Ruling thwarts Medicare Recovery Audit Contractor changes

Changing the bids could take as long as two years.

The controversial Medicare Recovery Audit Contractor program is again under fire, though a new ruling could actually give providers more breathing room and build momentum for reforms.

The U.S. Court of Appeals for the Federal Circuit in a ruling this week sided with RAC contractor CGI and is ordering the Centers for Medicare & Medicaid Services to essentially go back to the procurement process. CGI, one of the original Medicare auditors, sued CMS after the agency adopted a new policy to hold contingency fee payments until providers subject to a recovery passed the second level of appeal.

Since the program started in 2008, CMS has paid RAC after the overpayments were collected (which usually took a little more than month), even if the claims in question ended up being appealed, which is the case for about 40 percent of hospital claims challenged by the RACs. Last year CMS decided, for its next round of procurement for RAC contracts, to delay RAC payments for up to 420 days on appealed claims, through the second of five levels of administrative appeal review.

Follow Healthcare Finance on Twitter and LinkedIn.

CGI argued that CMS’s new policy was unfair and in violation of  “customary commercial practices” and Federal Acquisition Regulations. Instead of incorporating the terms into the new round of bids, the agency should have issued a new, more comprehensive request for proposals to account for the nature of the changes.

Federal Judge Mary Ellen Coster Williams largely agreed with CGI and reversed a lower court that sided with CMS.

Now, CMS has to either start over and issue an RFP to pay RACs only after appeals are decided on the second level, or revert back to the old policy for CGI and the other contractors, Connolly, HealthDataInsights and Performant Recovery.

Changing the bids could take as long as two years, but whatever course CMS takes in the bids, providers who have long complained about overzealous recovery audits should be in for some relief.

Last fall, amid a huge backlog of hospital inpatient claims appeals, CMS decided to give hospitals providers the chance to settle up and get paid more than two-thirds of the disputed claims. Any acute care or critical access hospital that was willing to withdraw their pending appeals could get what CMS termed “timely partial payment” of 68 percent of the claims’ net allowable amount.

The truce, which concluded last fall, was for claims that were pending appeals of inpatient-status claim denials by Medicare contractors on the basis of not being “reasonable and necessary.”

It was a “narrow proposal” that didn’t address the “underlying cause of the problem, overzealous RAC review,” as Alicia Mitchell, senior vice president of communications at the American Hospital Association, said at the time.

[Also: These 779 hospitals actually scored Medicare bonuses]

But between that and another proposal and the limbo of the next round of contracts, providers have some room to focus on appeals and compliance going forward. In addition to the second-level of appeal payment for RAC, CMS also promised to “refine and improve” the recovery program by instituting a 30-day auditor-provider discussion period before claims can be sent for adjustment and using revised additional documentation request limits based on a provider’s denial rate, with lower limits for those with fewer claims denials.

CMS has also argued that the two-midnight rule separating inpatient admissions from short stays provided on an outpatient basis may prevent many claims, like the ones in backlog, from being so ambiguous and subject to dispute in the first place.

Twitter: @AnthonyBrino

Here's the ruling: