//>*/-->

Liles Parker PLLC
(202) 298-8750(800) 475-1906
Washington, DC | Houston, TX
San Antonio, TX | Baton Rouge, LA

We Defend Healthcare Providers Nationwide in Audits & Investigations

CMS Announces a Pause in RAC Operations

CMS Pause in RAC Operations

(March 6, 2014): The Centers for Medicare & Medicaid Services (CMS) recently announced that there would be a “pause” in Recovery Audit Contractor (RAC) operations.  What is a “pause” in the program?  According to CMS, the goal of suspending RACs from conducting additional audits is to allow these contractors to complete all remaining claim audits and other processes by the end date of their current contracts before CMS begins the procurement process for the next round of Recovery Audit Program contracts.  Furthermore, this RAC pause “will allow CMS to continue to refine and improve the Medicare Recovery Audit Program.”

I.  Important Dates to Remember with Respect to the Pause in RAC Operations:

Health care providers should note the following timeline that is being used to wind down current RAC operations.

  • February 21, 2014: the last day a RAC may send a postpayment Additional Documentation Request (ADR);

  • February 28, 2014: the last day a Medicare Administrative Contractor (MAC) may send prepayment ADRs for the Recovery Auditor Prepayment Review Demonstration; and

  • June 1, 2014: the last day a RAC may send improper payment files to the MACs for adjustment.

II. Upcoming RAC Changes:

CMS also announced a number of “improvements” that will be implemented under the next RAC program contract awards. Notably, these changes are being implemented in response to industry feedback. CMS believes that these changes will “result in a more effective and efficient program, including improved accuracy, less provider burden, and more program transparency.”  Specifically, the following changes will be effective:

  • RACs must wait 30 days to allow for a discussion before sending the claim to the MAC for adjustment. Providers will not have to choose between initiating a discussion and an appeal;

  • RACs must confirm receipt of a discussion request within three (3) days;

  • RACs must wait until the second level of appeal(i.e., reconsideration) is exhausted before they receive their contingency fee;

  • CMS is establishing revised ADR limits that will be diversified across different claim types (e.g., inpatient, outpatient); and

  • RACs will be required to adjust the ADR limits in accordance with a provider’s denial rate (providers with low denial rates will have lower ADR limits while provider with high denial rates will have higher ADR limits).

III.  Final Remarks:

Has your hospital, practice, Home Health Agency, Hospice, DME Company, or PT / OT / ST Clinic been audited by a RAC or Zone Program Integrity Program (ZPIC)?  Just because RACs are taking an operational “pause,” does not mean that you may not be affected in the future.  It may only be a matter of time before your practice is negatively burdened by a RAC audit.  Despite your best efforts to follow Medicare’s directives, your organization may still be placed on prepayment review or subjected to a full-blown postpayment audit.  Should you receive a request for records from a RAC or ZPIC, being prepared (in advance of receiving an audit letter) can greatly assist your efforts to show that the care and treatment services you are providing do, in fact, qualify for coverage and payment.  If you have any questions or concerns regarding any ongoing – or future – RAC or ZPIC audit, please do not hesitate to give us a call! We would be more than happy to assist you with your compliance needs.

Robert W. Liles is a health care attorney experienced in handling prepayment reviews and audits.Robert W. Liles, Esq., serves as Managing Partner at Liles Parker, Attorneys & Counselors at Law.  Liles Parker  attorneys represent health care providers and suppliers around the country in connection with Medicare audits by RACs, ZPICs and other CMS program integrity contractors.  The firm also represents health care providers in HIPAA Omnibus Rule risk assessments, privacy breach matters, State Medical Board inquiries and regulatory compliance reviews.  For a free consultation, call Robert at:  1 (800) 475-1906.

Recovery Audit Contractor Changes will be Major in 2014.

(May 7, 2013):  The Recovery Audit Contractor (RAC) program is slated to undergo significant changes in 2014.  As discussed below, non-hospital health care providers and suppliers are likely to find the Medicare appeals process more complex than ever as RACs enter into the process in an effort to defend their denial decisions.

I.  Background of the RAC Program:

The RAC program was first established as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). The program’s stated purpose was to detect and correct improper payments made by the Medicare program to health care providers and suppliers.  RACs were initially restricted to performing only post-payment audits of paid Medicare claims.  Importantly, the post-payment audits conducted by RACs were not intended to replace ongoing post-payment review efforts already underway by Medicare Administrative Contractors (MACs), Zone Program Integrity Contractors (ZPICs), Benefit Integrity Support Centers (BISCs) or the Department of Health and Human Services, Office of Inspector General (HHS-OIG).

II.  The RAC Demonstration Project:

The RAC demonstration project was initially limited to three states, California, Florida, and New York.  The demonstration project was subsequently expanded to also include Massachusetts, South Carolina and Arizona. Congress later extended the scope of the RAC program, making it a permanent, nationwide initiative under Section 302 of the Tax Relief and Health Care Act of 2006. While a number of physicians, home health agencies and durable medical equipment (DME) companies have, in fact, been subjected to audit by a RAC, the primary focus of RACs around the country has remained hospitals and other large institutional Medicare providers.

III.  Expansion of RAC Duties:

With the passage of the Affordable Care Act (ACA) in 2010, the program was further expanded to cover Medicaid claims processed by State programs around the country. Most recently, the Centers for Medicare and Medicaid Services (CMS) has authorized RACs to conduct “prepayment reviews” of “certain types of claims that historically result in high rates of improper payments.”  Prepayment reviews by RACs are currently focused on seven states where high populations of fraud and error-prone providers have been identified.  These seven states include:

1. Florida

2. California

3. Michigan

4. Texas

5. New York

6. Louisiana

7. Illinois

Additionally, CMS has authorized RACs to conduct prepayment reviews of short inpatient stays in four additional states.  These states include:

8. Pennsylvania

9. Ohio

10. North Carolina

11. Missouri

One purpose of this change is to move away from a “pay and chase” system of review where potential overpayments have already been paid by the government.  Instead, RACs will now be conducted prepayment audits, like their ZPIC and MAC counterparts – thereby preventing possible overpayments from being paid in the first place.

 IV.  Upcoming Changes to the RAC Program:

 Over the next year, health care providers and suppliers are likely to find that RACs are both more active and more likely to remain actively involved in overpayment cases appealed by Medicare providers and suppliers.  Several upcoming changes include:

RAC prepayment audits will likely be expanded to beyond the 11 states now authorized.

RAC contracts with CMS currently run through February 2014. The new RAC contract period will be extended to cover the period 2014 to 2018. 

There are currently four RACs operating around the country.  CMS is planning on expanding program to include a fifth contractor.  The existing four contractors will continue cover their designated regions while the new fifth contractor will assume responsibility for identifying overpayments by home health agencies, hospices and DME suppliers. 

If a health care provider or supplier challenges an alleged overpayment (identified by a RAC) through the administrative appeals process, CMS will now be requiring that RACs actively defend their assessments in the appeals process.

As the 2013 Statement of Work (SOW) for RACs provides:

“For any Recovery Auditor-identified improper payment that is appealed by the provider, the Recovery Auditor shall provide support to CMS throughout the administrative appeals process and, where applicable, (during) a subsequent appeal to the appropriate federal court. This includes participating or taking party status at the administrative law judge (ALJ) level of appeal in a minimum of 25 percent of the cases that reach this level.”

V.  Conclusion:

The upcoming changes to the RAC program outlined above are likely to dramatically impact the administrative appeals process.  As it currently stands, ZPICs are typically the only CMS to attend ALJ hearing as a “participant.”  Although ALJ hearings are intended to be non-adversarial proceedings, the participation of ZPIC personnel in the hearing process has sometimes transformed a hearing into a hotly-contested event.  The participation of RAC personnel in ALJ hearings are similarly likely to complicate the proceedings.  In light of these changes to the appeals process, we strongly recommend that health care providers and suppliers engage qualified, experienced legal counsel to represent their interests in the administrative appeals process.

Robert W. Liles is a health care attorney experienced in handling prepayment reviews and audits.Robert W. Liles and other Liles Parker attorneys have extensive experience representing health care providers and suppliers around the country in the Medicare administrative appeals process.  Should you have any questions regarding this process, please call Robert for a free consultation.  He can be reached at 1 (800) 475-1906.  

The Recovery Audit Contractor Program Continues to Expand its Medicare Footprint.

(November 26, 2012): The Medicare Fee-for-Service (FFS) program consists of numerous payment systems, with a complex network of contractors that process more than one billion claims submitted by more than one million healthcare providers each year.[1]  Medicare providers include hospitals, physicians, skilled nursing facilities, labs, ambulance companies, and durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) suppliers, among others.[2]  Medicare Administrative Contractors (MACs), also known as “claims processing contractors,” process claims, make payments to health care providers in accordance with Medicare regulations, and educate providers regarding how to accurately submit coded claims under Medicare guidelines.[3]

The Centers for Medicare & Medicaid Services (CMS) and its MACs are required to actively review Medicare payments for services to determine their accuracy and ensure provider compliance.[4]  A major concern for CMS is the distribution of improper payments.  Improper payments occur when payments are made for items or services that do not meet Medicare’s coverage and medical necessity criteria or are incorrectly coded, or where the supporting documentation submitted does not support the ordered service.[5]  CMS has implemented various procedures in order to pre-screen claims for improper payments.  However, many of these claims are generally paid without requesting any supporting medical records.  In particular, only about 0.002 percent of all claims are reviewed against the supporting medical records prior to payment.[6]  These systems simply cannot prevent all erroneous payments due to the extremely large volume of claims processed in the Medicare program.

As a result, CMS has instituted post-payment review programs in order to alleviate the amount of improper payments that are unfortunately paid.  One such program is the Recovery Audit Program.  While this program has seen an ebb and flow of success, it has also become a significant administrative burden for Medicare providers.  The question remains – is the Recovery Audit program doing more harm than good?

