Medicare buoyed by demo success after audits collect $700 million

Washington -- A limited three-year trial of a new type of Medicare auditor hired to track down overpayments to hospitals, physicians and others restored nearly $700 million to the program's coffers even after paying the contractors' expenses, according to a July report. The Centers for Medicare & Medicaid Services, which released the report, is preparing to phase in a permanent, nationwide version of the initiative ordered by Congress.

Using post payment review techniques to determine if any improper reimbursements occurred, Medicare recovery audit contractors in California, Florida and New York found nearly $1 billion in overpayments during the initial demonstration that ended in March. CMS paid roughly $200 million in contingency fees to the RACs, reimbursed claimants about $40 million for underpayments found by the auditors and restored about $60 million in determinations that were overturned on appeal or re-review.

The RAC project's striking financial success and its implications on beneficiary cost-sharing was encouraging to CMS officials. The 50-state phase-in is expected to start in September and be completed by January 2010. "With a permanent recovery audit contractor program, people with Medicare can be assured they are being charged correctly for their share of their health care services," said Acting CMS Administrator Kerry Weems.

But physicians whose claims came under the auditors' scrutiny during the demonstration complained that the administrative burden of responding to and defending against aggressive RAC reviews required their practices to expend resources far in excess of any alleged overpayments. Only about $20 million in overpayments, or approximately 2% of the total amount found by the RACs, came from doctors. The vast majority of the recoveries were from inpatient hospitals.

Weems said CMS has responded to complaints about the demo by mandating significant policy changes for the permanent RACs, aimed at making them more friendly to Medicare claimants. But the American Medical Association, the American Hospital Assn. and others said the revisions do not go far enough. The organizations are pushing pending legislation that would put a hold on the permanent rollout so Congress can complete its own review of the demo.

CMS has identified several problem areas for physicians in which the RACs found many of the improper payments. Nearly $6 million of physician overpayments were a result of incorrect coding for injectable drugs doctors administered in the office. The report is available online (link).