Medicare’s Recovery Audit Contractor Program

April 1, 2009 Allegheny County Medical Society Bulletin

This article is reprinted with permission from the Allegheny County Medical Society. It first appeared in the ACMS Bulletin in April 2009.

In 2003, Congress enacted the Medicare Prescription Drug Improvement Modernization Program Act of 2003. Pursuant to this act, the Department of Health and Human Services was directed to conduct a three-year demonstration program using Recovery Audit Contractors (RACs) to find out if the use of RACs would be a cost effective method to detect and correct improper payments in the Medicare Fee for Service Program. RACs were charged with finding overpayments as well as underpayments. The initial demonstration operated in New York, Florida and California and then was expanded to Massachusetts and South Carolina. As detailed in the Medicare Recovery Audit Contractor Program, Evaluation of the Three-Year Demonstration, published in June 2008, RACs have corrected $980,000,000 in overpayments and $37,800,000 in underpayments. RACs returned $693,600,000 to the Medicare Trust Funds, even after subtracting the amounts repaid to providers for underpayments, the amount overturned on appeal and the cost of operating the RAC Demonstration Program. Even before these results were published in June 2008, Congress acted again under the Tax Relief and Healthcare Act of 2006. This legislation required a permanent and national RAC program to be in place by January 1, 2010. The original intention was to implement the permanent program in the summer of 2008. Because of protests filed by companies bidding on the contracts to act as recovery audit contractors, implementation of the national program has been delayed. On February 4, 2009, these protests were resolved, and the program will be going forward this summer.

Diversified Collection Services of Livermore, California (Diversified), has received the contract to provide RACs for Pennsylvania. Diversified is expected to begin its review of Medicare billing records no later than August 1, 2009. Diversified, as well as the other RACs, will use their own proprietary software and systems as well as their knowledge of Medicare rules and regulations to determine what areas to review.

RACs can determine that an overpayment or underpayment exists pursuant to two means. Automated reviews utilize the proprietary techniques of the RACs to identify claims that clearly contained errors resulting in improper payments. Automated reviews, where medical records are not requested, must have a clear policy that serves as a basis for the overpayment. A statute, regulation, National Coverage Determination, coverage provision in an interpretive manual or Local Coverage Determination that specifies the circumstances under which a service will always be considered an overpayment suffice as clear policies. When improper payments were clearly identified, providers were contacted by the RAC to collect any overpayment amounts or pay any underpayment amounts. For example, a RAC can find that an overpayment exists pursuant to an automated review based on medically unbelievable service such as claims for two or more identical surgical procedures for the same patient on the same day at the same facility.

Medical records of the providers were requested by RACs in the case of claims that likely contained errors. The review of the medical records by the RAC to make a determination of whether a wrong payment was made is called a complex review. In implementing the permanent program, CMS limited the number of medical records that can be requested of a physician or physician practice by a RAC. The following limitations will apply: solo practitioner, 10 medical records per 45 days; group of two to five individuals, 20 medical records per 45 days; group of six to15 individuals, 30 medical records per 45 days, and a group exceeding 16 individuals, up to 50 medical records per 45 days. It is important to note that if a physician does not timely respond to a medical record request, then there will be a deemed overpayment.

RACs will use their own software and systems to determine which health care entities will be reviewed for overpayment and underpayment. The most common reasons occurred for improper payments on claims:

  • payments are made for services that do not meet Medicare’s medical necessity criteria;
  • payments are made for incorrectly coded services;
  • providers fail to submit documentation when requested or fail to submit enough documentation to support the claim; and
  • provider is paid twice because duplicate claims were submitted.

The vast majority of improperly paid claims resulted in overpayments to providers; however, there were also circumstances when there were underpayments. If a RAC identifies underpayments as well as overpayments to the same provider, then the overpayments are to be offset by the underpayments. In the event a RAC identifies an underpayment for which there is no overpayment, the appropriate carrier or intermediary is to be informed by the RAC with a claim adjustment and payment to the provider for the underpayment.

All RACs are paid on a contingency basis. Diversified will be highly motivated in Pennsylvania to identify overpayments since their compensation will be 12.45 percent of those overpayments that they are able to recover for the Medicare Trust Fund. However, providers are not without recourse in that the Medicare appeals process will remain the same for physicians under the RAC program. A provider has 120 days from the date of the receipt of the initial claim determination to file an appeal under the appeal process for a re-determination by a Medicare contractor. A re-determination must be requested in writing and should be accompanied with any supporting documentation that is the basis of the appeal. Second-level appeals (reconsideration by a qualified independent contractor) through fifth-level appeals (review in Federal District Court) are available to providers to challenge a RAC determination.

As a result of the demonstration program, some changes were made for the benefit of providers as well. The look-back period under the permanent program is now limited to three years, as opposed to four that were available under the demonstration program. Further, each RAC is required by CMS to hire a physician medical director to oversee the medical review process and inform provider associations about the program. CMS is also requiring each RAC in each state to conduct town hall type meetings with health care providers prior to initiating the program. Having spoken with a representative of Diversified, I anticipate that such meetings will occur in Pennsylvania this June or July. Dates and times as well as locations of the town hall meetings will be posted on the CMS website.

Additionally, each RAC is required to establish a website that will identify “vulnerabilities.” Such vulnerabilities will likely be areas that the RAC be auditing, as well as improper payments that have been consistently identified by the RAC.

This information will be valuable to providers once posted so that they can begin to identify issues within their own practices.

As August 1 draws closer, additional information will be posted on the websites of both CMS and Diversified to help providers prepare to deal with the new program. Once announced, each provider should make it a priority to attend the town hall meeting to be conducted by Diversified.