I.  The Recovery Audit Contractor Program:

The Recovery Audit Program was initially established in Section 306 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.[7]  Under this program, Recovery Audit Contractors (RACs) identify underpayments and overpayments made in the FFS system.[8] RACs then recoup overpayments amount back to the Medicare Trust Fund or refund underpayments back to the provider.[9]  For their efforts, RACs are paid on a contingency fee basis – they receive a percentage of the improper overpayments and underpayments they collect from providers.[10]  In 2009 and 2010, these fees ranged from 9 to 12.5 percent.[11]  These fees are paid once the improper payment is recouped or refunded, not when the improper payment is first identified.[12]  In fact, RACs must return any fees if an overpayment or underpayment is overturned in a subsequent appeal.[13]  This payment structure makes the Recovery Auditor a type of “bounty hunter” for recouping overpayments.[14]

Recovery Auditors have a defined scope of work.  They may only review the last three years of claims submitted by providers.[15]  Importantly, these reviews must be conducted with “good cause” and not through any form of random selection.[16]  The auditors also must send a “demand letter” to each provider explaining how an improper payment determination was made.[17]  RACs may use their own proprietary software programs to identify claims most likely to contain improper payments, a process known as “targeted review.”[18]  They may also utilize “extrapolation techniques” in these targeted reviews.[19]  Nevertheless, RACs must ensure that administrative burdens are minimal for providers.[20]  This may require refining edit parameters so that only those claims with the greatest probability of being improperly submitted are selected, or limiting the amount of documentation requests so that it does not impact the provider’s ability to provide care to beneficiaries.[21]  RACs also must complete their reviews within 60 days from receipt of the necessary medical record documentation and/or claims submission.[22]

RACs primarily engage in two types of claims review: automated and complex.  Automated reviews do not involve any human review of medical records.[23]  They occur only when the RAC is certain that both a service is not covered or incorrectly coded and a written Medicare policy, article, or sanctioned coding guideline exists (e.g., when a service is incorrectly coded or billed twice).[24]  On the other hand, a complex review does require a human review of the medical records.[25]  For the most part, the medical necessity of a billed procedure will be at issue due to the high probability, but not certainty, that the service is not covered or where no Medicare policy, article, or sanctioned coding guideline exists.[26]  Medical necessity determinations are primarily outlined in either CMS’s National Coverage Determinations (NCDs) or through a MAC’s Local Coverage Determinations (LCDs).[27]  RACs are also required to have a registered nurse or therapist make any medical necessity determinations based on the NCD/LCD or a certified coder to make coding determinations.[28]

However, Medicare RACs are prohibited from auditing payments in certain circumstances.  These restrictions include: services provided under a program other than the Medicare FFS program; claims more than three years past the date of the initial determination; claims where the beneficiary is liable for the overpayment because the provider is without fault with respect to the overpayment; claims arising from prepayment review; or random selection of claims, among others.[29]  Compliance to these constraints is assured, at a minimum, through CMS’s annual reviews of an auditor’s activities.[30] 

II. Coordination Among Medicare Contractors:

RACs are just one of several contractors that CMS employs to ensure the Medicare program is operated efficiently and effectively.  For example, while RACs are primarily concerned with preventing and identifying errors, they are not responsible for reviewing claims for fraudulent activity.  Instead, CMS contracts with Zone Program Integrity Contractors (ZPICs).  ZPICs are responsible for implementing the Medicare Benefit Integrity program, which involves the identification of suspected fraud.[31]  Specifically, ZPIC must “identify cases of suspected fraud, develop them thoroughly and in a timely manner, and take immediate action to ensure that Medicare Trust Fund monies are not inappropriately paid out and that any mistaken payments are recouped.”[32]  Thus, whenever RACs come across situations where the overpayment appears to involve fraudulent activity, they must refer these cases of potential fraud to the appropriate ZPIC.

Finally, while ZPICs and RACs are becoming more prevalent in Medicare auditing, Medicaid Integrity Contractors (MICs) are gaining similar notoriety in the in the area of Medicaid.  CMS contracts with MICS in order to further support efforts to combat fraud and abuse in the Medicaid Program and accomplish the goals of the Medicaid Integrity Program.  Among the tasks for which MICs are responsible for include: the review of actions of those seeking payments from state Medicaid programs; the audit of those claims; the identification of overpayments related to those claims; and the education of providers and others with respect to payment integrity and quality of care.[33]  While the use of MICS is similar to the RAC program, Audit MICs are not paid on a contingency basis.[34]  Rather, Audit MICs are paid in a virtual fee-for-service model, which includes bonuses for efficiency and effectiveness.[35]

III. The Recovery Audit Program Appeals Process, Collection and Repayment:

Providers are allowed to appeal improper payment determinations made by a RAC.  However, this process includes up to five levels of appeal and is often time-consuming and expensive.  A redetermination must be requested within 120 days of receiving an adverse claim determination.[36]  The MAC will then have 60 days to examine and rule on the redetermination request.[37]  If the provider remains dissatisfied with the redetermination decision, a notice for reconsideration must be made within 180 days.[38]  In this situation, a Qualified Independent Contractor (QIC) will review the appeal and must make a decision within 60 days.[39]  The third level of appeal is an Administrative Law Judge (ALJ) hearing.  For this appeal, the ALJ will conduct and conclude a hearing on the QIC’s conclusion; the judge must then render a decision within 90 days.[40]  Unfortunately for the provider, ALJs are bound by all NCDs, the Medicare Act, applicable regulations, and CMS rulings, and must give deference to non-binding CMS and MAC policies, such as LCDs, local medical review policies, manual instructions and program memorandum.[41]  Nevertheless, if either party, whether it is the provider or CMS/MAC, is dissatisfied with the ALJ decision, an appeal may be made within 60 days to the Medicare Departmental Appeals Board (the Board).[42]  In general, the Board will render a decision within 90 days of the appeal.[43]  Finally, if the amount in controversy exceeds $1000, a final judicial review of an adverse MAC decision may be appealed within 60 days to a Federal District Court.[44]  In sum, the appeals process for any adverse determination decision can be a time-consuming and financial burden for any provider.

Collection of overpayments or repayments of underpayments are also detailed and systematic processes.  As previously noted, MACs within the provider’s jurisdiction will process these actions.[45]  Importantly, recoupment of an overpayment may be offset against future payments made by the claims processing contractor if payment is not received by a specific time period.[46]  This ordeal can also have significant secondary financial burdens for the provider.  The provider may apply for an extended repayment plan; however, any recoupment from future repayments cannot occur until 41 days after the adjustment/date of demand letter.[47]  In addition, the receipt of a valid appeal may also delay recoupment.[48]

IV. RACs in Their Infancy — The Demonstration Phase:

The RAC program initially began as a “demonstration” that lasted from March 2005 to March 2008.[49]  During this period, RACs had two significant restrictions.  They could only identify improper payments made under Medicare Part A and Part B and could only review claims processed from the six states[50] that had the highest per capita utilization rates of Medicare services.[51]  Nonetheless, the RACs were given two primary tasks: (1) detect and correct past improper payments in the Medicare FFS program, and (2) provide information to CMS and to the MACs in order to help protect the Medicare trust funds by preventing future improper payments.[52]  The demonstration would also provide CMS with a cost-benefit analysis in using private contractors to identify and correct improper payments.  Ultimately, the demonstration proved to be extremely positive and produced significant lessons for the future.

During the demonstration, RACs succeeded in correcting more than $1.03 billion in improper Medicare payments.[53]  Approximately 96 percent of these improper payments were overpayments collected from providers; as a result, $980 million was returned to the Medicare Trust Fund.[54]  The remaining 4 percent ($37.8 million) were underpayments repaid to providers.[55]  In addition, RACs became more effective at correcting improper payments over the course of the demonstration.  The first half of FY 2008 alone accounted for 62 percent of the overall corrections.[56]

In particular, the results revealed that a majority of the overpayments, approximately 85 percent ($828.3 million), were made to inpatient hospital facilities.[57]  Whether this statistic demonstrates that these hospitals are more likely to submit improper claims is uncertain.  Alternatively, CMS believed that its bounty hunters might have simply been incentivized by their contingency fee payment structure in order to focus their efforts on high-dollar payments, which are predominantly found in inpatient hospitals.[58]  This scheme would therefore give RACs the highest return-to-expense in claims and medical record reviews.  RACs also found that most improper payments occurred as a result of services being rendered in a “medically unnecessary setting,” i.e., where the patient “needed care but did not need to be admitted to the hospital to receive that care.”[59]

While these numbers may demonstrate significant intrusion into the overall claims processing system, most Medicare claims were unaffected.  CMS allowed RACs to review approximately 1.2 billion claims, valued at $317 billion[60]; hence, the $1.03 billion in identified improper payments represented less than 1 percent of the dollar value of all claims given to RACs.  In addition, providers’ financial revenues were only slightly impacted by the demonstration.  For example, over 94 percent of the hospitals in one region had their Medicare Part A revenue impacted by less than 2.5 percent.[61]

The results indicate that a large majority of the improper payments identified appear to have been appropriately targeted.  Notably, providers chose to appeal only 12.7 percent of the RAC determinations.[62]  However, it is difficult to conclude whether this percentage was due to effective targeting or provider apathy.  In fact, when providers did choose to appeal, they were successful 64 percent of the time.[63]  Nevertheless, of all the RAC overpayment determinations, only 4.6 percent were eventually overturned on appeal.[64]  RACs appeared to effectively utilize their propriety software programs to screen improper payments.  Ultimately, after accounting for the underpayments repaid to providers and the overpayments overturned on appeal, the RAC demonstration resulted in returning $693.6 million to the Medicare Trust Funds.[65]

The RAC demonstration proved to be extremely financial success.  The cost to run the program was less than the amount returns to the Medicare Trust Fund.  Specifically, CMS spent only $201.3 million to run the demonstration, which meant that it cost CMS a mere $0.20 for each dollar collected.[66]  The next step for CMS was all but predictable: the RAC program would go nationwide.

V.  The Recovery Audit Contractor Program Grows and Become Permanent:

Section 302 of the Tax Relief and Health Care Act of 2006 authorized a permanent Recovery Audit program to become effective nationwide by January 2010.[67]  CMS immediately began implementing this authority.  CMS divided the country into four regions and awarded four permanent RAC contracts.[68]  Yet, the program’s expansion did not end there.

Section 6411(b) of the Patient Protection and Affordable Care Act (PPACA) extended Medicare RACs audit coverage even further to Part C and Part D.[69]  For these parts however, RACs would be limited under “special rules;” for example, they would have to ensure that each Medicare Advantage plan under Part C had an anti-fraud plan in effect and to review the effectives of these plans.[70]  Section 6411(a) of the PPACA also required that States develop a similar Medicaid RAC program no later than December 31, 2010.[71]  Furthermore, the PPACA mandated that the Secretary of Health and Human Services submit a yearly report to Congress on the program’s effectiveness.[72]  These reports would include information on each contractor’s performance, savings recouped under the program, and the Secretary’s determination on the overall effectiveness of the program, including a cost-benefit assessment.[73]

CMS also found guidance elsewhere.  Medicare providers presented the agency with several concerns of their own that arose from the demonstration.  CMS analyzed these issues and responded by incorporating several important adjustments into the permanent program.  These changes included: building cooperative relationships with Medicare claims processing contractors, fraud enforcers, the Department of Justice, and appeals entities; contracting with a RAC validation contractor to conduct independent third-party reviews of RAC claim determinations; limiting the claim review look-back period to three years; requiring each RAC to hire a physician medical director; ensuring RACs consistently documented their “good cause” for reviewing a claim; ensuring that RACs pay back their contingency fee if the claim is overturned at any level of appeal, not just the redetermination level; and conducting significant outreach to providers.[74]  These annual reports would indicate whether or not the nationwide program continued to be effective.

