluation and management (E&M) services will be allowed under the RAC program. For instance, the review of duplicate claims or E&M services that should be included in a global surgery will be available for review. However, CMS reports that it will work with the American Medical Association and physician community prior to any reviews being completed regarding the level of the visit. CMS also reports that it will provide notice to the physician community before RACs are allowed to begin reviews of E&M services and the level of the visit.

Could a provider's self audit preclude RAC review?

If a provider does a self-audit and identifies improper payments, a provider may self disclose the improper payments to the appropriate Medicare contractor. If the Medicare contractor agrees that the payments were improper, CMS documentation suggests that the claims may be adjusted and excluded from RAC review. However, before any self-audit and/or self-disclosure, providers should seek appropriate guidance.

Note: CMS recently provided more clarity on this issue. See the following CMS FAQs:

How will overpayments be recovered?

When attempting to recover overpayments, RACs must 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.

If a demand letter is received, a provider may repay an overpayment by check. However, the RAC program may also 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. Alternatively, RACs may offer providers the ability to repay an overpayment through an installment plan. Depending on the length of the installment plan requested, a RAC may forward the request to CMS for review and approval.

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 may issue a written notice to providers with the appropriate intent to refer language. If an outstanding debt remains unresolved or not under a non-delinquent installment plan, CMS documentation suggests that 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.

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 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 with a compromise, settlement offer or consent settlement request, the RAC will forward the offer or request and related documentation to CMS for direction.

Will providers be able to utilize the Medicare appeals process?

Claims identified as overpayments will be subject to the Medicare appeals process. The Medicare appeals process will remain the same for physicians under Medicare Part B and for Medicare Part A non-inpatient claims. CMS reports that the only difference under Medicare Part A is for claims under the hospital inpatient prospective payment system. For such claims, the first level appeal will go to the fiscal intermediary. CMS has released an appeals process chart for the nationwide RAC program. However, providers should still review CMS instructions, guidance and any appeals-related correspondence to ensure that they are properly navigating the appeals process for the RAC program.

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 and CMS documentation on the RAC program to identify possible target areas;
Educate organizational leadership, compliance committee and functions, and possible targeted service 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).

Should you have any questions regarding this post or the Medicare RAC program, contact Michael Apolskis at (312) 498-8372 or email.