Medicaid claims audits to begin in January

CMS adjusted the RAC program in several ways supported by doctors, including requiring auditors to employ them as medical directors.

By Doug Trapp — Posted Sept. 26, 2011

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Physician and hospital organizations praised several changes federal health officials made to an earlier proposed version of a new Medicaid claims audit program authorized by the health system reform law.

The Centers for Medicare & Medicaid Services on Sept. 14 released a final rule detailing implementation of the Medicaid Recovery Audit Contractor program, based on a similar Medicare program in operation nationwide. The Medicare RACs have come under fire from physicians for what doctors have termed aggressive auditing tactics, prompting some critics to label them "bounty hunters."

Some aspects of the Medicaid audit program will mirror the Medicare approach. States will contract with the Medicaid RACs, which will search for fraud, waste and abuse in the program by reviewing past claims that already have been paid. Auditors will be compensated based on a percentage of funds they recover that were paid inappropriately to doctors, hospitals and others. The final rule also directs states to pay reviewers for uncovering underpayments that must be reimbursed to those filing the claims.

Vice President Joe Biden promoted the Medicaid RAC program as a deficit reduction measure. "If we're going to spur jobs and economic growth and restore long-term fiscal solvency, we need to make sure hard-earned tax dollars don't go to waste," Biden said.

The Dept. of Health and Human Services estimates that Medicaid RACs will save the program $2.1 billion over the next five years, of which $900 million will return to states. States must implement Medicaid RACs by Jan. 1, 2012, according to the final rule.

"We simply can't afford to see even one penny of our health care dollars wasted, and expanding this program will help us reach that goal," said HHS Secretary Kathleen Sebelius.

Points taken by CMS

Although the Medicaid RAC program is inspired by the often maligned Medicare version, the final rule does include several revisions requested by the American Medical Association and other physician and hospital organizations. CMS received 76 comments in response to the proposed rule, published on Nov. 10, 2010.

For example, each Medicaid RAC must hire a physician as medical director. The proposed rule required only the employment of "trained medical professionals to review medical claims." In the final rule, CMS also limited the frequency and age of claims Medicaid RACs can request from claimants for review.

CMS "very much stressed the need for coordination and recognized the burden it does pose on providers," said Xiaoyi Huang, assistant vice president for policy at the National Assn. of Public Hospitals and Health Systems.

Still, CMS could educate physicians and other health professionals better on avoiding innocent coding mistakes that could result in practices coming under auditor scrutiny. CMS recently began issuing compliance letters describing coding issues that might trip up billers, but many health professionals may not be aware of these letters, said Elizabeth Baskett, senior associate director of policy for the American Hospital Assn.

"We'd like to see CMS and the states make some effort to avoid the improper payments before they are made," she said.

AMA President Peter W. Carmel, MD, praised the inclusion of the revisions but said the AMA still is uncomfortable with RACs being paid based on their recoveries. "We continue to have concerns about the perverse incentive structure and burdensome nature of the RAC programs and firmly believe that the best way to reduce improper coding is through education and outreach."

Physician organizations also are concerned about the Medicaid RAC program's potential administrative burden on doctors, said Glen Stream, MD, president of the American Academy of Family Physicians. "There's multiple regulatory programs with which we have to comply and respond," he said. The AAFP also would like an explanation of the types of claims or billing situations that would attract a Medicaid RAC review, so that family physicians could avoid errors that trigger unnecessary audits.

The final rule did not answer some bigger logistical questions regarding Medicaid anti-fraud efforts, said Matt Salo, executive director of the National Assn. of Medicaid Directors. For example, how are states going to find resources to contract with Medicaid RACs when many are still mired in budget deficits?

Recoveries in the Medicaid RAC program could be limited if states pursue possible exemptions to it, such as carving out Medicaid managed care programs from RAC reviews. Many Medicaid private insurers typically audit physicians and other health professionals themselves, said the AHA's Baskett.

Individual states can ask CMS for an exemption from the entire Medicaid RAC program, although the agency did not spell out details beyond saying that it will review such requests very carefully. "We anticipate granting complete Medicaid RAC program exceptions rarely, and only under the most compelling of circumstances," the rule states.

The Medicaid RAC program follows nationwide implementation of Medicare RACs in 2010. Most Medicare RAC audits have targeted hospitals and medical equipment suppliers, but some physicians have received audit notices with which they must comply. Between January and June 2011, Medicare RACs recovered $451.3 million in overpayments and corrected $78.5 million in underpayments, according to CMS.

Most health care professionals want to help patients, but "there is a small minority who are thieves," CMS Administrator Donald M. Berwick, MD, said at a Sept. 8 event in Washington unveiling a Health Affairs special issue on lowering health care costs.

Dr. Berwick said health care fraud costs are larger and more complex than he thought they were before he arrived at CMS. Besides the cost of fraudulent claims, the audits and other policing required to weed out dishonest billers take time away from federal health officials and honest health professionals trying to do their jobs, he said. "That's a secondary cost."

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Limits on Medicaid RACs

The final federal regulation implementing the Medicaid Recovery Audit Contractor program makes several changes to a proposed rule requested by physician and hospital organizations. These include:

  • Prohibiting audits of Medicaid claims that are more than three years old.
  • Requiring each auditor to hire a licensed physician as medical director.
  • Requiring states to coordinate their Medicaid RAC activities with those of other auditors. RACs cannot audit claims already being investigated by another entity.
  • Calling on states to set limits on the number of medical records RACs can review and the frequency with which they can request these records.
  • Requiring RACs to return their fee if an overpayment determination is reversed at any level of appeal.

Source: Final rule, Medicaid Program, Recovery Audit Contractors, Dept. of Health and Human Services, September (link)

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