VI.  National Recovery Audit Contractor Program Results:

The first annual report to Congress analyzing the results from the national Medicare RAC program occurred for fiscal year (FY) 2010.  Notably, this report did not include the identification and recoupment of improper payments for Medicare Part C, Part D, or Medicaid.  After reviewing the first year’s results, CMS concluded that the RAC program was once again a success story in correcting improper payments.  Objectively however, the results demonstrated that the nationwide program did not live up to its demonstration predecessor.

During FY 2010, RACs identified and corrected approximately 192,000 claims in combined overpayment and underpayment determinations.[75]  This figure represented a mere $92.3 million in overall improper payments.[76]  In particular, 82 percent ($75.4 million) of the identified corrections were overpayments that were recouped back to the Medicare Trust Fund, while 18 percent ($16.9 million) were underpayments refunded to providers.[77]  These figures are further underscored by the effectiveness of RACs during their demonstration.  Comparatively, in FY 2008, RACs were limited to a much smaller region but identified over $634.6 million in improper payments, repaid $37.8 million back to providers, and more importantly, recouped almost $1 billion back to Medicare.[78]

The FY 2010 figures cannot be completely denounced; in truth, they do not represent the full extent of the program’s “success.”  RACs had demanded approximately $135.6 million in overpayments.[79]  There were several potential reasons for the different measures.  Notably, CMS granted providers a 41-day “grace period” before collections would begin.[80]  More disturbing however, many providers simply terminated their participation in Medicare or could not financially reimburse the program for the alleged overpayments.[81]

Despite these concerns, the FY 2010 report did yield some positive trends.  HDI and Connelly, Recovery Auditors who participated in the demonstration, appear to have been able to leverage their prior experience and more effectively identify Medicare improper payments compared to the two new contractors.  Specifically, these two contractors accounted for approximately 77 percent ($70.9 million) of the total amount corrected.[82]  Moreover, many of the problem areas identified in the demonstration were also found under the national program.  Collections from inpatient hospitals continued to involve a majority of the identified overpayments ($41.4 million).[83]  Only in Region D (HDI) did DME collections comprise most of the identified overpayments by region.[84]

RACs did witness one area of improvement: success in the appeals process.  Unfortunately, most of the data included in the FY 2010 Congressional report was incomplete due to the extensive time involved in the administrative appeals process.  Nevertheless, the report revealed that providers appealed only 5 percent of all claims (8,449 claims) collected in FY 2010.[85]  Of these, only 2.4 percent (3,902 claims) were overturned on appeal in favor of the provider.[86]  As previously described, providers chose to appeal 12.7 percent of the RAC determinations during the demonstration, and 4.6 percent of the overall determinations were eventually overturned.  Ultimately, $2.6 million were returned back to providers through the appeals process in 2010.[87]  These results could be construed in one of two ways: either RACs were utilizing their targeting software more effectively to identify improper payments, or providers were submitting fewer claims that included improper payments.

As the program expanded nationwide, CMS spent much of 2010 refining processes, improving operations, and gaining additional experience dealing with the claims processing contractors and the providers.  For example, CMS began to track what it called “vulnerabilities” – these are problem areas identified by RACs for the purposes of developing corrective actions.[88]  CMS tracks these vulnerabilities and institutes corrective adjustments as necessary.  CMS also publishes the major findings so that providers can understand where improper payments are occurring in order to develop additional corrective actions.  Broadly speaking, major overpayment issues in FY 2010 concerned incorrect coding or billing for bundled services separately.[89]  Incorrect coding was also the primary error code for underpayments identified by the RACs.[90]  This back-and-forth learning process may have also contributed to providers submitting fewer improper claims.

CMS was aware that the RAC program inherently burdened the provider.  As a result, it implemented new processes to help alleviate problems associated with the claims processing system and the RAC program.  The agency developed a new mass adjustment process for improperly paid claims.[91]  This new system allowed CMS to automatically adjust a large number of claims that had been paid improperly, without having to resort to manual post-payment reviews and intrusions.[92]  CMS also continued to limit increases in additional documentation requests and implemented a new issue-approval process for all issues reviewed by the RACs.[93] Generally, CMS took proactive approaches to educate the auditors on Medicare payment policies, statutes, and regulations to ensure that the RACs were not erroneously identifying improper payments.[94]  As CMS stated, this continuous process would help it be successful in “paying the claim right, the first time.”[95]

VII.  Recovery Audit Contractors Find Success:

A detailed Congressional report for FY 2011 is not yet available.  Nevertheless, CMS does provide quarterly newsletters that provide objective financial snapshots of the RAC program.  Based on the most recent newsletters, it appears that the RAC program may have rediscovered the successes it produced during the demonstration phase.

The FY 2011 third quarter newsletter details the beginning of a positive trend for the program.  During this quarter, Recovery Auditors corrected $289.3 million in improper payments.[96]  This figure includes $233.4 million in overpayments recouped back to the Medicare Trust Fund and $55.9 million in underpayments returned to providers.[97]  Subsequent financial data is even more encouraging for CMS.

The final quarterly newsletter for FY 2011 is important because it not only includes data for the quarter but also provides a yearly wrap-up of the program’s overall results.  RACs were able to correct $353.7 million in improper payments during the quarter, a 52 percent increase over the previous period.[98]  This amount included $277.1 million in overpayments collected, as well as $76.6 million in underpayments returned to providers.[99]  More importantly, RACs corrected $939.4 million in improper payments for all of FY 2011.[100]  This amount represented a ten-fold increase over the previous fiscal year.  While a detailed cost-benefit analysis for this year cannot be assessed without a detailed Congressional report, these initial objective figures demonstrate a significant improvement in the program’s effectiveness in identifying improper payments.

This positive trend continued into the following year.  During the first quarter of FY 2012, RACs identified $422.7 million in improper payments.[101]  Interestingly, the monetary gap between identified overpayments and underpayments during this period reflects that the Recovery Auditors were becoming more beneficial for CMS than for the providers.  The auditors recouped nearly $400 million in overpayments but only returned $24.9 million back to providers.[102]  This latter figure represented nearly $50 million less for providers than the previous quarter.

The most recent quarterly report for FY 2012 indicates that the program’s success has exploded.  During this period, RACs identified almost $650 million in improper payments.[103]  This amount included $588.4 in overpayment collections and $61.5 million in underpayment returns.[104]  Thus, for the first two quarters of FY 2012, the program was able to identify over $1.07 billion in improper payments.[105]

These figures may demonstrate that the national Recovery Auditor program has found the success CMS was hoping for in combating improper payments.  By the second quarter of FY 2012, the national program had corrected $2.1 billion in improper payments.  Nearly half of this amount, $939.3 million, occurred in FY 2011.  More importantly, over half, $1.07 billion, was corrected in just the first two quarters of FY 2012.  After initial missteps in expanding the program nationally, CMS and its bounty hunters have implemented a program that is becoming more effective in identifying and correcting improper payments for the Medicare FFS system.

VIII.  Provider Concerns:

While the results from the national program are trending in a positive direction for CMS, the agency’s data does not provide a complete picture.  Other factors must be assessed to determine whether the program, as a whole, is positive for all entities within the Medicare FFS system.  Notably, the RAC program must also be analyzed from the providers’ perception.  From their point of view, the national Recovery Auditor program has become an administrative nightmare.

The American Hospital Association (AHA) created a program called RACTrac, a free, web-based survey developed in response to what AHA felt was a lack of data provided by CMS on the impact of the RAC program on hospitals.  Recently, AHA enhanced the RACTrac survey to capture more detailed information on medical necessity review denials and administrative difficulties due to problems with the RAC post-payment review process.  Data from the latest RACTrac survey for the first quarter of 2012 yield some interesting results.

The 2012 first quarter survey captured RAC activity from January of 2012 through March 2012.[106]  The survey analyzed feedback from 2220 hospitals, 87 percent of which reported experiencing some form of RAC activity.[107]  Most of this activity affected general medical and surgical hospitals.[108]  Overall, the feedback indicates that the national RAC program has become a significant administrative burden for hospital providers.

From the outset, participating hospitals reported dramatic increases in RAC denials and medical record requests over the previous three quarters.[109]  These increases are in direct contradiction to CMS’s statements.  As indicated earlier, CMS sought to limit the amount of documentation and medical review that its contractors could request.  Despite these increases, over two-thirds of medical records reviewed by RACs did not contain an improper payment determination.[110]  Thus, a large majority of hospitals were wasting valuable time – and as will be revealed below, money – dealing with the contractors and their unnecessary audits.

Participants also indicated that payment denials amounted to $741 million in the first quarter of 2012 alone; this figure was nearly double the amount reported in the final quarter of 2011.[111]  Furthermore, 96 percent of denials occurred as a result of the more in-depth complex review and were largely attributed to denials in the inpatient setting.[112]  Analyzing the denial data even further, 93 percent of hospitals indicated that medical necessity denials were the most costly complex denials.[113]

RACs did provide some beneficial assistance for the hospitals.  Nearly 75 percent of the hospitals affected by RAC activity reported receiving at least one underpayment determination.[114]  In all, hospitals reported that the auditors identified nearly $73 million in total underpayments due to these providers.[115]  This value constituted a 30% increase in identified underpayments over the same period in 2011.[116]  Nevertheless, monetary losses due to overpayment denials were ten times greater that gains from underpayment recoupment.

The survey also offered insight into the providers’ complaints in dealing with the administrative appeals process.  The feedback reveals that hospitals appealed more than one-third of all RAC denials; in particular, hospitals in Regions A, B and D appealed 40 percent or more of the denials.[117]  In addition, 83 percent of hospitals reported appealing at least one RAC denial, while each hospital reported appealing, on average, 83 denials.[118]  This amounted to more than $380 million in appealed claims.[119]

The results from these appeals provide valuable insight for future actions on the part of the hospitals.  To be sure, when the hospitals chose to appeal an adverse determination, they were very successful.  For those claims that have completed the appeals process, 75 percent of all adverse determinations were overturned in favor of the hospital.[120]  Region B had the highest overturn rate – 84 percent of its appeals were later overturned.[121]  More than one-third of the participating hospitals had a denial reversed during just the discussion period, or “grace period.”[122]  This success amounted to $51.5 million in overturned denials that hospitals would otherwise have had to pay.[123]  In particular, more than half of the RAC denials were overturned because the care was found to be medically necessary.[124]  Nevertheless, the administrative adjudication process was still regrettably slow.  The hospitals stated that nearly three-fourths of their appealed claims were still sitting in the appeals process.[125]

The hospitals also provided significant information related to their administration burdens.  Notably, 76 percent of the survey participants indicated that RAC activity impacted their organization over the previous quarter, and 55 percent reported increased administrative costs.[126]  The specific dollar amounts provide a more troublesome view.  Of those participating in the survey, 55 percent spent more than $10,000 managing the RAC process during the first quarter of 2012, 34 percent spent more than $25,000 and 7 percent spent over $100,000.  Clearly, these results demonstrate that hospital staff members are spending an increasing amount of money and time responding to RAC activity.  On average, a hospital’s RAC Coordinator reported spending approximately 114 hours – almost 5 full days – just managing the administrative issues related to RAC activity.[127]  In fact, these staff members spent 22 hours more than the previous year responding to RAC activity.[128] More troubling, these hourly figures do not even include the amount of time spent by other hospital staff members (e.g., nurses, medical records staff, administrative/clerical staff, etc.).

