Medicare Update

House Committee Chairmen Request GAO Study of Recovery Audit Contractor Program

On July 11, 2008, House Energy and Commerce Committee Chairman, John D. Dingell, and House Ways and Means Committee Chairman, Charles B. Rangel, sent a letter to the Acting Comptroller General requesting that the Government Accountability Office (GAO) undertake a study of the Medicare recovery audit contractor (RAC) program.  In the letter, the committee chairmen recognize that the Centers for Medicare & Medicaid Services has made changes to the permanent RAC program as a result of the RAC demonstration project.  However, the committee chairmen ask that the GAO examine the changes implemented in response to lessons learned from the demonstration project and the incorporation of such changes into nationwide rollout of the permanent RAC program, including:

• Provider outreach and actions the agency has taken to prevent future improper payments in areas identified by the RACs
• Coordination and interaction with other Medicare contractors
• CMS oversight of auditing efforts
• CMS oversight of the interaction between the RACs and providers done to quantify and minimize the total burden of compliance

CMS Releases Report Evaluating Medicare Recovery Audit Contractor Demonstration

On July 11, 2008, the Centers for Medicare & Medicaid Services (CMS) issued a Press Release and released a report evaluating the 3-year Medicare recovery audit contractor (RAC) demonstration project. 

According to the report, the RAC demonstration resulted in RACs correcting more than $1.03 billion in Medicare improper payments and $693.6 million being returned to the Medicare Trust Funds.  Of the improper payments, CMS reports that 96 percent (or $992.7 million) were overpayments and 4 percent (or $37.8 million) were underpayments repaid to providers. Further, the report indicates that, as of March 2008, providers appealed 14 percent of RAC determinations and only had 4.6 percent of overpayment determinations overturned on appeal.  CMS also reports that RAC contingency fees were $187.2 million during the demonstration (and estimates the cost at 20 cents for each dollar collected). 

In the report, CMS indicates that many questions about the effectiveness of the RAC principles and methods were answered during the demonstration. In fact, CMS reports that the demonstration has shown, among other things, the following:

• It is possible to gradually expand the RAC program
• Claim RACs are able to find a large volume of improper payments
• Providers do not appeal every overpayment determination
• Overpayments collected were significantly greater than program costs
• Claim RACs are willing to spend time on provider outreach activities, developing relationships with provider organizations
• It is administratively possible to have a RAC work closely with a Medicare claims processing contractor
• RAC efforts did not disrupt Medicare anti-fraud activities
• It is possible to find companies willing to work on a contingency fee basis

The report also indicates that the RAC demonstration was an important tool in preparing for the implementation of the permanent RAC program and points out a number of changes that CMS has made to improve the permanent RAC program including:

• Having all new issues a RAC wishes to pursue for overpayments validated by CMS or an independent RAC validation contractor and to share the upcoming new issues with provider organizations
• Requiring each new RAC to hire a physician medical director and certified coders
• Requiring the RACs to pay back contingency fees when an improper payment determination is overturned at any level of appeal
• Changing from a 4 year look back period to a 3 year look back period
• Adding a maximum look back date of October 1, 2007
• Adding a web-based application that will allow providers to look up the status of medical record reviews

According to the report, CMS intends to implement the permanent RAC program gradually, beginning with a limited number of states in the summer of 2008.  CMS reports that outreach efforts will be undertaken before overpayment notices and medical record requests are issued. In fact, the Press Release states that "[w]hen a new RAC begins to issue its first overpayment notification letters, it will be limited to 'black-and-white' billing issues, such a duplicate claims and wrong fee schedule amounts." However, in Appendix R of the report, CMS cites key dates and indicates that the award of national RAC contracts and beginning of provider outreach is "TBD" or to be determined.

CMS intends to update the report to reflect updated appeals and other statistics on a monthly basis through the summer of 2008.

House Committee Hears Testimony on Recovery Audit Contractor Program

On May 14, 2008, the House Small Business Committee's Subcommittee on Regulations, Health Care and Trade held a hearing on "The Impact of CMS Regulations and Programs on Small Health Care Providers." 

During the hearing, the Subcommittee entertained testimony on the Medicare recovery audit contractor (RAC) program from the Centers for Medicare & Medicaid Services (CMS), American Medical Association (AMA), American Academy of Family Physicians, and The Alliance of Specialty Medicine. 

In testimony, CMS pointed out the apparent cost-effectiveness of the RAC demonstration. CMS also highlighted some of the improvements made to the permanent RAC program (e.g., requiring medical directors and certified coders) based on the feedback and experience during the RAC demonstration. 

