The Medicare Audit Improvement Act Appears Promising at First Glance. Is it Really the Answer?

Is the Medicare Audit Improvement Act Really Going Help Health Care Providers?

(November 12, 2012): The AHA Supports the Medicare Audit Improvement Act of 2012. Is this Legislation Going to Help Physicians or Not? On October 16, 2012, a new bill was introduced by Representative Sam Graves (R-MO) entitled the "Medicare Audit Improvement Act of 2012". This legislation was immediately supported by the American Hospital Association (AHA), which called the act "much-needed guidance for medical necessity audits, keeping auditors out of making medical decisions that should be between patients and their physicians."


I. What Will the Medicare Audit Improvement Act Require?

If passed, the law would require that the Secretary for the Department of Health and Human Services (HHS) implement certain regulations with respect to HHS's national audit programs (such as those conducted by Recovery Audit Contractors (RACs) and Zone Program Integrity Contractors (ZPICs)). Notably, these regulations would specifically require that CMS (and through the agency, its various Medicare contractors) take number of steps designed to better address a number of long-standing concerns expressed by physicians, hospitals and other health care providers participating in the Medicare Program. Unfortunately, as discussed below, these proposed changes would primarily apply to Part A services -- not the Part B services administered and billed by most non-hospital Medicare participating providers. Proposed changes include:

  • Establishing a consolidated limit for all medical record requests;
  • Implementing financial penalties against audit contractors for poor performance;
  • Improving transparency of Medicare contractors like RACs and ZPICs;
  • Modifying the recent Part A to Part B Rebilling Demonstration Project;
  • Allowing, as appropriate, rebilling of denied inpatient claims as outpatient claims; and
  • Requiring physician review of Medicare denials.

This law is primarily in response to the recent outcry by hospitals and health systems regarding the practices of RACs when evaluating short-stay inpatient admissions. In these situations, RACs have been alleged to have denied inpatient claim outright, without giving credit for services provided on the outpatient side that would otherwise be covered and eligible for some payment. While the Part A to Part B Rebilling Demonstration Project has attempted to remedy this, it is slow-moving and only open to a limited number of providers who are willing to give up their appeal and other rights. As such, the Medicare Audit Improvement Act would give additional relief to hospitals burdened by these audits.

II. The Medicare Audit Improvement Act and Part B Payments:

If enacted, this legislation will have a significant impact on hospital audits conducted by Medicare contractors. Importantly, the definition of "Medicare contractor" under the proposed Act is quite broad and includes Medicare Administrative Contractors (MACs), RACs, and ZPICs. However, the Medicare Audit Improvement Act is intended to only apply to Part A services. Since most non-hospital health care providers participating in the Medicare program (including, but not limited to: physicians, clinicians, therapists, DME suppliers, and other health care professionals) provide Part B services, this legislation is not expected to provide any relief.

III. The Medicare Audit Improvement Act Seeks to Penalize Contractors Who Fail to Conduct Their Duties Appropriately. Is This Fair?

As a review of the bill will show, sections of the legislation, including those related to contractor transparency, financial penalties, and limiting records requests, apply specifically to RACs and do not apply to other "Medicare contractors" as defined under the statute. Moreover, even if passed, this legislation will have little, if any, impact on Medicare Part B providers. Is it fair to only penalize RACs for "poor performance"? Should ZPICs be penalized if claims they deny are ultimately found to be payable? Don't answer just yet. . . .

Over the years, we have handled numerous cases where a Medicare contractor denied a claim on the basis of "lack of documentation" or on another basis that is clearly contradicted by a review of the documentation sent to the contractor for assessment. We share our clients' concerns -- these cases often reflect a fundamental error on the part of the contractor. Nevertheless, once a claim is denied by a ZPIC or RAC, a provider virtually no ability to have an audit terminated. Instead, a provider's only option is to press their concerns and lay out their arguments in support of payment through the administrative appeals process.