Many hospitals also reported utilizing, and paying for, external resources to deal with the RAC process.  For example, 42 percent outsourced Utilization Management Consultants, at an average cost of over $34 thousand, to deal with the administrative burdens.[129]  These consultants were used in addition to in-house personnel already staffed for these particular administrative purposes.  While CMS indicated that one of its primary goals for the nationwide RAC program is conducting provider education, the agency appears to be falling short of this task as well.  The survey indicates that 59 percent of the providers stated that they had yet to receive any education related to avoiding payment errors from CMS or its contractors.[130]

Ultimately, hospitals indicated that the two most significant problems in the RAC process was “reconciling pending and actual recoupment due to insufficient or confusing information on the remittance advice” and “not receiving a demand letter;”[131] the latter concern is in direct contradiction to the RACs’ scope of work.  Hospitals also continued to report that RACs would rescind medical record requests after the hospital had already submitted the records.[132] If there was any positive feedback for CMS from this survey, it may be solely limited to the providers’ perception of RAC feedback.  One-third of the providers indicated that the RACs’ responsiveness was “good” and approximately 31 percent indicated it was “fair.”[133]

IX.  Conclusion:

After a successful demonstration phase, the Recovery Auditors shifted their attention to their main tasks of identifying and correcting improper payments.  With the results of the demonstration program, CMS identified five key success factors it would use to measure the success of the national program: minimize provider burden; ensure accuracy of its audits; maximize transparency of the program and its contractors; ensure the program operated efficiently and effectively; and provide a more robust provider education program.

While the national program got off to a slow start, recent data indicates that the program has become the effective bounty hunter CMS had hoped for since the program’s inception.  With over $1 billion in identified improper payments in the first half of FY 2012 alone, this success trumps the similar figure that RACs had corrected in three years of the demonstration.  While this payment accuracy program is well intentioned, providers – in particular, inpatient hospitals – continued to be frustrated by the intrusion of these contractors.

Hospitals may often be responding to duplicative record requests, simultaneous audits, or dealing with the burdens of an audit simply to have it later rescinded.  Surveys from these providers indicate that RACs are becoming more involved but not necessarily more effective.  When more than two-thirds of the hospitals’ medical records that are reviewed do not contain an improper payment, there is clearly a flaw in the RAC system.

Furthermore, the RACs have a strong financial incentive to deny claims.  Based on their contingency fee structure, the more claims the RACs deny, the more these contractors are paid.  CMS has implemented measures to assist providers – in particular, ensuring that RACs must pay back any fees if an appeal is later overturned – but these measures do not counteract the burdens to providers.  While providers have become more successful in winning their appeals, the simple time and financial burdens imposed by the administrative appeals process can act as a significant impediment to bringing forth an appeal.  Moreover, even when the provider obtains a favorable decision on appeal, there is little to no precedential value so RACs will continue to review and deny substantially similar claims.

CMS must review the goals it outlined as the RAC program moved from its demonstration period to its national program.  It must also continue to offer significant provider and contractor education in order to ensure that the Medicare FFS program runs effectively and efficiently.  Only then will “paying the claim right, the first time” actually occur.

Robert Saltaformaggio is a Senior Litigation Paralegal at Liles Parker, and works out of our Washington, D.C. office. Robert is in his last year of law school and will be sitting for the bar in the next few months.  Over the past three years, Robert has assisted Liles Parker attorneys on a wide variety of Medicare and Medicaid post-payment audit appeals.  In addition, Robert has provided research, brief writing and litigation support on complex health law matters and cases. For more information on RACs, ZPICs and other pre-payment and post-payment audits of Medicare and / Medicaid claims, please call us today for a free initial consultation.  We can be reached at 1-800-475-1906.


[1] Centers for Medicare & Medicaid Services, Implementation of Recovery Auditing at the Centers for Medicare & Medicaid Services. FY 2010 Report to Congress as required by Section 6411 of the Affordable Care Act, p.1, https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/recovery-audit-program/downloads/FY2010ReportCongress.pdf [hereinafter FY 2010 RAC Congressional Report].

[2] www.cms.gov

[3] 42 C.F.R. § 421.304 (2007).

[4] Medicare Program Integrity Manual, Ch. 3, §3.1.

[5] Centers for Medicare & Medicaid Services, Statement of Work for the Recovery Audit Contractor Program, J-1 RAC SOW, p. 8, http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Recovery-Audit-Program/Downloads/090111RACFinSOW.pdf [hereinafter RAC SOW].

[6] FY 2010 RAC Congressional Report, p. 2.

[7] Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173, 117 Stat. 2066 (2003).

[8] Id.

[9] 42 U.S.C.A. §1395ddd (2010).

[10] Id.

[11] FY 2010 RAC Congressional Report, p.10.

[12] Id.

[13] Id.

[14] Andrew B. Wachler, et al., One Year Later: The Impact of Health Care Reform on Health Care Provider Audits and Compliance Programs. 90 Jun. Mich. B.J. 24. June 2011.

[15] RAC SOW, pp. 8, 9.

[16] Id., at 8, 11.

[17] Id., at 24.

[18] Id. at 11.

[19] Id.

[20] Id. at 8.

[21] Id.

[22] Id. at 23.

[23] Id. at 20.

[24] Id.

[25] Id. at 21.

[26] Id.

[27] Id. at 6.

[28] Id. at 23.

[29] Id., 9–12.

[30] Id. at 9.

[31] Medicare Program Integrity Manual, Pub. 100-08, Chapter 4, § 4.2.

[32] Id.

[33] Deficit Reduction Act of 2005, Pub. L. 109-171, 2006 § 1932, sec. 6034 (2006).

[34] Medicaid Integrity Program; Eligible Entity and Contracting Requirements for the Medicaid Integrity Audit Program, 73 Fed. Reg. 55768-01 (Sept. 26, 2008) (to be codified at 42 C.F.R. pt. 455).

[35] Id.

[36] 42 U.S.C.A. § 1395ff (2011).

[37] Id.

[38] Id.

[39] Id.

[40] Id.

[41] 42 C.F.R. § 405.1062 (2005).

[42] § 1395ff

[43] Id.

[44] Id.

[45] FY 2010 RAC Congressional Report, at 10.

[46] Id.

[47] Id.

[48] Id.

[49] Medicare Prescription Drug, Improvement and Modernization Act of 2003 § 306.

[50] Initially, the demonstration was limited to just California, Florida, New York, but expanded to Massachusetts, South Carolina and Arizona in March 2007.

[51] Centers for Medicare & Medicaid Services, The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of the 3-Year Demonstration, June 2008, p. 11, http://www.racaudits.com/uploads/RAC_Demonstration_Evaluation_Report.pdf [hereinafter RAC Demonstration Evaluation].

[52] Id.

[53] Id. at 15.

[54] Id. at 15, 17.

[55] Id.

[56] Id. at 2.

[57] Id. at 18.

[58] Id. at 18.

[59] Id. at 19.

[60] Id. at 18.

[61] Id. at 20.

[62] Id.

[63] Id.

[64] Centers for Medicare & Medicaid Services, The Medicare Recovery Audit Contractor (RAC) Program: Update to the Evaluation of the 3-Year Demonstration, January 2009, p. 2, https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/recovery-audit-program/downloads/DemoAppealsUpdate61410.pdf.

[65] RAC Demonstration Evaluation, at 18.

[66] Id. at 23.

[67] Tax Relief and Health Care Act of 2006, P.L. 109-432 § 302(a), 120 Stat. 2922 (2006).

[68] Centers for Medicare & Medicaid Services, Recovery Audit Contractors: Overview, http://www.cms.hhs.gov/RAC/01_Overview.asp#TopOfPage. The four RAC contractors are: Diversified Collection Services, Inc. (DCS) (Region A); CGI Federal (CGI) (Region B); Connolly, Inc. (Region C); and Health Data Insights, Inc. (HDI) (Region D).

[69] §1395ddd

[70] FY 2010 RAC Congressional Report, at 7.

[71] Patient Protection and Affordable Care Act, Pub.L. 111-148, § 6411(a), 124 Stat. 119 (2010).

[72] §1395ddd.

[73] Id.

[74] RAC Demonstration Evaluation, at 24-27.

[75] FY 2010 RAC Congressional Report, at 14, A7.

[76] FY 2010 RAC Congressional Report, at 14.

[77] Id.

[78] RAC Demonstration Evaluation, at 34.

[79] FY 2010 RAC Congressional Report, at 14.

[80] Id.

[81] Id.

[82] Id. at A8.

[83] Id. at A10.

[84] Id. at A11.

[85] Id. at A16.

[86] Id. at 14.

[87] Id.

[88] Id.

[89] Id. at 15.

[90] Id. at A15.

[91] Id. at 17.

[92] Id.

[93] Id.

[94] Id.

[95] Id.

[96] Centers for Medicare & Medicaid Services, Medicare Fee For Service National Recovery Audit Program (3rd Quarter, FY 2011) Quarterly Newsletter, https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/recovery-audit-program/downloads/ffsupdate.pdf.

[97] Id.

[98] Centers for Medicare & Medicaid Services, Medicare Fee For Service National Recovery Audit Program (July 1, 2011 – September 30, 2011) Quarterly Newsletter, https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/recovery-audit-program/downloads/FY2011QtrlyReport.pdf.

[99] Id.

[100] Id.

[101] Centers for Medicare & Medicaid Services, Medicare Fee For Service National Recovery Audit Program (October 01, 2011 – December 31, 2011) Quarterly Newsletter, https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Recovery-Audit-Program/Downloads/RecoveryAuditProgram_1st_qtr2012_vj.pdf.

[102] Id.

[103] Centers for Medicare & Medicaid Services, Medicare Fee For Service National Recovery Audit Program (January 01, 2012 – March 31, 2012) Quarterly Newsletter, https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Recovery-Audit-Program/Downloads/Medicare-FFS-Recovery-Audit-Program-2nd-qtr-2012.pdf.

[104] Id.

[105] Id.

[106] The American Hospital Association, Exploring the Impact of the RAC program on Hospitals Nationwide, Results of the AHA RACTrac Survey. 1st Quarter 2012, May 10, 2012, at 8, http://www.aha.org/advocacy-issues/rac/ractrac.shtml [hereinafter AHA RACTrac Survey].

[107] Id.

[108] Id. at 9.

[109] Id. at 13.

[110] Id. at 17.

[111] Id. at 19.

[112] Id. at 20, 23.

[113] Id. at 33.

[114] Id. at 42.

[115] Id. at 43.

[116] Id.

[117] Id. at 48.

