Five hundred hours.

That's how much time a large hospital had to spend each week recently dealing with recovery audit contractor audits, the hospital's CEO told me at a conference.

That's 12½ 40-hour workweeks dealing with this problematic payment issue. And, as that CEO explained, that's 12½ 40-hour workweeks spent not focusing on patient care and satisfaction, because he doesn't have the budget to staff up given the dwindling nature of reimbursements these days.

Those numbers were pretty shocking, so I asked the same question to about a dozen other hospital CEOs. They all said basically the same thing—our hospitals are spending a ton of time handling these audits, but then we overturn them the vast majority of the time.

Given human nature, audits are a necessary check and balance to make sure people aren't gaming the system. But have healthcare audits gone too far?

The American Hospital Association's RACTrac survey seems to suggest they have. The AHA, which recently came out in support of the Medicare Audit Improvement Act of 2012, created the free online service in January of 2010 “in response to a lack of data provided by the CMS on the impact of the RAC program on America's hospitals.” Since then, 2,266 hospitals have used the AHA service. In their survey of results from the second quarter of this year, the AHA recently reported the following data:

Fifty-five percent of all hospitals reported spending more than $10,000 managing the RAC process during the second quarter of 2012, 33% spent more than $25,000, and 9% spent over $100,000.

Hospital staff is spending an increasing amount of time responding to RAC activity.

Fifty-eight percent of respondents indicated they have yet to receive any education related to avoiding payment errors from the CMS or its contractors.

That last point is particularly interesting because the way the process is supposed to work, hospitals should receive insightful information after an audit that will substantially help them optimize their billing systems to be more efficient moving forward. The CEOs I spoke with about that component of the RAC audit program did not give me the sense that they are receiving a lot of helpful feedback from the process. And given the fact that RAC auditors are compensated on a contingency-fee basis, getting paid for performing lots of audits would appear to be more of a driving force than helping hospitals avoid payment problems.

But are these just disgruntled hospital CEOs complaining about having their payment processes challenged and their revenue reduced? Especially in light of the fact that CMS says it has recovered $2.5 billion from audits since October 2009. For some perspective, I wanted to look at the number of regular taxpayers who are audited in this country each year.

In 2011, 1.6 million taxpayers were audited by the IRS. That amounts to a little more than 1% of the total number of Americans filing tax returns.

So the IRS audits a little more than 1% of American taxpayers, but, according to a story this week by Joe Carlson, HHS' inspector general's office would actually like to audit all 3,600 community hospitals getting Medicare money.

That leads me to believe one of two very disparate things. Either the American healthcare system is wildly corrupt and almost everyone who works in it is trying to scam Uncle Sam out of your hard-earned tax dollars. Or, the government is using audits, which take time and money away from patient care, to bolster and protect a payment system that is fundamentally flawed.

I am sure there are hospitals out there that need to be audited, and I am sure there are hospitals out there that are upcoding and submitting padded bills. But if HHS' inspector general believes that every community hospital in America receiving Medicare dollars needs to be audited, then something much more serious is going on than just some questionable billing practices.

—John D. Thomas, Chief of Editoral Operations