CMS testimony also indicates that CMS intends to place a much greater emphasis on provider education and training in the permanent RAC program and require permanent RACs to identify and publish vulnerability analyses so that providers can make corrections before audits begin. Further, CMS reports that once the permanent RACs are selected, CMS and the RACs intend to conduct extensive provider outreach. According to testimony, CMS "hopes to have selections of the national RAC contractors made later this spring so that claim review can begin this calendar year."

In testimony before the Subcommittee, the AMA stated that it "believes that the RAC program is seriously flawed" and expressed its support for the Medicare Recovery Audit Contractor Program Moratorium Act (H.R.4105), which would impose a one-year moratorium on the RAC program so that policymakers can reevaluate the program.  The AMA also expressed some comments and suggestions regarding the RAC program. In brief, those comments and suggestions included the following:

• RACs should not be permitted to review claims from the previous 12 months
• Evaluation & Management services are not appropriate for RAC review
• Medical necessity determinations should be removed from the RACs purview
• Minimum claim amount should be $25 (rather than $10)
• Physicians should be reimbursed for copying expenses
• RACs should be required to respond to written physician inquiries within 15 days (rather than 30 days) and physician phone inquiries within 48 hours
• CMS should clarify the appeals process under the RAC program and apply the limitation on recoupment under the Medicare Prescription Drug, Improvement and Modernization Act of 2003
• Services omitted from claims should be treated as underpayments and RACs should accept case files from providers for underpayment case review

Medicare Recovery Audit Contractors Identify $371.5 Million in Improper Payments

On February 28, 2008, the Centers for Medicare & Medicaid Services (CMS) released the Medicare recovery audit contractor (RAC) status document and a related Press Release for fiscal year (FY) 2007.

In the status document, CMS reports on the results of the RAC demonstration project for FY 2007.  Since March 2005, the RAC demonstration project has operated in the states of California, New York and Florida to determine whether RACs would be a cost-effective means of identifying Medicare underpayments and overpayments, and recovering the overpayments.

According to the status document, RACs identified and corrected $371.5 million in Medicare improper payments during FY 2007 at a cost $77.7 million, and returned $247.4 million to the Medicare Trust Fund.  Of the improper payments identified during FY 2007, only 4 percent ($14.3 million) were underpayments repaid to providers. 

As reflected in the status document for FY 2007, most of the overpayment amounts collected by RACs (about 85 percent) were from inpatient hospitals.  The status document also suggests that most of the improper payments were attributable to claims that did not comply with Medicare's coding or medical necessity policies and rules.

The RAC status document for FY 2007 includes claims that were originally paid by a Medicare claims processing contractor between October 1, 2002 and September 30, 2006 for which a RAC corrected an overpayment or underpayment during FY 2007.

The RAC demonstration project is scheduled to end on March 27, 2008.  The Tax Relief and Health Care Act of 2006 directs the Department of Health and Human Services to make the RAC program permanent and nationwide by no later than January 1, 2010. To accomplish this objective, CMS intends to implement a nationwide RAC program in phases beginning in March 2008.

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.

Group Endorses Medicare Recovery Audit Contractor Program

On January 14, 2008, the Citizens Against Government Waste (CAGW) issued a Press Release reiterating its support for the Medicare recovery audit contractor (RAC) program.

In the Press Release, CAGW states that the "program is reducing billing errors, fraud, and abuse," and claims that "it is now being undermined by the very people who were elected to protect taxpayers."  In fact, CAGW claims, in the Press Release, that U.S. Representatives Lois Capps and Devin Nunes "are more interested in kowtowing to pressure from hospitals in their districts that billed for millions they were not entitled to, than in shielding taxpayers from huge losses."

U.S. Representatives Capps and Nunes are sponsors of 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 Energy and Commerce Committees, and currently has 31 cosponsors.

In a September 27, 2007 article, The Sacramento Bee reported that the Centers for Medicare & Medicaid Services (CMS) declared a "pause" in the RAC program for the month of October 2007 so that CMS could investigate and resolve any problems with the auditing of inpatient rehabilitation claims of California providers. The pause in the RAC program was preceded by a May 29, 2007 letter in which U.S. Representatives Capps and Nunes urged CMS to examine the practices of the RAC auditing California providers after concerns arose about the interpretation and application of Medicare policies and the qualifications of personnel performing claim reviews.

Most recently, in a December 10, 2007 article, The Sacramento Bee reported that Medicare officials informed Congress that policy inconsistencies were found in approximately 40 percent of California RAC's audit decisions. In the article, The Sacramento Bee also reported that Kerry Weems, Acting Administrator of CMS, delivered a letter to Capitol Hill indicating that CMS will direct the RAC to re-review the cases once the agency's policies are clarified.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 directed the Department of Health and Human Services (HHS) to conduct a Medicare demonstration project using RACs to determine whether RACs would be a cost-effective means of identifying Medicare underpayments and overpayments, and recovering the overpayments.  In March 2005, CMS launched the RAC demonstration project in the states of California, New York and Florida. 