[118] Id. at 49.

[119] Id.

[120] Id. at 50.

[121] Id. at 51.

[122] Id. at 46 (“The discussion period is intended to be a tool that hospitals may use to reverse denials and avoid the formal Medicare appeals process. All RACs are required to allow a discussion period in which a hospital may share additional information and discuss the denial with the RAC. During the discussion period, a hospital may gain more information from the RAC to better understand the cause for the denial and the RAC may receive additional information from the hospital that could potentially result in the RAC reversing its denial.”).

[123] Id. at 53.

[124] Id. at 54.

[125] Id. at 52.

[126] Id. at 56.

[127] Id. at 59.

[128] Id. at 60.

[129] Id. at 61.

[130] Id. at 62.

[131] Id. at 63.

[132] Id. at 64.

[133] Id. at 65.

RAC-Initiated Medicare Prepayment Reviews Will Soon Begin.

February 7, 2012 by  
Filed under Health Law Provider Updates

(February 7, 2012):  In recent years, physicians and other health care providers have faced a wide number of administrative actions and sanctions levied by contractors working for the Centers for Medicare and Medicaid Services (CMS).  Zone Program Integrity Contractors (ZPICs) have subjected physician practices to Medicare prepayment reviews, postpayment audits, suspension and / or revocation actions.  In contrast, Recovery Audit Contractors (RACs) have exclusively initiated postpayment audit actions in their dealings with physicians and other Medicare providers.  As set out below, this will soon change.   Prepayment reviews will now be conducted by both ZPICs and RACs.  Now, more than ever, it is essential that physicians conduct a long, hard look at their documentation and work practices.  As we will discuss, being placed on prepayment audit can result in serious financial harm a practice.  In some cases, it can even lead to bankruptcy.

I.    RAC Conducted Medicare Prepayment Reviews Will Soon Begin:

Late last week, CMS announced that prepayment reviews by RACs would begin (again) on or after June 1, 2012.  As discussed in previous articles, CMS had originally delayed the program amid significant provider concerns about its operation.

II.   Background of the RAC Program:

RACs have long served an important role in detecting and recovering both Part A and Part B overpayments since the program began in 2005. Utilizing both automatic review edits and complex medical reviews to identify a multitude of claims errors, RACs have greatly assisted the government in its efforts to protect the integrity of the Medicare Trust Fund.  As you know, RACs are paid on a contingency basis, based on the amount of improper payments (either overpayments or underpayments) each RAC identifies and actual recovers. Despite harsh criticism from the provider community, RACs have been successful in their audit and recovery tasks, prompting the federal government to expand their authority to conduct prepayment audits, not merely post-payment reviews.

III.   Demonstration Project of Proposed RAC Prepayment Reviews:

Initially announced on November 15, 2011, CMS’ “RAC Prepayment Review Demonstration Project” was slated to start in 11 states on January 1, 2012, including Florida, California, Mississippi, Texas, New York, Louisiana, Illinois, Pennsylvania, Ohio, North Carolina and Missouri. Through the project, CMS was hoping to ensure that Medicare claims reimbursed by the government were medically necessary and met coding and billing criteria before such claims were paid. Due, at least in part, to significant concerns from providers and hospitals about the substantial administrative burden such review would cause, CMS announced last month that it was indefinitely delaying the RAC Prepayment Review Demonstration Project.

As we noted when CMS first announced this delay, while providers may have considered this postponement a victory, CMS still has numerous other contractors actively performing prepayment review audits each day around the country. At the end of the day, the issue really isn’t whether CMS is going to instruct its contractors to conduct prepayment reviews, it really comes down to whether providers are properly meeting applicable medical necessarily, coverage, documentation, coding and billing requirements.

IV.   Impact of Medicare Prepayment Reviews:

As we have previously discussed, there is no prepayment review administrative appeals process. As a result, providers placed on prepayment review have little recourse to reverse the decision, and often remain on review for four to six months (although we have seen reviews lasting up to a year) or until the provider is able to show their Medicare Administrative Contractor (MAC) that the services billed meet medical necessity, coverage and documentation requirements. Importantly, this determination is entirely based on the respective MAC’s subjective view of the propriety of a provider’s claims.

It is important to note that Medicare prepayment reviews can prove disastrous for physicians and other health care providers who mainly treat Medicare beneficiaries. Being placed on prepayment review can effectively delay payments to a physician for several months, even assuming that the MAC finds the provider’s claims are payable. Often times, providers must also take many of these claims through the administrative appeals process, adding another one to two years before payment is made (again assuming that an Administrative Law Judge ultimately finds your claims to qualify for coverage and payment).

V.   Avoiding Prepayment Review:

With RAC prepayment reviews on their way, providers may consider investing in the time and energy now to make sure their claims meet applicable payment requirements. While there is no “silver bullet” to completely eliminate the risk of prepayment audit, a number of preemptive steps exist to reduce the likelihood of such an occurrence.    Physicians and other health care providers should consider conducting a “gap analysis” of their practice.  In doing so, a provider will learn whether their billed services, and associated documentation, meet medical necessity and coverage requirements.  Physicians should also review their utilization rates of certain procedures and compare these rates to those of their local, regional and national peers. All in all,  physicians need to identify the regulatory benchmarks applicable to their practice, identify where they fail to meet these benchmarks, consider the manner and method to rectify these deficiencies, and add proper procedures and additional risk areas to their Compliance Plan. Such efforts now can leave a physician’s practice in an excellent position to respond to any billing questions by RACs or other Medicare contractors.  While RAC prepayment reviews are just another type of audit in a long list of concerns for providers, don’t underestimate the ability of these RACs to identity errors and deny payment.

VI.   Reading the Tea Leaves:

The government’s rekindled RAC Prepayment Review Program is slated to begin again on June 1, 2012.  With the re-implementation of this project, CMS moves yet another step away from its “pay-and-chase” model.  Among its many advantages, the prepayment review approach greatly reduces the likelihood that the claims being paid by the government are improper. We believe that the scope of RAC and ZPIC prepayment reviews will continue to grow in the near future and will represent a key component of the government’s fraud prevention efforts in years to come.  To be clear, we all agree with the government’s goal of identifying and stamping-out Medicare fraud.  Unfortunately, it has been our experience that many physicians and other Medicare providers have little understanding what CMS and its contractors expect to find when auditing medical records.  As a participating provider in the Medicare program, you are required to know and adhere to all of Medicare’s rules and regulations which apply to your practice and the services that you provide.  Changes in documentation requirements, coverage issues and questions of medical necessity are constantly changing.  Keeping up with these changes can be quite a challenge.

Robert LilesRobert W. Liles is Managing Partner at the health law firm of Liles Parker PLLC.  With offices in Washington, DC, Houston, Texas, San Antonio, Texas and Baton Rouge, Louisiana, Liles Parker attorneys are available to help physicians around the country with Medicare audits which may arise.  Our attorneys have extensive experience conducting “GAP Analyses” and compliance reviews for health care providers of all types. In addition, our attorneys are skilled in assisting providers who have been placed on prepayment review or subjected to postpayment audit. For more information, please call Robert today for a complimentary consultation.  Robert and our other attorneys can be reached at: 1 (800) 475-1906.

Lose Your Appeal at Reconsideration? Consider an ALJ Hearing

If you lose a Medicare appeal at Reconsideration, you can file for an ALJ Hearing.(June 18, 2011): As a review of the last several quarters of Medicare appeals statistics reflects, an overwhelming percentage of Medicare providers appealing alleged overpayments through the Medicare administrative appeals process have chosen to “throw in the towel,” so to speak, when they have lost at the reconsideration level.  As you will recall, at the reconsideration level, Medicare claims are assessed by a Qualified Independent Contractor (QIC) selected by the Centers for Medicare & Medicaid Services (CMS) to hear the second level of administrative appeals.

According to statistics kept by Q2 Administrators, the contractor selected to serve as the Administrative QIC (AdQIC), most Medicare providers have chosen not to appeal claims denials issued by the QIC at the reconsideration level.  Nationwide, in the last eight quarters, the percentage of Part B QIC cases not being appealed has risen to an astounding 86%. This trend is also occurring in Part A QIC cases, where the numbers of non-appealed cases have grown from roughly half to 75%

The purpose of this article is to examine possible reasons why Medicare providers have chosen not to appeal claims denials to the Office of Medicare Hearings and Appeals (OMHA) to be heard by an Administrative Law Judge (ALJ).  We also examine points to be considered by providers if choosing to be represented by legal counsel in the ALJ hearing process.

I.  The Third Level of Appeal: ALJ Hearing:

For 2011, if at least $130 remains in controversy following a QIC’s denial decision at the reconsideration level, a Medicare provider may request an ALJ hearing within 60 days of receipt of the reconsideration denial decision. ALJ hearings are intended to be non-adversarial proceedings aimed at determining the facts so that questions of coverage and payment may be properly addressed.  It has been our experience that the ALJ level of appeal is a provider’s best opportunity to present its arguments in support of coverage and payment.

ALJ hearings are usually held by video-teleconference or by telephone, but you may also ask for an in-person hearing. While an ALJ hearing is the third level of the administrative appeals process, it is the first time that a provider is given an opportunity to testify, clarify points missed by reviewers at lower level of appeal and answer any questions that may be raised by the ALJ.

 II.  Why Are Most Medicare Providers Not Appealing Reconsideration Denials? 

When facing an overpayment determination levied by a Zone Program Integrity Contractor (ZPIC), a Recovery Audit Contractor (RAC) or in some instances a Medicare Administrative Contractor (MAC), the first question to be addressed by a Medicare provider is:

“Based on the record and the facts, should we have been paid for the services rendered and / or the products / devices provided to this Medicare beneficiary?” 

The answer to this question isn’t always as easy as it may initially seem.  Were the services medically reasonable and necessary?  Did you properly document the services? When faced with this question, the basic rule we recommend that providers follow is fairly simple – if it doesn’t belong to you, give it back.  In such a situation, a provider should examine the various reasons why the claim allegedly does not qualify for coverage and payment and should take steps to better ensure that any deficiencies are remedied. Additionally, any other overpayments noted must be promptly repaid to the government, with the 60 day period mandated under the Affordable Care Act (ACA).

