Recovery audits expanding to include Medicaid

Washington -- The Centers for Medicare & Medicaid Services is working to expand its recovery audit contractor program to all of Medicare and to the Medicaid program by the end of the year, although an agency official told Congress in July that CMS faces challenges in getting that done on time.

RACs are third-party auditors hired by CMS to comb through Medicare claims from hospitals, physicians and others to identify improper payments. A three-year RAC demonstration program that launched in California, Florida and New York in 2005 identified roughly $1 billion in Medicare overpayments, according to CMS.

A permanent, nationwide RAC program now operates under fee-for-service Medicare, but provisions of the new health system reform law mandate a permanent expansion to Medicare Advantage, the Medicare drug benefit and Medicaid by Dec. 31.

Meeting that deadline might be problematic, said Deborah Taylor, director and chief financial officer of CMS' Office of Financial Management.

"We are still in the planning stages," said Taylor, who testified before a Senate panel on July 14. "We're looking a little harder at Medicaid [because] it's going to be tougher for us."

Expansion of the RAC program to Medicaid is particularly challenging, Taylor said, because it involves coordination with 50 different state programs. She reported that the agency is furthest along with implementing a RAC component to oversee Medicare Part D, the prescription drug program for seniors.

"We're doing everything possible to be ready to expand to all three of these programs," Taylor said in response to questioning by Sen. Tom Carper (D, Del.). He's chair of the Senate Homeland Security and Governmental Affairs subcommittee on Federal Financial Management, Government Information, Federal Services and International Security, which convened the July 14 hearing.

Medicaid and beyond

Carper is a leading proponent of RACs and says he is eager to see how an expanded program will perform.

"The program has been successful," said Carper, who noted that $54 million was returned to the Medicare trust fund in the first year of the demonstration program, and $247 million in the second year.

"The sooner the full program is up and running, the sooner we can recover millions of dollars -- probably billions of dollars -- in additional overpayments and put them to more effective use," he said.

Carper urged Taylor to work with her colleagues to meet the Dec. 31 deadline imposed by the Patient Protection and Affordable Care Act. He also said he understood the difficulties the agency faces in expanding the RAC program and offered the subcommittee's resources as assistance if needed.

RAC executives testifying at the hearing said they welcomed the additional workload and would be ready to work with CMS on expanding the program. Auditors are paid based on the dollar amount of any improper payments they uncover.

"This may sound self-serving, but we are ready to take on more work," said Lisa Im, CEO of Performant Financial Corp., a firm based in Livermore, Calif., that worked with CMS on the demonstration project. "This contract implementation is just the beginning but has great potential to succeed in returning dollars to the CMS. Moreover, the application of recovery audit contracting across other federal agencies has strong potential."

Andrea Benko, president and CEO of HealthDataInsights, based in Las Vegas, agreed with Im that the expansion of the RAC program will benefit the government -- not only under Medicaid, Medicare Advantage and the prescription drug program, but also under the Veterans Health Administration and Tricare. HealthDataInsights is the Medicare RAC for Region D -- one of four permanent RAC regions -- consisting of 17 states and three U.S. territories.

"To the extent that we can accelerate the national RAC program ... speedy returns to the Medicare trust fund will be achieved," Benko said.

Earlier this year, President Obama called for expanding payment recapture audits throughout the federal government to improve payment accountability.

Physician concerns persist

While Carper offered praise for the RAC program, he also highlighted a March report from the Government Accountability Office criticizing the CMS effort. The report concluded that the Medicare agency had used auditors to identify payment system vulnerabilities that lead to overpayments, but it had not implemented corrective actions for 60% of the most significant vulnerabilities. Those systemic problems represented $231 million of the roughly $1 billion in improper payments discovered by the contractors, GAO concluded.

CMS said in response to the report that it was taking steps to resolve coordination issues and address payment system vulnerabilities through the national, permanent RAC program. 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' Taylor also noted that several concerns raised by physicians during the demonstration were valid, and that changes have been made to the permanent RAC program to address them. For example, every audit firm is now required to hire a physician medical director, which she said gives doctors additional assurance that reviews of claims based on medical necessity are handled properly.

The American Medical Association and other physician organizations have been critical of the RAC program. They say 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 who were audited during the demonstration project said some reviews appeared to be fishing expeditions to find overpayments, with demands for scores of medical records from several years past.