Business is booming for Medicare recovery audit contractors

RACs recoup nearly $240 million worth of overpayments, mostly from hospitals and suppliers, in only six months.

By Charles Fiegl — Posted May 16, 2011

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A Centers for Medicare & Medicaid Services report reveals that Medicare recovery audit contractors, which recently began operating nationwide, have had great success this fiscal year in identifying overpayments to hospitals, physicians and others -- and recouping the cash.

In the past six months, RACs have more than tripled the amount of overpayments recovered in all of fiscal 2010. Most RAC audits have targeted hospitals and medical equipment suppliers, but physicians also are subject to reviews -- and recoupments if it is determined that Medicare paid them too much for services.

Sen. Tom Carper (D, Del.) on May 4 highlighted the April CMS report on overpayment recoveries. Auditors have returned $237.8 million to federal coffers during the first six months of fiscal 2011 -- $75.8 million between October and December 2010 and $162.0 million between January and March 2011. A total of $75.4 million was recovered between October 2009 and September 2010, as the RAC program was expanding nationwide as directed by Congress.

"Our efforts to better protect taxpayer dollars by curbing fraudulent and improper Medicare payments are paying off," Carper said. "We have already seen more than three times the amount of money recovered compared to last year, and we still have six months to go for 2011. This is important progress, but more needs to be done."

Medicare and Medicaid pay tens of billions of dollars in improper payments annually, Carper said. Although RACs currently focus on Medicare payments, the health system reform law mandated that the initiative extend to Medicaid in 2011.

CMS did not break out the amount of recoveries attributable just to audits of physicians. But it is clear that physicians have been a small part of recovery efforts, said Roland Goertz, MD, president of the American Academy of Family Physicians. The vast majority of Medicare payment compliance issues cited on RAC websites focus on hospitals and equipment suppliers, he said.

Still, physicians complain that sometimes they are targeted by the auditors, who are paid based on the amount of overpayments and underpayments they identify. Practices report that the time and hassle of complying with the documentation requests that come with an audit can far outweigh the potential dollar amount of Medicare payments that are under dispute.

"The American Medical Association continues to have concerns about the perverse incentive structure and burdensome nature of the Medicare recovery audit contractor program and firmly believe that the best way to reduce improper coding is through education and outreach," AMA President Cecil B. Wilson, MD, said in a statement.

The Association and dozens of other organizations representing physicians also have reservations about the expansion of the RAC program to Medicaid.

In a Jan. 10 letter to CMS, the associations urged the agency to consider improvements it has made to the process since the nationwide rollout of the Medicare RAC program in 2009 when implementing the process for Medicaid RACs.

Facilities remain the main target

Most of the overpayment patterns identified by RACs involve hospitals, according to CMS. However, physician practices have not been exempt from scrutiny, said Amy Nordeng, government affairs counsel with the Medical Group Management Assn.

During the past six months, the MGMA increasingly has heard from members who have received automated audit notices from RACs, Nordeng said. Contractors use computer systems to analyze claims information for potential billing errors and send documentation requests to physicians when possible overpayments are found.

For instance, errors involving payment for the office administration of drugs and mistakes involving new- versus established-patient services have been flagged for practices subjected to automated audits, Nordeng said. Two out of eight common compliance issues identified in an April RAC report applied to physician billing.

CMS cited untimed codes used to bill for outpatient rehabilitation therapy services as one issue. Payment for untimed codes is fixed, regardless of how long it takes a physician or health professional to complete the service. An overpayment occurs when a doctor or other professional bills more than one untimed code a day.

Four RACs are leading the recoupment efforts. The most common overpayment issues by region between October 2009 and March 2011 were:

  • Region A (the Northeast) -- incorrect coding of ventilator support of 96-plus hours. Facilities and professionals were improperly adding the number of ventilator hours, which resulted in higher payments.
  • Region B (the Midwest) -- incorrect coding of extensive operating room procedures unrelated to principal diagnosis. Errors occur when hospitals bill incorrect principal and/or secondary diagnoses.
  • Region C (the South) and D (the West) -- separately billing for bundled services involving medical equipment and supplies during inpatient hospital stays. Suppliers inappropriately received separate equipment payments when the cost for equipment was bundled into the patient stays.

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RACs focus on overpayments

Recovery audit contractors hired by Medicare have returned nearly $240 million in overpayments to the program in the last six months, more than three times the amount collected in fiscal 2010. RACs must identify cases in which the program paid too little in addition to cases in which the program paid too much. But the auditors are not finding nearly as many Medicare underpayments as they do overpayments.

Time period Overpayments collected Underpayments returned
Oct. 2009-Sept. 2010 $75.4 million $16.9 million
Oct. 2010-Dec. 2010 $75.8 million $13.1 million
Jan. 2011-March 2011 $162.0 million $22.6 million

Source: Medicare Fee-for-Service Recovery Audit Program as of March, Centers for Medicare & Medicaid Services (link)

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