RACs Correct $2.4 Billion in Medicare Claims in FY 2012

CMS has released data on Recovery Audit Contractor (RAC) operations fiscal year 2012. Key findings included the following:

  • In FY 2012, Medicare fee-for-service (FFS) RACs collectively identified and corrected 1,272,297 claims for improper payments, which resulted in $2.4 billion in improper payments being corrected ($2.3 billion in overpayments/$109.4 million in underpayments). Subtracting fees, costs, and first level appeals, the Medicare FFS Recovery Audit Program returned over $1.9 billion to the Medicare trust funds.
  • The Part D RAC’s initial review focused on identifying improper payments for prescriptions written by excluded prescribers or filled by excluded pharmacies beginning with contract year 2007. Recoupment of approximately $2 million in overpayments began in the first quarter of FY 2013 for those plans identified in the Part D RAC's initial audit review. The Part D RAC is continuing its review of excluded providers and pharmacies for contract years 2008 and 2009. In addition, CMS posted a notice on April 4, 2013, seeking potential contractors to perform Part C RAC activities.
  • As of September 30, 2012, 36 states had implemented Medicaid RAC programs, and other states are in various stages of preparation. For FY 2012, the states have recovered a total federal and state share combined amount of $95.64 million. CMS expects recoveries to increase as more states have fully operational State Medicaid RAC programs.

As previously reported, CMS has “paused” its RAC audits in preparation for the procurement of new RAC contracts and to “allow CMS to continue to refine and improve the Medicare Recovery Audit Program.”

CMS Announces RAC Audit "Pause," Upcoming RAC Program Reforms

CMS has announced that it is “pausing” Recovery Audit Contractor (RAC) audits in preparation for the procurement of new RAC contracts and to “allow CMS to continue to refine and improve the Medicare Recovery Audit Program.” The following is the timeline for winding down current RAC activities:

  • February 21 is the last day a RAC may send a postpayment Additional Documentation Request (ADR);
  • February 28 is the last day a Medicare Administrative Contractor (MAC) may send prepayment ADRs for the Recovery Auditor Prepayment Review Demonstration; and
  • June 1 is the last day a RAC may send improper payment files to the MACs for adjustment.

CMS also announced a number of changes to the RAC program, made in response to industry feedback, that are intended to “result in a more effective and efficient program, including improved accuracy, less provider burden, and more program transparency.” Specifically, the following changes will be effective with the next RAC program contract awards.

  • RACs must wait 30 days to allow for a discussion before sending the claim to the MAC for adjustment (providers will not have to choose between initiating a discussion and an appeal);
  • RACs must confirm receipt of a discussion request within three days;
  • RACs must wait until the second level of appeal is exhausted before they receive their contingency fee;
  • CMS is establishing revised ADR limits that will be diversified across different claim types (e.g., inpatient, outpatient); and
  • RACs will be required to adjust the ADR limits in accordance with a provider’s denial rate (providers with low denial rates will have lower ADR limits while provider with high denial rates will have higher ADR limits).

CMS Again Extends "Probe & Educate" Phase for 2-Midnight Inpatient Admissions Criteria Implementation; Clarifies Physician Certification Requirements

CMS has announced that it is extending provider education activities related to its new Medicare inpatient hospital admission and medical review criteria (commonly known as the 2-Midnight Rule). Specifically, CMS is extending what it refers to as the “Probe & Educate” review process for an additional six months, through September 30, 2014. Under this extension, Recovery Audit Contractors (RACs) and other Medicare review contractors will not conduct post-payment patient status reviews of inpatient hospital claims with dates of admission on or after October 1, 2013 through October 1, 2014. Medicare Administrative Contractors (MACs) will continue to select claims for review with dates of admission between March 31, 2014 and September 30, 2014, however, and claims not in compliance will be denied. MACs also will continue to hold educational sessions with hospitals through September.  CMS also has clarified related provisions regarding physician orders for and certification of hospital inpatient services.

