RACs Identified $2.4B In Improper Payments in FY2012

stacks of moneyRecovery Audit Contractors (RACs) identified $2.4 billion in improper Medicare fee-for-service (FFS) payments in fiscal year (2012), the Centers for Medicare & Medicaid Services (CMS) reported to Congress.

Of that amount, $2.3 billion involved collected overpayments, while $109.4 million was returned to providers following an underpayment determination. After taking into account the costs of the program, payments to providers, and overpayment determinations reversed on appeal, RACs netted the Medicare trust fund $1.9 billion in FY 2012, CMS reported.

The RAC program for FFS Medicare has been operational since September 2010. RACs also have been expanded to Medicare Parts C and D and Medicaid, although those audit programs are not as far along.

Recovery auditors are paid a contingency fee, which for most Medicare FFS claims ranges between 9% and 12.5% of the improper payments they uncover. The contingency fee for durable medical equipment claims is higher—ranging from 14% to 17.5%. If an improper payment determination is overturned on appeal, however, RACs must return the fee.

Inpatient Hospital Claims

CMS noted the bulk of overpayments (more than $2 billion) involved inpatient hospital claims, and in particular, so-called “short-stay” admissions where contractors determined the services should have been provided in the outpatient setting or lacked medical necessity documentation.

According to CMS, Medicare providers appealed 26.3% of all claims with overpayment determinations, with a 26.7% provider success rate.

CMS said the majority of appeals at the administrative law judge (ALJ) level involved overpayment determinations for short-stay inpatient claims that auditors found were not medically necessary.

“Increased appeals for these types of claims have led to backlogs at the [Office of Medicare Hearings and Appeals] OMHA,” CMS said. OMHA recently decided to suspended assignment of most new requests for Administrative Law Judge (ALJ) hearings for at least two years as a result of the backlog.

The report references the agency’s controversial “two midnight” policy for reviewing hospital inpatient claims.

Under the 2014 Inpatient Prospective Payment System final rule, issued in August 2013, where a physician admits a patient with the assumption that the stay will span at least two midnights, the admission will presumptively qualify as appropriate for payment under Medicare Part A. Conversely, admissions spanning less than that time period presumptively should have been provided on an outpatient basis under Medicare Part B. The rule took effect October 1, 2013 but has been delayed through September 30.

Groups like the American Hospital Association and some lawmakers have raised concerns about the policy’s implementation. Representative Jim McDermott (D-WA) last week sent a letter to the Department of Health and Human Services saying the two-midnight policy was likely to add to the mounting Medicare appeals backlog.

Instead of implementing the policy, McDermott urged CMS to re-examine and modify the RAC program.

But in the RAC report, CMS defended the policy, saying “it should result in greater consistency in hospital billing and, as a result, reduce the incidence of improper payments in the Medicare FFS program, which in turn reduces the number of appeals resulting from those improper payments.”

CMS posted February 18 a notice on its website announcing a “pause” in the RAC program during the procurement process for the next round of contracts. RACs were instructed to suspend postpayment additional document requests after February 21.

Medicare Part D

The report also offers some preliminary results for Medicare Part D recovery auditing. The Part D RAC’s initial audit found $2 million in overpayments for prescriptions written or filled by excluded prescribers and pharmacists beginning with contract year 2007. According to CMS, recoupment of those overpayments started in the first quarter of FY 2013.

Medicaid RACs

CMS required states to implement RACs for their Medicaid programs by January 1, 2012. As of September 30, 2012, however, only 36 states had done so, the report said.

CMS has granted three states temporary exceptions and is working with the remainder to help them implement Medicaid RAC programs, the report noted.

CMS reported that states with operational RAC programs recovered $95.64 million in FY 2012, returning $57.57 million as the federal share.


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