IV. While ZPICs and RACs Occasionally Miss Evidence Clearly in a File, Providers Need to Keep The Contractor's Actions in Perspective:

Stepping back for a moment and considering contractor audits as an impartial observer rather than as an advocate for our clients can be quite helpful in understanding the frustration sometimes exhibited (albeit in a professional fashion) by ZPIC representatives during hearings before an Administrative Law Judge (ALJ). As ZPIC reviewers have pointed out in prior hearings, when assessing whether a claim should be paid, they are obligated to apply the applicable medical necessity, coverage, documentation, coding and billing guidelines published by the Centers for Medicare and Medicaid Services (CMS) and its MACs. This guidance is often in the form of Local Medical Review Policies (LMRPs), Local Coverage Determination (LCD) issuances, and a variety of other publications issued by the government and its agents. While not discussed, it has become abundantly clear that ZPICs are not intended to exercise their personal judgment when assessing a providers claims. Rather, their mandate is to apply the above-discussed guidelines. In contrast, ALJ's enjoy a significantly broader degree of discretion. Although they will undoubtedly consider these same guidelines, based on other reasons, an ALJ may ultimately hold that a claim should be paid. Additionally, in some instances, by the time a claim is heard by an ALJ, records cited by a ZPIC as "missing" have later been found and supplemented into the record by a provider. With this new information, an ALJ may decide to overturn a prior denial. Furthermore, it is not at all uncommon for a ZPIC to deny a claim because the physician's handwriting (and Progress Note) could not be read. In several cases, we have been able to remedy this deficiency by having the notes as issue "transcribed" and typed out so that a reviewer can easily read the entries. Once transcribed, an ALJ may have additional information upon which to consider whether a claim should be paid. Finally, it is essential to keep in mind that the ALJ level is the first time that a provider will have an opportunity to tell its side of the story, thereby addressing and refuting a ZPIC's concerns.

V. What Should You Do to Prepare for a Prepayment Review or Postpayment Audit by a Medicare or Medicaid Contractor?

In light of the above, we believe that this issue is much more complicated than it may initially seem. ZPICs and RACs are far from perfect. They miss documents and evidence when conducting their reviews and their failure to fully review a record can lead to the improper denial of a claim. Nevertheless, many times ZPICs and RACs do, in fact, have a basis for initially denying a claim -- you and I may not agree with their assessment, but in most instances they are likely to have at least a colorable argument in support of their denial decision. The mere fact that an ALJ later overturns a denial does not necessarily mean that the ZPIC has acted improperly. As described above, the record and arguments reviewed by an ALJ can greatly vary from the information first sent to, and considered by, the ZPIC.

As we have previously discussed, physicians and their staff members need to go back to the basics. Examine your Local Coverage Determination (LCD) provisions which cover everything from "medical necessity" to documentation requirements for certain services. Read the 1995 and 1997 E/M Guidelines. Dust of your copy of the Medicare Benefit Policy Manual. Unfortunately, physicians are going to continue to experience problems in this regard until they read, understand and apply the same guidelines as those utilized by the RACs and ZPICs. Internal Audits, ongoing education and training are the key to reducing your error rate and improving your compliance with applicable rules and regulations. Don't wait until you are facing an audit -- examine your documentation practices NOW and take remedial action to repay any overpayment which may be owed and educate your staff so that any identified deficiencies do not reoccur.

Healthcare Lawyer

Robert W. Liles is the Managing Partner at the health law firm, Liles Parker PLLC. Our attorneys represent a wide variety of health care providers around the country. Robert handles health care compliance reviews, internal audits, Medicare and Medicaid post-payment overpayment appeals, fraud and abuse investigations, and a number of other health care matters. He also assists providers in responding to prepayment audits conducted by ZPICs (and now RACs). Should you have any questions, please feel free to call Robert today for a complimentary consultation. Robert and our other attorneys can be reached at: 1 (800) 475-1906.