CMS Limits Compliance Reviews under New "2 Midnight" Inpatient Admissions Policy

As discussed in previous reports, the final FY 2014 IPPS rule established new criteria for determining the appropriateness of inpatient admissions. In brief, under this policy, CMS generally will presume that surgical procedures, diagnostic tests, and other treatments are appropriate for Medicare Part A inpatient hospital payment when the physician admits a patient based on the expectation that the patient will require a stay of at least two midnights. On September 26, 2013, CMS issued FAQs on the new policy, in which it announces it is directing MACs and Recovery Audit Contractors (RACs) to limit review of hospital compliance with this policy. Specifically, MACs and RACs will be instructed not to review claims spanning more than two midnights after admission for a determination of whether the inpatient hospital admission and patient status was appropriate, and CMS will not permit RACs to review inpatient admissions of one midnight or less that begin on or after October 1, 2013 through the end of the year. On the other hand, CMS will instruct the MACs to conduct limited “probe” prepayment reviews of inpatient hospital claims spanning less than two midnights after admission to determine for medical necessity of the patient status in accordance with the two midnight benchmark to assess compliance and provide feedback to CMS for purposes of developing further education and guidance. Since the probe reviews will be conducted on a prepayment basis, hospitals can rebill denied inpatient hospital admissions in accordance with the IPPS rule. CMS notes that while medical review will not be focused this issue, “physicians should make inpatient admission decisions in accordance with the 2 midnight provisions in the final rule.” Moreover, CMS warns that “evidence of systematic gaming, abuse or delays in the provision of care in an attempt to surpass the 2-midnight presumption could warrant medical review.”

OIG Report Examines Medicare Appeals Volumes and Timeliness

This post was written by Nancy Sheliga.

In October 2013, the OIG issued a report (The First Level of the Medicare Appeals Process, 2008–2012:  Volume, Outcomes, and Timeliness") that addresses the first level of the appeals process for Medicare Parts A and B, known as redetermination. Eighteen contractors that process redeterminations and relevant CMS staff were contacted for the study, which focused on redeterminations and claims processed for Medicare Parts A and B between 2008 and 2012. The report found that the number of redeterminations processed increased by 33% over this period, with those relating to Part A (especially those involving inpatient hospital and home health claims) increasing more rapidly than those relating to Part B. The growth in the recovery audit contractor program accounted for a large part of the appealed Part A decisions. Nevertheless, 80% of all redeterminations in 2012 involved Part B services, with contractors deciding more often in favor of Part B appellants than Part A appellants. Part A reviews were reported to be typically more time and resource intensive than those for Part B. The report also found that contractors generally met required timeframes for processing redeterminations and paying for appeals won by appellants, and when there were problems in this regard they most often related to Part A related cases rather than Part B. Contractors did, however, more often fail to transfer case files for second-level appeals in a timely manner. The report includes the following three recommendations for CMS, with which the agency concurred: (1) using the Medicare Appeals System (MAS) implemented by CMS for first-level appeals to monitor contractor performance, (2) continuing to foster information sharing among Medicare contractors, and (3) monitoring the quality of redeterminations data in the MAS.

OIG Seeks Improvements to RAC Program, Enhanced CMS Efforts to Stop Improper Medicare Payments

The OIG has called on CMS to strengthen activities to prevent improper Medicare payments, including enhancements to the Recovery Audit Contractor (RAC) program. For instance, the OIG notes that RACs identified half of all claims they reviewed in FYs 2010 and 2011 as having resulted in improper payments totaling $1.3 billion. While CMS took corrective actions to address the majority of identified vulnerabilities, the agency did not evaluate the effectiveness of these actions, however, so high levels of improper payments may continue. The OIG also raised concerns about CMS failure to act on all referrals of potential fraud that it received from RACs, along with gaps in CMS evaluations of RAC performance on contract requirements. The OIG recommends that CMS: address identified vulnerabilities; ensure that RACs refer all appropriate cases of potential fraud; take appropriate action on RAC referrals of potential fraud; and enhance RAC performance evaluation. CMS generally concurred with the OIG recommendations. The report, “Medicare Recovery Audit Contractors and CMS’s Actions to Address Improper Payments, Referrals of Potential Fraud, and Performance,” is available here.

