Medicare payment audits criticized in GAO report

The report finds that while contractors tasked with finding overpayments also identified systemic failures, CMS has addressed less than half of them.

By Chris Silva — Posted April 12, 2010

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As the Obama administration works to expand the scope of recovery audit contractors to seek out improper Medicare payments, a new government oversight report concludes that Medicare must do a better job of addressing the vulnerabilities the RACs identify.

A March report from the Government Accountability Office said the Centers for Medicare & Medicaid Services did not establish an adequate process to address payment system problems uncovered by the contractors either during the three-year initial pilot program of the RACs or in planning for the rollout of a permanent, nationwide version of the program. The RACs comb through past Medicare claims from hospitals, physicians and others to identify instances in which the government paid too much or inappropriately approved claims.

CMS had stated from the start that the program's goals were not only to recoup overpayments but also to obtain information to prevent overpayments from occurring in the first place, GAO noted. But the agency has not implemented corrective actions for 60% of the most significant RAC-identified vulnerabilities -- representing $231 million of the roughly $1 billion in improper payments discovered by the contractors so far.

"CMS did not begin to evaluate the most significant vulnerabilities that resulted in improper payments until almost two years after the program began" in 2005, the report said. "Agency officials told us they did not anticipate that the RACs would identify such a high volume of improper payments and did not have systems in place to collect data at the beginning of the demonstration project."

The CMS-developed Improper Payment Prevention Plan did not include the essential elements of a corrective action plan, nor did it establish a time frame on which to base necessary actions, GAO said. CMS said its progress in implementing corrective actions was hindered by several factors, including a significant number of appeals filed by hospitals and physicians of RAC overpayment determinations.

Permanent RACs in operation

In response to the GAO report, CMS said it is taking steps, based on lessons learned during the demonstration, to resolve coordination issues and address payment system vulnerabilities through the national, permanent RAC program.

CMS launched the national RAC program in two stages, with operations starting in 24 states on March 1, 2009, and in remaining states after August 2009. Congress directed CMS to have permanent RACs in place by 2010 to review Medicare claims from all 50 states, a goal the agency said has been met.

CMS agreed with GAO's recommendation that it should act promptly to address systemic vulnerabilities, and the Medicare agency said it intended to do so on a case-by-case basis. Agency officials also told GAO that they were considering assigning vulnerabilities to risk categories to help determine when prompt action is needed.

GAO said a Medicare contractor could take several corrective actions if it determined that a RAC-identified vulnerability was widespread in its region. The actions include:

  • Conducting more physician outreach and education to prevent claims errors.
  • Revising local coverage determinations to clarify when certain services are covered.
  • Implementing additional prepayment edits in the local claims-processing system.

In addition, CMS could initiate a nationwide corrective action, such as implementing a national system edit that all contractors must use, GAO said.

Physician concerns persist

CMS continues to work on rolling out national operations of the recovery audit contractors, transitioning from automatic claims review processes to more complex determinations of whether claims contain medically necessary services. Physician organizations continue to express concern about the RACs hunting for alleged overpayments and being paid based on how much money they recoup.

The American College of Physicians has been pushing CMS to take an approach that focuses more on outreach and education for doctors who make errors on claims. Problems with Medicare over- and underpayments could be resolved more effectively that way, said Debra Lansey, ACP's regulatory and insurer affairs associate.

"We encourage CMS to work with its contractors to ensure that the Medicare program operates in a manner that makes efficient use of its available resources, with a minimum of administrative waste," she said.

The American Medical Association also has been critical of the RAC program, saying it is particularly burdensome for physician practices to comply with the audits even when the reviews turn up little or no evidence of Medicare overpayments. Some physicians in the states where the initial three-year demonstration project took place said the auditors appeared to be going on fishing expeditions to find overpayments, demanding scores of medical records from several years past.

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The RAC rollout

Medicare has been using recovery audit contractors for about five years to recoup overpayments to hospitals, doctors and others.

December 2003: Congress requires a RAC demonstration project.
March 2005: RAC demonstration project begins in California, Florida and New York.
December 2006: Congress requires a permanent, national RAC program.
July 2007: The Centers for Medicare & Medicaid Services expands the RAC demonstration project to Arizona, Massachusetts and South Carolina.
March 2008: RAC demonstration project ends.
October 2008: CMS awards contracts for the national RAC program.
March 2009: National RAC program activity begins.
June 2009: Automated reviews begin for the national RAC program.
During 2010: Complex reviews for possible overpayments based on a lack of medical necessity scheduled to begin for the national RAC program.

Source: "Medicare Recovery Audit Contracting: Weaknesses Remain in Addressing Vulnerabilities to Improper Payments, Although Improvements Made to Contractor Oversight," Government Accountability Office, March (link)

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