In cases where a provider (or their representative) contends that a claim does, in fact, qualify for payment, it typically appeals an overpayment assessment issued by a ZPIC, RAC or MAC.  Nevertheless, as previously discussed, the vast majority of providers who lose an appeal at the reconsideration level choose not to further appeal the denial. In speaking with Medicare providers, the primary reasons for not appealing any further include:

  • Cost / benefit considerations. By the time a provider reaches the ALJ level, the provider has already endured the time, expense and frustration of unsuccessfully arguing its case through two levels of appeal.  By this time, many providers conclude that the amount in controversy does not justify the time and expense of further appealing the QIC’s denial to the ALJ level.
  • Many providers are intimidated by the hearing process and do not feel comfortable participating in an ALJ hearing.  Despite the fact that ALJ hearings are typically conducted by teleconference, the process can still be quite intimidating.  ALJs almost always place testifying providers and their designated “experts” under oath before taking their testimony.  Additionally, if a provider has introduced new evidence into the record, it will be required to show “good cause” for its admission at this late stage of the proceedings.  Finally, most providers find that the ALJ handling their case is quite knowledgeable and typically has extensive experience analyzing coverage requirements and assessing the adequacy of a provider’s documentation.  Providers who have failed to adequately prepare for the hearing are likely to find that the process can be quite difficult.
  • The ALJ hearing process has become considerably more complicated due to the participation of ZPIC personnel. Over the past year, the ALJ hearing process has become quite complicated when dealing with large, “big box” overpayment cases.  For instance, in cases when damages have been extrapolated, it is quite common for representatives of the ZPIC who issued the initial denial decision to attend the hearing as a “participant.”  When this occurs, ZPIC representatives often include an attorney representing the ZPIC, a statistician who will be prepared to support the extrapolation applied in the case, and a clinician (typically a Registered Nurse) who will testify why the claims allegedly do not qualify for coverage.
  • In cases where a provider’s third-party biller has agreed to handle claims appeals, few billers have agreed to pursue a denial past the reconsideration level of appeal.    

III.  Consequences of Not Filing for ALJ Hearing:

Assuming that no extended repayment plan has been established and the alleged overpayment has not already been repaid, the MAC will initiate recoupment of the alleged overpayment 30 days after the QIC issues its denial decision. Unfortunately, this will occur regardless of whether a request for ALJ hearing is filed in a timely fashion.

Should a provider choose not to further appeal, its important to recognize that its “claims denial ratio” will increase.  As the government and its contractors increasingly rely on “data mining” when identifying potential targets for audit, providers with a high error rate will likely find their practices subject to further scrutiny.

 IV.  Don’t Give Up on Properly Billed Claims – Consider Your Options:  

As Medicare claims audit and assessment efforts increase (through CMS’ use of ZPICs, PSCs and RACs), health care providers will be under increasing pressure to ensure that all statutory and regulatory medical necessity, documentation, coding and billing requirements are met.  Despite a provider’s best efforts to remain compliant, it may find that its practice or clinic is alleged to have been overpaid by a Medicare contractor. Should that occur, we strongly recommend that you retain qualified, experienced legal counsel to represent your interests as early in the appeals process as possible.

Should you choose to handle the appeal yourself and lose at the reconsideration level, contact experienced legal counsel before deciding to discontinue the appeal.  Depending on the facts, you may find that it is both cost-effective and advisable to have your case handled at the ALJ level by experienced legal counsel.  When retaining counsel,  there are several important questions that you should ask:

  • How much of your law practice involves health law issues?

  • Please describe the extent of your experience handling large, complex administrative appeals of denied Medicare claims.

  • Please describe your experience in challenging statistical extrapolations applied to an alleged overpayment in a case.

  • How often have you responded to AdQIC appeals of favorable ALJ decisions?

  • How often have you handled MAC appeals?

  • Can you provide provider references?

Hopefully, your practice will not face a large administrative appeal of denied Medicare claims.  However, should such an event occur, you need to be ready to respond to the contractor’s audit.

V.  Conclusion:

 In addition to representing a wide variety of providers in the administrative appeals process, our Firm has been retained by a number of other law firms to assist them with large, complex administrative appeals.  After representing health care providers for many years in administrative hearings, involving literally tens of thousands of claims, it has been our experience that the ALJ level of appeal is the single best opportunity that a provider has to present its arguments in support of payment.

 While there are no guarantees in litigation, working with qualified clinical personnel, experienced legal counsel can effectively present a provider’s arguments to an ALJ assigned to hear the provider’s case.  Keep in mind, the trier of fact is an attorney – not a clinician or a consultant. Experience, coupled with an in-depth knowledge of the statutory and regulatory requirements at issue, may prove essential in proving your case. The ALJs we have practiced before have been attentive, knowledgeable, willing to listen to the provider’s viewpoint, and perhaps most importantly, fair If facing an ALJ hearing, consider the benefits of retaining experienced counsel when considering your options.

ALJ Hearing AttorneyRobert W. Liles, J.D., M.B.A., M.S. serves as Managing Partner at Liles Parker, Attorneys & Clients at Law.  Liles Parker attorneys have extensive experience representing Home Health, Hospice, CMHC, DME, Ambulance, Physician Practices, Nursing Homes, SNFs, and PT / ST / OT Therapy providers in the Medicare administrative appeals process. Our attorneys also work with providers to help better ensure that their Compliance Program addresses applicable statutory and regulatory requirements.   Need assistance?  Call us for a complimentary initial consultation.  We can be reached at:  1 (800) 475-1006.

ZPIC Participation in ALJ Hearings is Increasing

February 12, 2011 by  
Filed under Health Law Provider Updates

ZPIC contractors are auditing Medicare claims around the country(February 12, 2011):  Over the last year, we have noted an important trend when representing Medicare providers in post-payment overpayment cases at the Administrative Law Judge (ALJ) level of appeal.   Medicare contractors are actively attending and participating in many ALJ hearings.  In fact, it is now common for a Zone Program Integrity Contractor (ZPIC) to participate in these proceedings. The virtual “Courtroom” where ALJ hearings are typically held (most ALJ hearings are now held by teleconference or video-teleconference — few are conducted in person) are no longer attended by only a provider, its attorney and the Judge.   Instead, it is now relatively crowded, requiring the scheduling of experts and the testimony of various clinical specialists — representing not only the provider, but also one or more government Medicare contractors.  Although mostly limited to “big-box” cases where the amount at issue ranges from $100,000 to several million dollars, we have even had ZPIC participation in ALJ hearings involving alleged overpayments of only a few thousand dollars.

This “sea change” in how the government and its contractors view their role in working to help ensure that alleged overpayments stay in place demands that providers reconsider their decision to represent themselves in ALJ appeals hearings.  While many health care providers feel comfortable handling an ALJ hearing on their own when the only parties on the teleconference or on the video-teleconference are the Judge and the Medicare providers themselves, it is a completely different situation when one or more contractors elects to participate in the hearing and present their denial reasons to the ALJ.  The purpose of this article to examine this trend and discuss a number of considerations that Medicare providers should be taking into account when deciding whether or not to represent themselves at ALJ hearing, without an attorney.

I.  Rights / Limitations of a ZPIC or Other Contractor When Acting as a “Participant” in an ALJ Hearing:

Pursuant to 42 C.F.R. § 405.1010, both representatives from the Centers for Medicare and Medicaid Services (CMS) and its contractors may participate in an ALJ hearing.  Moreover, an ALJ may request that CMS or its contractors participate in a hearing.  As the regulatory provisions provide:

“(a) An ALJ may request, but may not require, CMS and/or one or more of its contractors to participate in any proceedings before the ALJ, including the oral hearing, if any. CMS and/or one or more of its contractors may also elect to participate in the hearing process.

(b) If CMS or one or more of its contractors elects to participate, it advises the ALJ, the appellant, and all other parties identified in the notice of hearing of its intent to participate no later than 10 calendar days after receiving the notice of hearing.

(c) Participation may include filing position papers or providing testimony to clarify factual or policy issues in a case, but it does not include calling witnesses or cross-examining the witnesses of a party to the hearing. (emphasis added).

(d) When CMS or its contractor participates in an ALJ hearing, the agency or its contractor may not be called as a witness during the hearing.

(e) CMS or its contractor must submit any position papers within the time frame designated by the ALJ.

(f) The ALJ cannot draw any adverse inferences if CMS or a contractor decides not to participate in any proceedings before an ALJ, including the hearing.”

While ZPICs and other contractors may not “cross-examine” a Medicare provider or its witnesses during an ALJ hearing, contractors have easily worked around this regulatory obstacle.  Rather than confront a provider directly, a contractor will merely point out their concerns or make a specific point to the Judge.  The presiding ALJ will often then merely ask the provider the same questions first raised by the ZPIC.  As a result, a Medicare contractor never has to cross-examine the provider but his points and questions are still ultimately answered.  For instance, the following very simple exchange might occur during an ALJ hearing:

“ALJ:  I would like to hear the Medicare contractor’s views regarding the medical necessity of this E/M claim.

ZPIC:  Your honor, the 1997 E/M Guidelines clearly reflect the types of situations which would qualify as “High Complexity.”  We don’t believe that the facts here represented that level of complexity.  Additionally, the physician is now alleging that the patient suffered from multiple serious co-morbities which complicated the medical decision-making required.  Where is there proof that the patient had these conditions?

ALJ:  Dr. Smith, can you point out where these medical conditions are documented in the medical records submitted?”

In most instances, a provider should expect ZPIC participation in their ALJ hearing.  Moreover, a provider should expect for the ZPIC to point out weaknesses in the provider’s case.  ALJ’s are seeking to determine the facts and decide whether the claims at issue qualify for coverage and payment.  When a ZPIC raises a concern, most ALJ’s will want to follow-up with the provider in order to obtain an answer regarding the points raised.

Over the last year, we have also seen a marked  increase in the number of ZPIC participation cases, either at the hearing stage or where the ZPIC seeks permission to file a post-hearing brief with the Court.  This can be especially problematic for providers who choose to represent themselves at hearing because the ZPICs have used this as an opportunity to present new evidence and/or new arguments that were never introduced at lower levels of the case or at ALJ hearing.  As a result, the provider is often placed in the position of trying to respond to new arguments, never before presented by the ZPIC or other contractors, at the last minute in the ALJ hearing process.

II.  The Nature of ZPIC Participation:

Medicare providers should keep in mind that both ZPICs and Program Safeguard Contractors (PSCs) are quite sophisticated and are becoming more and more active in the ALJ hearing process, often replying to arguments presented to the Judge by a Medicare provider.  Moreover, it is not uncommon for a ZPIC to send as many as three professionals to participate in an ALJ hearing — all of whom may ultimately defend the ZPIC’s initial denial of the provider’s Medicare claims.  One of the ZPIC representatives very well may be an attorney.  A ZPIC contractor against whom we regularly litigate often sends a licensed attorney to respond to pro-provider arguments that the claims qualify for payment because they were not reopened in a timely fashion or that even if the claims do not meet all of the applicable coverage requirements, any overpayment would still qualify for “waiver.”  The ZPIC’s attorney may also respond to a number of limited arguments presented by a provider when trying to get a statistical extrapolation declared invalid by an ALJ.   It has been our experience that the ZPIC’s attorney is typically polished, smart and prepared.  When facing an unrepresented physician, the ZPIC’s lawyer would likely easily address any non-medical arguments presented by a Medicare provider.  A second ZPIC or PSC representative likely to participate in an ALJ hearing is the contractor’s statistician.  He is responsible for defending the legitimacy of the statistical sampling and extrapololation methodology employed by the ZPIC or PSC when extrapolating the damages in a case.  While a significant number of physicians and other health care providers are knowledgeable in statistics and mathematics, few know or understand the regulatory requirements which must be met before a contractor may engage in statistical sampling and seek to extrapolate damages.  As a result, few unrepresented providers have been able to convince an ALJ that an extrapolation is invalid.  While the additional cost of engaging a statistical expert to review a ZPICs extrapolation actions can be costly, it is likely required if a provider hopes to have a reasonable chance of challenging an extrapolation.   Finally, it is quite common for a ZPIC to send a third representative (typically a Registered Nurse) to provide clinical testimony in support of the ZPIC’s decision not to cover and pay certain claims, often citing the ZPIC’s own unique interpretation of LCD and LMRP requirements (an interpretation with which we often disagree).  Overall, an unrepresented provider is often unprepared to address and respond to the many legal, statistical and clinical arguments presented by the various ZPIC participants in an ALJ hearing.