Health Policy Hearings

A number of recent Congressional hearings have focused on health policy issues, including the following:

CMS Releases FY 2011 RAC Report, RAC "Myths" Document

CMS has released a report to Congress on “Recovery Auditing in the Medicare and Medicaid Programs for Fiscal Year 2011”.  According to CMS, recovery auditors identified and corrected 887,291 claims amounting to $939.3 million in improper payments in fiscal year 2011; while most of the improper payments ($797.4 million) were overpayments, the auditors also were responsible for $141.9 million in underpayments being repaid to providers and suppliers. After considering all fees (including contingency fees), costs, appeals, and underpayments, the Medicare fee-for-service (FFS) Recovery Audit Program returned $488.2 million to the Medicare Trust Fund in FY 2011. CMS discusses procedural changes adopted to decrease the Recovery Auditors errors, and according to CMS, only 2.9% of all Recovery Auditor determinations were challenged and later overturned on appeal. The report notes that short-stay inpatient hospital admission issues represented a significant portion of the Medicare FFS error rate and also represent a large portion of FY 2011 overpayment collections. The report also includes, among other things, an update on the status of recovery audit contracting in the Medicare Advantage, Medicare prescription drug, and Medicaid programs, along with a RAC prepayment review demonstration. On a related note, CMS has posted a “Recovery Audit Program Myths” document, addressing such issues as claims denial rates and review criteria, presumably to combat persistent provider criticism of the program.

OIG Examines Inappropriate Medicare Payments to SNFs

This post was written by Scot Hasselman and Debra McCurdy.

An OIG report released November 13, 2012 estimates that one-fourth of Medicare SNF claims in 2009 were in error, resulting in more than $1 billion in inappropriate payments. Note that the OIG’s findings were based on a medical record review of a random sample of only 245 SNF stays and 499 claims, which the OIG projected to the 6.4 million claims in the population. Based on this limited sample, the OIG found that 20.3% of SNF claims were upcoded, with about half of these claims involved SNFs billing for ultrahigh therapy resource utilization groups (RUGs) instead of lower levels of therapy or nontherapy RUGs. In addition, 2.5% of claims were downcoded and 2.1% did not meet coverage requirements because the beneficiaries were not eligible for SNF care. The OIG concludes that while “CMS has made several significant changes to SNF payments for FYs 2011 and 2012…more needs to be done to reduce inappropriate payments to SNFs.” The OIG therefore recommends that CMS: (1) increase and expand reviews of SNF claims; (2) use its Fraud Prevention System to identify SNFs that are billing for higher paying RUGs; (3) monitor compliance with new therapy assessments (including through Medicare Administrative Contractor (MAC) and Recovery Audit Contractor (RAC) analysis and review); (4) change the methodology for determining how much therapy is needed; (5) improve the accuracy of MDS items, and (6) follow up on the SNFs that billed in error. CMS concurred with the recommendations, set forth in the report entitled “Inappropriate Payments to Skilled Nursing Facilities Cost Medicare More Than a Billion Dollars in 2009.”

The OIG report follows an earlier report published in December of 2010. That report, entitled, “Questionable Billing by Skilled Nursing Facilities,” has been discredited as an overwhelming majority of the disallowed claims underlying the report were overturned on appeal; OIG ignored the judicial dispensation of these claims in makings its allegations. The report is the latest in a series of federal effort to narrow the scope of coverage for beneficiaries in SNFs, which is interesting in light of the recent CMS settlement regarding the “Improvement Standard” in a case entitled Jimmo v. Sebelius. In Jimmo, the plaintiff alleged that HHS had adopted an “unlawful and clandestine standard” (known as the “Improvement Standard”) to determine whether Medicare beneficiaries are entitled to coverage. HHS/CMS recently settled this matter and agreed to revise the appropriate Medicare manuals, and to engage in a nationwide education campaign to inform providers and Medicare contractors of maintenance coverage standards. As in Jimmo, we believe that the federal government has adopted a clandestine policy to restrict Medicare coverage in SNFs, which is being implemented via the OIG, MAC and RAC audits, and Zone Program Integrity Contractor and Department of Justice investigations.