However, prior to the completion of the demonstration project, Congress enacted the Tax Relief and Health Care Act of 2006, making the RAC program permanent and requiring that HHS implement the program in all 50 states by 2010. To accomplish that objective, CMS plans to implement the RAC program in phases with the first phase beginning in March 2008.

CMS to Direct Review of Recovery Audit Contractor Decisions

In a December 10, 2007 article, The Sacramento Bee reports that Medicare officials recently informed Congress that policy inconsistencies were found in approximately 40 percent of PRG-Schultz International's recovery audit decisions. 

In the article, The Sacramento Bee also reports that Kerry Weems, Acting Administrator of the Centers for Medicare & Medicaid Services (CMS), recently delivered a letter to Capitol Hill indicating that CMS will direct PRG-Schultz International to re-review those cases once the agency's policies are clarified.

In a September 27, 2007 article, The Sacramento Bee previously reported that CMS declared a "pause" in the Medicare recovery audit contractor (RAC) program for the month of October 2007 so that CMS could investigate and resolve any problems with the auditing the inpatient rehabilitation claims of California providers. 

The reported pause in the RAC program was preceded by a May 29, 2007 letter in which U.S. Representatives Lois Capps and Devin Nunes, along with other members of California's Congressional delegation, urged CMS to examine the practices of the RAC auditing California providers after concerns arose about the interpretation and application of Medicare policies and the qualifications of personnel performing claim reviews.

More recently, U.S. Representative Lois Capps introduced the Medicare Recovery Audit Contractor Program Moratorium Act of 2007 (H.R. 4105) on November 7, 2007.  If enacted, H.R. 4105 would generally suspend activities under the Medicare 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 20 cosponsors.

House Representative Capps Introduces Medicare Recovery Audit Contractor Program Moratorium Act of 2007

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 Medicare recovery audit contractor (RAC) program for a period of 1 year following enactment. However, the 1 year moratorium of H.R. 4105 would not affect Medicare appeals under the RAC program or Medicare secondary payer activities performed by RACs during the moratorium.

Further, H.R. 4105 would require the Centers for Medicare & Medicaid Services (CMS) to submit a report to Congress evaluating the RAC program within 90 days after enactment. Within 60 days following the submission of the CMS report, H.R. 4105 would also require the U.S. Government Accountability Office (GAO) to submit a report to Congress addressing the use of RACs in the Medicare Integrity Program, and providing recommendations on improving the accuracy and efficiency of RACs and ensuring that RACs comply with Medicare policy on denials and appeals. Following the 1 year moratorium, H.R. 4105 would require CMS to submit quarterly reports to Congress on the conduct of the RAC program.  H.R. 4105 contains specific requirements regarding the content of the CMS and GAO reports.

Following its introduction, H.R. 4105 was referred to the House Ways and Means and the House Energy and Commerce committees.

House Representatives Seek Clarification on Pause in Recovery Audit Contractor Program

In a September 27, 2007 article, The Sacramento Bee reported that the Centers for Medicare & Medicaid Services (CMS) declared a "pause" in the Medicare recovery audit contractor (RAC) program for the month of October 2007 so that CMS could investigate and resolve any problems with the RAC auditing the inpatient rehabilitation claims of California providers.

The reported pause in the RAC program was preceded by a May 29, 2007 letter in which Representatives Lois Capps and Devin Nunes, along with other members of California's Congressional delegation, urged CMS to examine the practices of the RAC auditing California providers after concerns arose about the RAC's interpretation and application of Medicare policies and the qualifications of personnel performing claim reviews.

Most recently, Representative Capps, in a November 1, 2007 Press Release and letter to CMS, demanded that CMS explain (in writing) the purpose, scope and duration of the reported pause in the RAC program.  In the Press Release and letter to CMS, Representative Capps expresses her concern about CMS's lack of communication on the reported pause and suggests that Congressional action may be needed to suspend the RAC program entirely.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 directed CMS to conduct a 3 year demonstration project in which RACs would be used to identify Medicare underpayments and overpayments, and recoup the Medicare overpayments.  Under the demonstration project, the RACs are paid on a contingency basis (i.e., the RACs receive a portion of what they identify and collect).

The initial states chosen for the RAC demonstration project were California, Florida and New York.   However, the Tax Relief and Health Care Act of 2006 made the RAC program permanent and requires that CMS expand the program to all 50 states by 2010.  Under CMS's expansion plan, the RAC program could start its nationwide expansion as early as March 2008.