While ZPIC and PSC representatives are now regularly participating in ALJ hearings, they are not the only contractors who are prepared to rise to the challenge.   Representatives of the Qualified Independent Contractor (QIC) have also been participating in some ALJ hearings.   In cases we are aware of, the QIC representative has been an attorney working for the contractor.  Nevertheless, there is nothing to prevent a clinician working for the QIC from attending the ALJ hearing and presenting the QIC’s arguments why certain claims did not qualify for coverage and payment.  Additionally, in at least one fairly recent case we handled on behalf of a provider, a Medicare Administrative Contractor (MAC) clinical reviewer chose to participate in the ALJ hearing.

III.  What are the Differences Between a “Party” to a Hearing and a “Participant” in a Hearing?

As 42 C.F.R. § 405.1010(c) reflects, there are significant differences between a party to an ALJ hearing and a participant in an ALJ hearing.   As we previously discussed, a “participant”  does not have the right to call witnesses or cross-examine parties or their witnesses.  Additionlly, participants do not have the right to object to the issues described in the ALJ’s “Notice of Hearing.”  As CMS has argued, these elements are “cornerstones” of the adversarial process.  In the absence of these cornerstones, a proceeding is not considered to be adversarial, even though multiple Medicare contractor representatives may participate in an ALJ hearing.  As a result, since the proceeding was not adversarial in nature, a provider will be precluded from seeking to have its attorney’s fees paid under the “Equal Access to Justice Act,” even though it ultimately prevailed at hearing.   While perhaps technically correct, the idea that ALJ hearings are truly “non-adversarial” when Medicare contractors choose to join as a “participant” is flatly untrue.   ZPIC lawyers, clinical reviewers and expert statisticians have proven themselves to be highly capable and effective when arguing their positions, despite the fact that their role in the hearing was considered to be “non-adversarial” in nature.  To their credit, even though both sides may be passionate about their position on the issues, all of the ALJs we have practiced before have kept a strict rein on the proceedings.

IV.  Providers Should Consider Engaging Experienced Legal Counsel to Represent them in an ALJ Appeal:

When faced with an administrative overpayment case that is highly complex, involves a significant alleged overpayment or is based on a statistical extrapolation of damages, we recommend that a Medicare provider retain experienced legal counsel to represent the provider’s interests.  While it is possible for an experienced attorney to step in and handle a case at a later level of administrative appeal (such as the QIC and ALJ levels), it becomes more and more difficult to do so in an effective fashion as the case progresses.  We have seen a number of cases where a provider has failed to properly establish the record in a case and important supportive documentation stood the chance of not being admitted in the record because the provider failed to introduce it at lower levels of appeal.  An experienced attorney can help ensure that the record is properly constructed and no important legal defenses or payment arguments have been left out of the case.  Additionally, legal counsel will be able to assess the coverage requirements, identify possible holes in the provider’s case and work with the provider to identify witnesses and obtain supportive evidence to hopefully fill any gaps in the provider’s case.

V.          Conclusion:

As a final point, it essential to remember that the trier of fact, the ALJ responsible for presiding over the provider’s case, is a lawyer, not a clinician.  Arguably, an experienced health law attorney– rather than a clinician — is uniquely trained to analyze the legal issues presented, organize the provider’s facts and present the relevant evidence to the ALJ (another attorney).  Having said that, an experienced attorney is no substitute for a qualified clinician who can directly address the clinical profiles of the beneficiaries and the medical necessity issues presented. Together, a supporting clinician and a skilled attorney can be a formidable team when arguing a Medicare provider’s case.  Moreover, this team is best equipped to respond to any arguments raised by participating ZPIC representatives during the overpayment hearing.

Robert W. Liles defends health care providers in Medicare ZPIC auditsRobert W. Liles serves as Managing Partner at Liles Parker, Attorneys & Counselors at Law. Attorneys in the Firm’s Health Law Practice have extensive experience representing health care providers around the country in ZPIC, PSC and RAC overpayment appeals cases .  Should you have any questions about your case or the overpayment appeals process, please feel free to call us for a complimentary consultation.   We can be reached at 1 (800) 475-1906.

Region B RAC CGI Announces that it will Begin Review of Eighteen Projects that Involve Medical Necessity

CGI Has Been Awarded a RAC Contract(August 25, 2010): CGI Technologies and Solutions, Inc., (CGI), has announced it will immediately begin reviews on 18 newly approved projects that involve the medical necessity of selected inpatient DRG payments.  A complete list of the “issues” currently being examined by CGI can be found on its website. Recovery Audit Contractors (RACs), such as CGI, contract with the Centers for Medicare & Medicaid Services (CMS) to perform post-payment reviews of Medicare claims to find overpayments and underpayments in return for a percentage (from 9 percent to 12.5 percent) of the amounts recovered. Put simply, they eat only what they kill.  CGI was awarded responsibility for handling Region B audits.  CGI’s contingency fee contract award dollar amount is 12.50% according to CMS.  Issues where CGI will be examining “medical necessity” requirements, include certain procedures related to:

  • Chest Pain

  • Other Circulatory System Diagnoses

  • Other Vascular Procedures

  • Syncope & Collapse

  • Red Blood Cell Disorders

  • Atherosclerosis

  • Heart Failure & Shock

  • Esophagitis, Gastroenteritis & Misc Digestive Disorders

  • Musculoskeletal Disorders

  • Chronic Obstructive Pulmonary Disease

  • Respiratory

  • Nutritional and Metabolic Disorders

  • Kidney & Urinary Tract Infections

  • GI Disorders

  • Percutaneous Cardiovascular Procedures

  • Renal Failure

  • Nervous System Disorders and

  • Cardiac Arrhythmia & Conduction Disorders.

 As CGI’s website discusses, when asked What utilization criteria will CGI be using to review for medical necessity?” in its FAQ section, CGI states, CGI will utilize the rules for National Coverage Determinations (NCD), Local Coverage Determinations (LCD), HCPCS, ICD-9 (ICD-10 when implemented and appropriate) and CCI that were in effect on the date of service. 

 A continuing concern of providers is that the RAC determinations of medical necessity will be  performed by personnel with little, if any, specific knowledge of the specific claims at issue.  Given the RAC business model, providers remain worried that audits will not reflect a fair and reasonable application of applicable coverage requirements. This is especially worrisome in light of the fact that approximately 41 percent of overpayments in the demonstration project were due to medical necessity determinations.

 Should you have questions regarding the RAC process, you may contact us for a complimentary consultation.  We can be reached at 1 (800) 475-1906.

A Look at RACs — Part III: What Medicare Providers Know about RAC Audit Recoupment Rules.

A Medicare Provider Should Understand RAC Audit Recoupment Issues (July 2, 2010):  The Centers for Medicare and Medicaid Services (CMS) audit program involving Recovery Audit Contractors (RACs) is now permanent and nationwide.  As we discussed in Part I of this series, while small providers were largely ignored during the demonstration program, physicians, home health, hospice, and durable medical equipment (DME) suppliers should be on the lookout for increased attention.  In Part II, we discussed some ways providers can prepare for and respond to an audit request.  In this Part III, we will discuss RAC audit recoupment issues.

At the outset, it is important to remember that RACs are paid on a contingency fee basis and so are highly incentivized to seek out overpayment errors. CMS’s enthusiastic trumpeting of the RAC demonstration program results seems to ignore the RACs’ reputation for overly aggressive auditing.  Indeed, a June 2010 CMS program update reveals that, when providers chose to appeal a RAC determination, providers won 64.4% of the time.  CMS has since implemented a requirement that the RAC remit its contingency fee if its audit determination is overturned at any level of appeal, not just the first level.  Whether this will improve RACs dismal win rate on appeal remains to be seen.

I.  What Are the Options to Appeal a RAC Determination of Overpayment?

First, providers that want to challenge the determination should be aware they have a  very limited period of time to file for redetermination appeal if they wish to avoid recoupment.  While a provider has 120 days to file for redetermination appeal, if they wait past day 30, the Medicare contractor (not the RAC) will initiate recoupment.  Additional information regarding recoupment is discussed below.  Appealing a RAC claims denial follows the uniform Medicare Part A and Part B appeals process.    The following deadlines are strictly adhered to.

                                           Medicare Appeal Deadlines

Level StageReviewing Entity

Filing Deadline

 1st RedeterminationMedicare Administrative Contractor (MAC)120 days of receiving notice of initial determination
2ndReconsiderationQualified Independent Contract (QIC)180 days of receiving notice of redetermination decision
3rdHearingAdministrative Law Judge (ALJ)60 days of receipt of the QIC’s decision
4thAdministrative Review (HHS)Medicare Appeals Council (MAC)60 days of receipt of the ALJ’s decision
5thJudicial ReviewFederal District Court60 days of receipt of the MAC’s decision

Our experience has shown that ALJs are honest brokers who are the most willing to hear arguments from providers.  While they will follow the law andapplicable coverage provisions, they tend to be much more thorough and consider the provider’s arguments in support of payment.  In many cases, this has been the first level that a fair and reasonable consideration of the evidence has occurred.

II.  What RAC Audit Recoupment Issues Will a Provider Encounter?

Notably, the deadlines above are filing deadlines only.  Medicare begins recouping funds well before the time frame for appeal has lapsed at each stage.  Medicare begins recouping funds only 30 days after the RAC’s initial determination and only 60 days after its redetermination decision.  This puts significant pressure on providers to file for first and second level appeals more rapidly than they otherwise might.  In later stages, recoupment cannot be stayed by filing the appeal.

 Recoupment Timeframes 
Day One – Initial Demand of a RAC Overpayment DeterminationFirst Level AppealSecond Level AppealAppeals to Administrative Law
 The process begins when a Demand Letter, with appeal rights, is sent to Provider.  If there is no appeal and the provider does not remit the demanded amount, offset begins on day 41. To avoid recoupment starting on day 41, the provider must request the 1st level appeal within 30 daysfrom the date of the Demand Letter.  If an appeal is received after day 30 and recoupment started on day 41, the recoupment process will stop on the remaining balance. To avoid recoupment beginning or resuming after a Redetermination, the provider must submit the 2nd level appeal request to the QIC within 60 daysfrom the overpayment letter (if applicable) or from the decision letter.  If an appeal request is received after day 60, the recoupment process will stop on the remaining balance. Limitation on recoupment ends after the 2nd level appeal.  Recoupment shall begin 30 days from the appeal decision and will continue until debt is satisfied, whether or not the provider appeals to the ALJ or subsequent levels.

