CMS Releases Recovery Audit Contractor Status Report

The Centers for Medicare and Medicaid Services (CMS) released its report on the status of the Recovery Audit Contractors (RAC) demonstration project. RAC is a Medicare auditing program that uses private firms to examine physician, hospital, nursing home, and other claims to find instances in which the government has overpaid providers. The report provides an overview of the pilot program that ran from March 2005 through March 2008 in California, Florida, and New York. RAC will become a nationwide program by January 2010.

The CMS report discusses the total amount of “improper payments,” both the overpayments and underpayments that the RACs in the pilot program collected or repaid. The total amount of overpayments from the three states in the program was $357.2 million, while the total underpayments repaid to providers was $14.3 million. The total amount of corrected payments was $371.5 million. After subtracting the costs of paying providers for underpayments, the amounts overturned on appeal, and the cost to operate the program itself, CMS estimates that $247.4 million was returned to the Medicare Trust Funds.

Inpatient hospitals

In the report, CMS states that the majority of overpayments (85%) were collected from inpatient hospitals. They claim that several factors could contribute to this number, including the following: first, CMS prohibited RACs from reviewing certain types of claims (e.g., physician visit claims) as part of the RAC demonstration; and second, since RACs are paid on a contingency basis, their claim review strategies tended to focus on high-dollar, improper payments (e.g., inpatient hospital claims), since they provide the highest return.

Similarly, a majority of underpayments were also found in the inpatient hospital setting. Out of the total $14.3 million in underpayments found during the pilot program, $13.6 million were repaid to inpatient hospitals and skilled nursing facilities (SNFs).

The report also describes the services that had the most overpayment collections during the pilot program. For inpatient hospitals, services following joint replacement surgery in inpatient rehabilitation facilities (California only) had the second most claims found in error: 1,833 claims. This resulted in a total of $20.8 million in returned Medicare fees. They also found 1,591 overturned claims of physical and occupational therapy provided in SNFs (California only), for a total of $1.9 million in returned Medicare fees.

Improper payments are the result of incorrect coding

According to the report, the majority of improper payments (42%) resulted from incorrect coding. Claims that did not meet Medicare’s medical necessity criteria for a particular service or setting accounted for approximately 32% of overpayments.

Other reasons for improper payments included claims in which an RAC requested a medical record from the provider, and the provider either failed to respond within the time limit, sent incomplete records, followed fee schedules incorrectly, or billed separately for services already included in other payments.

Appeals of RAC denials

CMS also indicates that only 5% of all RAC overpayment determinations were either fully or partially overturned on appeal. However, only 11.3%— or 40,583 of the total number of RAC determinations (358,765)— were appealed at any level. Of the 11.3% that appealed, 44.2% were overturned.

Changes to the RAC program

CMS outlined some of the changes to be made in the program as it transitions from pilot to permanent status. According to the report, these modifications were made as a direct result of comments by the RACs themselves and “other interested parties.” Some of the changes are:

• RACs will now be required to pay back their contingency fee if an appeal is lost at any level; for the demonstration project this was only the case at the first level of appeals.

• The look-back period has changed from four years to three years for the permanent program.

• RACs will not be permitted to look for improper payments on claims paid prior to October 1, 2007.

• For the permanent program, RACs will be allowed to review claims during the current fiscal year; they were not permitted to do this for the pilot.

• RACs are now required to have certified coders.

• Previously, discussing claim denials with the Medical Director was optional; for the permanent program, it will be mandatory.

• RACs will be required to offer a Web-based application by
  January 1, 2010, which will allow providers to see the status of cases.

For a full copy of the CMS RAC Status Report, click here.