CMS Releases Medicare Beneficiary Ombudsman Report

CMS has released its 2011 Ombudsman Report to Congress, which describes the activities of the Office of the Medicare Ombudsman (OMO) and sets forth the OMO’s recommendations for improving beneficiaries’ experiences with Medicare. Specific recommendations to CMS cover three topics: (1) recovery of conditional payments from beneficiaries by the Medicare Secondary Payer Recovery Contractor; (2) the indirect effects on beneficiaries of Recovery Audit Contractors’ retroactive identification and recovery of improper fee-for-service (FFS) Medicare payments; and (3) negative beneficiary consequences stemming from the use of hospital observation services for extended periods of time.

CMS Recovery Audit Prepayment Review Demonstration to Launch Aug. 27, 2012 (Covering One Initial MS-DRG)

CMS has announced that its Recovery Audit Prepayment Review Demonstration, originally scheduled to launch on January 1, 2012, is now scheduled to begin on August 27, 2012. Under this program, CMS plans to expand the use of Medicare Recovery Auditors in the Medicare fee-for-service program to review claims before they are paid. The demonstration will include seven states with what CMS calls “high populations of fraud- and error-prone providers” (FL, CA, MI, TX, NY, LA, IL) and four states with high claims volumes of short inpatient hospital stays (PA, OH, NC, MO). On an August 9, 2012 provider call, CMS announced that one MS-DRG will be reviewed initially: MS-DRG 312 (Syncope & Collapse). The following codes are scheduled to be included at date to be determined: MS-DRG 069 (Transient Ischemia); MS-DRGs 377-379 (GI Hemorrhage); and MS-DRGs 637-639 (Diabetes). CMS also specified that the demonstration will not replace Medicare Administrative Contractor (MAC) prepayment review, but CMS expects contractors to coordinate review areas to not duplicate efforts. 

CMS Posts "Provider Compliance Interactive Map"

CMS has developed a “Provider Compliance Interactive Map” web page as a reference tool with state-specific contact information for the following types of Medicare contractors: Payment Error Rate Measurement (PERM), Comprehensive Error Rate Testing (CERT), Medicare Recovery Audit Operations (RACs), and Medicare Administrative Contractor (MACs).  

CMS Announces August 27, 2012 Start Date for Recovery Audit Prepayment Review Demonstration; Provider Call Scheduled for Aug. 9

CMS has announced that its Recovery Audit Prepayment Review Demonstration, originally scheduled to launch on January 1, 2012, is now scheduled to begin on August 27, 2012. Under this program, CMS plans to expand the use of Medicare Recovery Auditors in the Medicare fee-for-service program to review claims before they are paid.  The demonstration will include seven states with what CMS calls “high populations of fraud- and error-prone providers” (FL, CA, MI, TX, NY, LA, IL) and four states with high claims volumes of short inpatient hospital stays (PA, OH, NC, MO). During a December 21, 2011 provider call on the demonstration, CMS announced that the following MS-DRGs are scheduled to be included in the project:  MS-DRG 312 (Syncope & Collapse); MS-DRG 069 (Transient Ischemia); MS-DRGs 377-379 (GI Hemorrhage); and MS-DRGs 637-639 (Diabetes).  It is unclear whether CMS will make any changes to the DRGs or other aspects of the program when it gets underway. CMS is holding a Special Open Door Forum on the demonstration on August 9. 

Maximum Medicaid RAC Contingency Fees for DME Overpayments

On February 24, 2012, CMS published a notice announcing an increase to the maximum contingency fee that may be paid to Medicaid Recovery Audit Contractors (RACs) for which federal financial participation (FFP) will be available. Specifically, CMS now authorize states to pay their respective Medicaid RACs a contingency fee of up to 17.5% of the recovered overpayment for the recovery of improper payments made for medical supplies, equipment and appliances suitable for use in the home found within the Medicaid home health services. This 5% increase corresponds to a 5% increase in the contingency fee payable to Medicare Recovery Auditors for overpayments associated with Medicare durable medical equipment (DME) claims adopted by CMS effective June 1, 2011.