Separate from and prior to the appeals process, a provider may rebut any proposed recoupment action within 15 days of the notice of impending recoupment.  A provider may issue a statement to the claims processing contractor providing evidence as to why the overpayment action should not take place.  This process does NOT provide an opportunity to review the medical documentation or the audit determination itself.

Read A Look at RACs — Part I

Read A Look at RACs — Part II

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one of our other attorneys at: 1 (800) 475-1906.

A Look at RACs — Part II: How Should Physicians and Other Providers Respond to a RAC Audit?

RAC Audit(June 29, 2010): In Part I of this series, we reacquainted you with the design and purpose of the now permanent Recovery Audit Contractor (RAC) Program.  Although RACs largely focused on inpatient care during CMS’ demonstration program, RACs are a real threat to small providers that don’t have the intensive compliance programs in place that most hospitals do.  In this Part II, we will look at how physicians, home health, hospice, and durable medical equipment (DME) suppliers can prepare for and respond to RAC audits.

Even if no demands are issued, the RAC audit process exposes providers to substantial risks and administrative costs.  Fortunately, both can be managed with thoughtful implementation of effective compliance measures and a well-planned response to an audit.

I.  How Should Physicians and Other Small Providers Prepare for a RAC Audit?

It is essential that the preparation for a RAC audit begins before the RAC ever knocks on the door.  Deadlines are tight and so physicians without effective compliance programs in place run the risk of claims being denied simply because they can’t show that they crossed all the “T’s” and dotted the “I’s” in time.

Physicians, home health, hospice, and DME suppliers can begin to target their compliance efforts by examining the reasons for denials issued during the recently concluded RAC demonstration program.  During the course of that program, of improper payments identified,

  • 35% were the result of incorrect coding;

  • 8% were the result of insufficient documentation (including failure to submit information on time or to submit enough information); and

  • 17% were the result of other issues, such as basing claim payments on outdated fee schedules or duplicate claims.  Meanwhile,

  • 40% were deemed medically unnecessary.

In other words, 60% of denied claims had nothing to do with patient care.  No one goes into health care to spend their time creating and perfecting paper trails but long experience with Medicare tells us that doing so cannot be avoided.

Thus, to prepare for a RAC audit, as a provider you can:

  • Implement and continuously review your compliance plan;

  • Review the documentation requirements for each item or service you provide;

  • Maintain your files thoroughly and consistently;

  • Do NOT rely on other suppliers or providers for record-keeping; and

  • Make sure all your documentation is legible.

II.         How Should Physicians and Other Small Providers Respond to a RAC Audit?

The RAC audit process starts with a request for records, upon which the provider has a strictly enforced 45 days (plus mail time) to respond.  Upon receiving a request for records, providers can take several steps to protect yourselves:

  • Take care before conducting an internal review of the claims requested.  While an internal analysis can be invaluable, you want to avoid creating a non-privileged paper trail of identified problems that could later be referred to law enforcement if a RAC makes a fraud referral.

  • Review past claims audits and evaluations to determine whether the requested claims have been previously evaluated.

  • Remember that filing deadlines are strictly enforced so calculate early on when appeals must be filed and begin to gather supporting documentation.

  • Consider retaining an expert in extrapolation.

  • Do NOT assume the contractor’s arguments are meritorious.  Carefully review Medicare policy to see if the RAC cited it correctly.

  • Retain duplicates of any information that you submit to the RAC.

III.        Is Anything Different in the Permanent Program?

Small providers with experience being audited in the demonstration program should be on the lookout for the several changes implemented under the permanent program that may help protect them.  For instance,

  • RACs’ Contractor Medical Directors are now required to speak with a provider regarding a claim

              denial,

    if requested, and a reviewer must provide credentials upon request.

  • The reason for the review must be listed on a request for records letters and overpayment letters.

  • The look-back period is reduced to 3 years from 4.

  • CMS has set uniform limits on the number of records that can be requested in a 45 day period (sliding scale).

 More details concerning these and other changes to the permanent program can be found in the CMS RAC Demonstration Evaluation Report, available at https://www.cms.gov/RAC/02_ExpansionStrategy.asp.

Read A Look at RACs — Part I

Read A Look at RACs — Part III

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one our other attorneys at 1 (800) 475-1906.

RAC Audits of Physician Practices, Home Health, Hospice, and DME Providers, are Expected to Increase.

June 25, 2010 by  
Filed under Medicare Overpayments

RAC Audits of Physician Practices are Expected to Increase.(June 25, 2010): The purpose of this series of articles is to assess the Recovery Audit Contractor (RAC) Program from the perspective of physicians, home health, hospice, durable medical equipment (DME) providers, and other relatively small Medicare providers.  As many non-hospital providers will acknowledge, early cries of wolf by law firms and consultants did a fine job of initially publicizing the RAC threat.  Unfortunately, the threat of a RAC audit now appears to be largely ignored by non-hospital providers due to the seemingly widespread sense that RACs will likely continue to focus their efforts on large, institutional Medicare providers – the ultimate “low hanging fruit” in terms of potential Medicare overpayments. RACs are, in fact, a real threat to physicians and other small Medicare providers, despite the fact the contractors have passed over these providers in the past.

I.  Recent CMS Efforts to Promote RAC Audits of Physician Practices and Other Non-Hospital Providers:

Over the last six weeks, the Centers for Medicare and Medicaid Services (CMS) has sponsored nationwide conference calls titled “Nationwide RAC 101 Call” specifically aimed at physicians, home health, hospices, and DME providers. Further, CMS conducted two general nationwide conference calls discussing the RAC program that were open to all Medicare providers.

These seemingly innocent informational calls were in fact extraordinarily significant, servicing almost as a “touchstone” for CMS and its RAC auditors.  With the completion of these nationwide teleconferences, outreach has now been completed and CMS can affirmatively state that these non-hospital providers have been given multiple opportunities to learn about the RAC program and prepare for a RAC audit.   All states are now eligible for review.

While CMS must still approve “issues” prior to their widespread review by the RACs, the contractors now have the billing data that they need to analyze and identify possible targets.

As physicians and other non-hospital providers prepare for possible audit, it is helpful to review hospitals’ experiences when preparing for and responding to a RAC audit.  On June 22, 2010, the American Hospital Association (AHA) released its findings that the RAC program is having a widespread impact on almost all hospitals, even though many have not even been subjected yet to a RAC audit.[1] In fact, for the first quarter of 2010 alone:

  • 84% of responding hospitals reported that RACs impacted their organization;

  • 49% of responding hospitals reported increased administrative costs; and

  • 17% of the hospitals using external resources to address RACs hired consultants at an average cost of almost $92,000.

So, what do providers and non-hospital Medicare providers need to know about RACs?  This multi-part series will address the following:  First, the purpose and impact of RACs; Second, how to respond to RACs when they come calling; Third, some of the emerging issues for physicians and other small Medicare providers regarding RACs.

II.   What is a RAC?

The RAC program was created by Section 306 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).  Operating under the direction of the Department of Health and Human Services (HHS), RACs are independent third-party contractors tasked with identifying and correcting improper past Medicare payments.  Each of four RACs has jurisdiction over a separate region of the United States.

After a three year demonstration in which RACs identified $1.03 billion in improper Medicare fee-for-service payments, the program became permanent earlier this year.  RACs join scores of other Medicare audit contractors.  CMS created the following table to clarify the role RACs are supposed to play compared to other contractors.[2] However, as we will see later in this series, these roles are not clearly delineated and the overlap in the review process can create substantial confusion and waste.

Role of Medicare Review Contractors

Improper Payment FunctionContractor Performing Function
Preventing future improper payments through pre-pay review and provider educationMedicare claims processing contractors
Detecting past improper paymentsRACs
Measuring improper paymentsCERT [Comprehensive Error Rate Testing]
Performing higher-weighted DRG [diagnosis related group] reviews and expedited coverage reviewsQIOs [Quality Improvement Organization]

RACs are highly incentivized to hunt for evidence of overpayments in high-cost categories of service and to needle out errors that have nothing to do with actual patient care. RACs are paid on a contingency basis so it stands to reason that, during the initial program demonstration, only 4% of improper payments identified were underpayments.  This “bounty hunter” approach also helps to explain why prior audits have focused almost exclusively on high-cost inpatient care services. Recent GAO testimony shed light on this situation and may cause RAC audits or other contractors to shift their focus to entities that do not have hospitals’ long history of review and compliance, namely physicians and other relatively small Medicare providers.  Finally, a substantial percentage of overpayments collected by RACs during the demonstration program resulted from preventable coding errors, countering the myth that CMS is primarily focused on weeding out unnecessary service claims.

Providers in Region C may want to consider that the AHA found hospitals in that region, encompassing nearly 40% of all U.S. hospitals including those in Texas, Florida, and Virginia, reported the highest number of medical records requested, the highest amount of dollars targeted in medical record requests, and the highest number of denied claims (47% of the $2.47 million in denied claims reported in the first quarter of 2010).

III. Are There Any Safeguards to Protect Physicians and Other Small Group Providers From RAC Audits?

Based on the demonstration program, numerous providers and others have expressed concern that RACs are overly aggressive auditors.  Despite some improvements, concerns about the RAC process are likely to persist.  As recent testimony by the GAO Health Care Director pointed out, the oversight of RACs leaves something to be desired.

Changes have been made to reduce the RACs’ unintended incentive to drive up fees (through the improper denial of claims). RACs are now required to pay back their contingency fee if the claim is overturned at any level of appeal, rather than just the first level as in the demonstration program.

Additionally, there are some limitations in place regarding the RACs’ ability to overwhelm providers with record requests.  RACs may not request records more frequently than every 45 days and, for instutitional providers, their requests are limited to 1% of all claims submitted for the previous calendar year.  This is an overall limit, however, meaning that a RAC may determine the composition of the records in an additional document request.  They can – and do – request categories of records up to the limit even if the request is disproportionate the provider’s business.

Finally, none of these improvements address the concern that the first several levels of the appeals process do not provide meaningful recourse for the overly aggressive auditing.

Read A Look at RACs — Part II

Read A Look at RACs — Part III

Should you have any questions regarding these issues, don’t hesitate to contact us.  For a complementary consultation, you may call Robert W. Liles or one  of our other attorneys at 1 (800) 475-1906.


[1] Available at http://www.aha.org/aha/content/2010/pdf/Q1RACTracResults.pdf

[2] Available at http://www.racaudits.com/uploads/RAC_Demonstration_Evaluation_Report.pdf.

Next Page »