CMS Implements RAC Program Improvements

(January 9th, 2015) Health care providers increasingly complain that the Recovery Audit Program creates numerous administrative and financial burdens for those participating in the federal Medicare program. Providers continue to advocate for numerous changes to the program, especially those that will reduce their burden when dealing with Recovery Audit Contractors (RACs). In response to these concerns, the Centers for Medicare and Medicaid Services (CMS) has implemented a number of RAC program improvements that took effect on December 30, 2014.

I. The Recovery Audit Program:

Congress created the RAC as an effort to identify and recover improper Medicare payments paid to health care providers. RACs accomplish this mission by detecting and collecting overpayments made on claims to health care services provided to Medicare beneficiaries, as well as by identifying underpayments to providers. Each RAC is responsible for identifying overpayments and underpayments in a geographically assigned area, which is approximately one quarter of the country. Moreover, RACs are responsible for highlighting common billing errors, trends (recently, for example, improper face-to-face documentation), and other Medicare payment issues to CMS. After a successful three year demonstration, the program expanded and went national in 2009. RACs have since returned more than $8.9 billion to the Medicare Trust Fund while returning more than $800 million in underpayments to providers.

II. RAC Program Improvements Under the New Recovery Audit Contract:

Health care providers have voiced their concerns over many details of the Recovery Audit Program since its inception. For example, RACs are paid on a “contingency fee” basis. Providers contend that this reimbursement method incentivizes RACs to focus their audits on high-dollar inpatient claims. Furthermore, this payment structure incentivizes the contractors to deny as many claims as possible, with little regard for the accuracy of their denials. The volume of inappropriate denials has subsequently led to widespread delays in the Medicare appeals process. To date, there is at least a two-year delay for appeals to be heard at the Administrative Law Judge (ALJ) level.

While Congressional action may be the most vital tool to improve the Recovery Audit Program, CMS has begun to take measures to listen to provider concerns and feedback. On December 30, 2014, CMS awarded the first national recovery audit contract to Connolly, LLC [1].

The contract pertains to Region 5, which is national in scope and will allow Connolly to audit Medicare claims for Durable Medical Equipment and Home Health and Hospice (DME/HH-H). Since 2006, Connolly has also served as the exclusive RAC for Region C, which covers 17 states and territories in the southern part of the United States.

With this new contract, CMS announced that a number of new changes would take effect in the program.

III. RAC Program Improvements are Intended to Help With Provider Interaction:

CMS believes that the new changes will “result in a more effective and efficient program, by enhanced oversight, reduced provider burden, and more program transparency.” A significant improvement to the program will limit the look-back period for patient status reviews. Previously, RACs had a three-year look-back period in which to audit claims. Under the changes, CMS will restrict this look-back period to only six months from the date of service for patient status reviews. However, hospitals must submit the claim within three months of the date of service for this to take effect.

Providers also have voiced their concerns regarding the timeframe for RACs to complete a review of a claim. This timeframe forced providers to wait 60 days before being notified of the outcome of their complex reviews. Now, that period has been cut in half – RACs will only have 30 days to complete complex reviews and notify the provider of their findings. This should give providers more immediate feedback on the outcome so that they can assess how to proceed in case of a negative finding.

The changes further the “discussion period” process but with a very significant improvement. RACs had been required to stop the discussion period once they were notified of an appeal by a provider. Under the new changes, RACs must now wait 30 days following their determination, which will allow the provider to request a discussion with the RAC before sending the claim to a Medicare Administrative Contractor for adjustment. This development should allow providers not to be forced to choose between initiating a discussion and an appeal, and they can be assured that modifications to the improper payment determination will be made prior to the claim being sent for adjustment. RACs will also be forced to adhere to a process for confirming receipt of provider correspondence, including discussion requests, within three days of receipt.

CMS has also made adjustments to the RACs’ contingency fee model of payment. Formerly, RACs were paid immediately upon denial and recoupment of the claim. RACs now must wait to be reimbursed their contingency fee until after the second level of appeal has been exhausted. This delay in payment should help assure leery providers that the decision made by the contractor was correct based on Medicare’s statutes, guidelines, coverage determination, regulations, and manuals.

Notably, several of the changes relate to the volume of reviews. These changes should help providers who have felt over-burdened by inpatient status reviews. First, reviews will be diversified across all claim types (e.g. inpatient, outpatient, etc.) so that providers with multiple claim types are not disproportionately impacted by an audit in one claim type. Second, providers unfamiliar to the RAC program will have review limits applied incrementally to allow them to adjust to reviews. Finally, providers with a low level of denial rates will have a lower level of review while providers with high denial rates will have higher ADR limits. Even more, the rates will be adjusted as a provider’s denial rate declines.

IV. Enhancing CMS’ Oversight and Implementing Performance Standards:

CMS also increased its oversight over the Recovery Audit Program and instituted several performance standards for the RACs. For example, providers have voiced concerns that the contractors were not penalized for high appeal overturn rates. RACs must now maintain an overturn rate of less than 10% at the first level of appeal. If they don’t, they will be placed on a corrective action plan, including decreasing ADR limits or ceasing certain kinds of reviews until the problem is corrected.

In addition, for automated reviews, RACs must maintain a 95% accuracy rate. If they fail to do so, there will be a progressive reduction in their ADR limits. CMS will also continue to use a validation contractor to assess RAC identifications and will improve the new issue review process to help ensure the accuracy of RAC automated reviews.

V. Final Remarks:

It will be interesting to see if any of the proposed changes have a positive effect on the relationship between Medicare providers and the RACs. However, providers should be aware – these updates and improvements will not go in effect for a particular RAC until a new contract has been awarded. Thus, these changes will only affect those DME / HH-H providers under the jurisdiction of Connolly. CMS did announce that the Region 3 contract would be in place at the end of 2014; however, there is no particular contractor in place at this time. Furthermore, CMS’ website reflects that Regions 1, 2, and 4 will not be awarded new contracts until the summer of 2015.

Nevertheless, Medicare providers will continue to face the ongoing administrative and financial burdens created by RACs. You should be prepared to effectively handle an audit of your claims when – not if – the ADR is made. Despite your best efforts to follow the Medicare statutes, guidelines, and regulations, your organization will be subjected to a prepayment review or a full-blown, post-payment audit. Should you receive a request for records from a RAC, advanced preparation can help ensure your organization’s compliance with applicable documentation, coding and billing requirements. Let us help you prepare for this complicated process. If you are currently dealing with a RAC audit, or would like to know how you can best prepare for one, give us a call today.

Saltaformaggio, Robert
Robert Saltaformaggio, Esq., serves as an Associate at Liles Parker, Attorneys & Counselors at Law. Liles Parker attorneys represent health care practices around the country in connection with Medicare, Medicaid and private payor audits. The firm also represents health care providers in connection with HIPAA Omnibus Rule risk assessments, privacy breach matters, State Licensure Board inquiries and regulatory compliance reviews. For a free consultation, call Robert at: 1 (800) 475-1906
  • [1] The contract pertains to Region 5, which is national in scope and will allow Connolly to audit Medicare claims for Durable Medical Equipment and Home Health and Hospice (DME/HH-H). Since 2006, Connolly has also served as the exclusive RAC for Region C, which covers 17 states and territories in the southern part of the United States.