CMS Call on Recovery Auditor Prepayment Review Demo (Dec. 21)

On December 21, 2011, CMS is hosting a special open door forum provider call on its Medicare Fee-For-Service Recovery Auditor Prepayment Review Demonstration, which will expand the use of Medicare Recovery Auditors in the Medicare fee-for-service program to review claims before they are paid. This demonstration will focus on seven states with high populations of what CMS characterizes as “fraud-and error-prone providers” (FL, CA, MI, TX, NY, LA, IL), along with four states with high volumes of claims for short inpatient hospital stays (PA, OH, NC, MO).

CMS Announces FY 2011 RAC Recovery Amounts

CMS has posted FY 2011 statistics on the Medicare Fee-for-Service Recovery Audit Contractor (RAC) program, under which CMS contractors are tasked with detecting and correcting past improper Medicare payments. From October 2010 through September 2011, CMS states that RACs have corrected $939.4 million in total payments, the bulk of which ($797.4 million) were recoupments of alleged overpayments. Top overpayment issues identified by the RACs include undocumented medical necessity for renal and urinary tract disorders, surgical cardiovascular procedures, and acute inpatient admissions for neurological disorders, along with the medical necessity of minor surgery and other treatment billed as inpatient care.

CMS Releases FY 2010 RAC Report

CMS has released a report entitled “Implementation of Recovery Auditing at the Centers for Medicare & Medicaid Services.”  The report discusses the evolution of the Recovery Audit Contractor (RAC) program, describes key program components, and provides detailed FY 2010 results, including collection and underpayment data by claim type and issue.

Medicaid RAC Program

On September 16, 2011, CMS published a final rule to implement section 6411 of the ACA, which requires all states to contract with Recovery Audit Contractors (RACs) to audit Medicaid claims, identify underpayments and overpayments, and recover overpayments or correct underpayments (similar to the Medicare RAC program). RACs will be paid a contingency fee out of improper payments they recover that took place in the previous three years. The rule provides guidance to states related to federal/state funding of state start-up, operation and maintenance costs of Medicaid RACs, and the payment methodology for state payments to Medicaid RACs. States are required to assure that adequate appeal processes are in place for providers to dispute adverse determinations made by Medicaid RACs.  In addition, the rule directs states to coordinate with other contractors and entities auditing Medicaid providers and with state and federal law enforcement agencies. The rule is effective January 1, 2012. 

CMS Announces Updated RAC Recovery Amounts

CMS has released new statistics on the Medicare Fee-for-Service Recovery Audit Contractor (RAC) program, under which CMS contractors are tasked with detecting and correcting past improper Medicare payments. As of the third quarter of FY 2011, RACs have corrected $592.5 million in total payments, including $233.4 million in provider overpayments and $55.9 million in underpayments. Top overpayment issues identified by the RACs include undocumented medical necessity for renal and urinary tract disorders, extensive operating room procedure unrelated to the principal diagnosis, improper Medicare payments for DMEPOS provided during an inpatient stay, and the medical necessity of minor surgery and other treatment billed as inpatient care.

CMS Announces RAC Recovery Amounts

CMS has released new statistics on the Medicare Fee-for-Service Recovery Audit Contractor (RAC) program, under which CMS contractors are tasked with detecting and correcting past improper Medicare payments. In the first three months of 2011 alone, RACs corrected $184.6 million in total payments, including $162 million in provider overpayments and $22.6 million in underpayments. This compares to a total of $92.3 million in corrections for all of FY 2010, of which $75.4 million were overpayments.   Since October 2009, the RAC program has collected $313.2 million in overpayments. Top overpayment issues identified by the RACs during FY 2010 through March 2011 include excessive ventilator hours, billing for extensive operating room procedures that are unrelated to the principal diagnosis, and improper Medicare payments for durable medical equipment (DME), prosthetics, orthotics, and supplies provided during an inpatient stay.