Good, but not perfect

The hospital industry says Medicare's retrospective program of auditing hospital bills challenges too many claims that later turn out to be justified.

But a report by HHS' Office of the Inspector General found that the Medicare recovery audit program is more accurate than hospital lobbyists contend, though it's far from perfect and detects too little fraud rather than too much. Of the 1.1 million cases in 2010 and 2011 in which an auditor recommended denying Medicare payments, only 6% were appealed. Providers won only 44% of those appeals.

All told, the auditors in those years requested records on 2.6 million Medicare patient encounters, discovering errors in half of them, usually for care delivered in settings that were too expensive or billed using the incorrect code. The average individual payment denial was for $507.

Seven years ago, Congress ordered Medicare to hire four private companies, known today as recovery audit contractors, to police Medicare payments and detect cases where hospitals, doctors and suppliers were being overpaid. In 2011, the program recovered $488 million for Medicare after accounting for contractor fees and successful appeals of payment denials.

The hospital industry points to the high rate of cases that hospitals win on appeal as a sign that the program is flawed. The American Hospital Association supports bills in the House and Senate to scale back auditing, bolstered by hospital-reported survey findings that 40% of all denials are appealed and 70% are successful.

AHA officials said the discrepancy between the hospital-reported appeal rates and OIG-reported rates was due to the AHA data being two years fresher than the government-analyzed data. AHA officials also said their data was drawn only from hospitals, while the OIG figures pertained to all Medicare Part A and B providers.

Moreover, “the appeals rates don't tell the whole story about the accuracy of the RACs,” said Melissa Jackson, who oversees RAC policy issues for the AHA. She said providers may avoid disputing payment denials because of the time, legal uncertainty and administrative expense.

Recovery auditors are hired primarily to look for payment errors, but they are required to report cases in which evidence shows the healthcare company could have engaged in intentional fraud. Yet in 2010 and 2011, the companies reported only six such cases nationwide, and none of them were in fraud “hot spots” in Florida or Texas. The OIG questioned why the companies found so little fraud.

Follow Joe Carlson on Twitter: @MHJCarlson