RAC program spurs spike in administrative appeals by hospitals, report says

The advent of recovery auditing in Medicare has led to a sharp increase in administrative appeals by hospitals, creating administrative logjams but not necessarily leading to victories for providers complaining about denied payments, a new report says.

Between 2008 and 2012, the number of administrative appeals annually involving inpatient hospital care skyrocketed from 46,000 to 284,000, according to a report out today (PDF) from HHS' Office of the Inspector General.

The rise in appeals by hospitals—most of which involve protests against Medicare payment denials for inpatient care lasting less than two days—coincides with the national launch of the recovery audit contractor program in 2009, the OIG report says.

Four independent companies known as recovery auditors currently review Medicare bills and issue retroactive payment denials. They clawed back $488 million in 2011 for the program after accounting for contractor fees and successful appeals.

Healthcare providers have aggressively used the administrative appeals process to protest the payment denials, but the OIG report suggests it has not been a winning strategy—at least not initially.

Medicare has a five-stage process to appeal denials, the first of which is called redetermination. But at that first stage, just 10% of appeals were decided in favor of the healthcare provider in 2012, down from 30% four years earlier, the OIG report says.

The American Hospital Association reports that recovery auditors have become more aggressive since 2012, increasing requests for records related to payment audits by 47% during the first two quarters of 2013, according to hospital survey data (PDF). The average hospital in an AHA survey has appealed 247 payment denials, the interest group says.

The AHA says hospitals are more successful in later stages of the appeal process. “When hospitals choose to appeal, they win 70% of the time,” an AHA quarterly report on recovery auditing released in August says, quoting from data that include all stages of appeal, not just redetermination.

One area where the OIG and AHA agreed was on administrative delays. Both groups say the statistics show federal contractors are missing more statutory deadlines for resolving appeals as time goes on.

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