Medicare RACs at a crossroads

With Medicare’s “two midnight rule” set to take effect later this year and audit appeals facing lengthy backlogs, the Recovery Audit Contractor program may be headed in some new directions. Unfortunately for providers, the RACs are not going away.

In the 2012 fiscal year, Medicare fee-for-service Recovery Auditors identified some 1.27 million improperly paid claims worth $2.3 billion, helping return $1.9 billion to the Medicare trust fund, according to the Centers for Medicare & Medicaid Services’ annual report on the program. The RACs also righted $109.4 million in provider underpayments.

More than 90 percent of the overpayments were related to inpatient hospital claims, and many of those were due to short-stay inpatient admissions that “should have been provided in the outpatient setting,” CMS wrote in its report.

Delineating between inpatient admissions and short stays that CMS argues should be provided on an outpatient basis is the goal of the controversial new “two midnights” rule, covering only beneficiary stays greater than 48 hours as inpatient admissions, set to take effect September 30.

CMS and others say the two midnights rule will reduce a great deal of the burden hospitals face from Recovery Auditors, although health system advocates are split on this question, with some predicting that auditors will only increase medical necessity reviews in other clinical areas.

Either way, the RAC program looks likely to be evolving with the Medicare program. Recently CMS announced a "pause” on RAC audits to prepare for the next round of contract procurement, with June 1 set as the last day Recovery Auditors can send improper payment files to the MACs for adjustment.

Refining the RACs

With the new contracts CMS leaders are promising to “refine and improve” the Medicare Recovery Audit program. Among the changes are a 30-day auditor-provider discussion period before claims can be sent to MACs for adjustment and revised additional documentation request limits based on a providers denial rate, with lower limits for those with fewer claims denials.

All of that comes after enormous provider frustration with recovery auditors, and amid an appeals backlog so long it’s out of compliance with federal law.

By Congressional mandate, appeals should be decided within 90 days of receipt, but current backlogs are resulting in more than 200 days to reach decisions, CMS said. In FY 2012, providers appealed 26 percent of overpayment determinations (some 373,200 claims), and successfully convinced administrative law judges to overturn about 26 percent of those (about 99,400).

Trying to address that backlog and the problems of the “pay and chase” model in general, in 2012 CMS started a demonstration letting RACs conduct prepayment reviews of inpatient claims, with auditors receiving a contingency fee if improper payments are thwarted. The demonstration is up and running in California, Florida, Illinois, Louisiana, Michigan, Missouri, New York, North Carolina, Ohio, Pennsylvania and Texas.

CMS is now evaluating “whether the increased amount of prepayment reviews can have a significant impact on lowering the error rate and lowering the risk of fraudulent claims.”

Now five years running nationwide, the Medicare recovery audit program has returned more than $7 billion to the Medicare trust funds, although CMS believes the audit program can still be improved, especially to reduce burdens on providers and increase accuracy. The accuracy of four current contractors varies slightly, with the most accurate being HDI, at 97.2 percent. Performant and CGI both received accuracy scores of 96.3 percent for the 2012 fiscal year, while Connolly received a score of 92.5 percent.

CMS is also planning to expand the Recovery audit program to the Medicare Advantage and the Part D drug program, as well as Medicaid.