Medicare’s Recovery Audit Contractor Program

May 2009Newsletters Staying Well within the Law

Printer Friendly

This article originally appeared in the BULLETIN of the Allegheny Medical Society and is reprinted here with permission.

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. The 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. The 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 Health care 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 have the permanent program implemented in the summer of 2008. Because of protests filed by companies bidding on the contracts to act as recovery audit contractors, the 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 act as the RAC for Pennsylvania. Diversified is expected to begin their 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.

The RACs can make a determination 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 make a finding 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 the 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, a group of 2-5 individuals – 20 medical records per 45 days, a group of 6-15 individuals – 30 medical records per 45 days and a group exceeding 16 individuals up to 50 medical records per 45 days can be requested. 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.

Which health care entities to be reviewed for overpayment and underpayments will be determined by the RACs using their own software and systems to determine what areas to review. The most common reasons for improper payments on claims occurred for the following reasons:

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

The vast majority of the improperly paid claims resulted in overpayments to providers; however, there were circumstances when there were underpayments as well. 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 the 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 the 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, it is anticipated that such meetings will occur in Pennsylvania in June or July 2009. The 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; that is to say what the RAC will likely be auditing as well as improper payments that have been consistently subject to review by the RAC. This information will be valuable to providers once posted so that they can begin to identify issues within their own practice.

As August 1, 2009, draws closer there will be additional information 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.

For more information about this topic, contact Michael Wiethorn at 412.394.5537 or [email protected].