Medicare's recovery audit contractor program has been mired in uncertainty for more than a year and a federal appeals court ruling this week likely won't put an end to that any time soon.
That means continued agony for the RACs running the program and, perhaps, relief for hospitals who loathe it.
The U.S. Court of Appeals for the Federal Circuit issued a decision Tuesday (PDF) that said a lower federal claims court must reconsider how the CMS is procuring new contracts for the RAC program.
RACs audit hospitals, doctors and other providers to ensure Medicare payments are accurate and appropriate. The CMS outsources the program to four private companies—CGI Federal, Connolly, HealthDataInsights and Performant Recovery—and pays RACs a contingency fee for every overpayment found.
The central issue in the bidding dispute is the contingency fee. The CMS started the process to award new four-year RAC deals in 2014. Since the program started in 2008, RACs have been paid after the overpayments are collected from providers, which takes about 41 days, on average.
But in the latest bidding process, the CMS proposed a different payment method. RACs would be paid after a provider's challenge “passed the second level of a five-level appeal process,” according to the CMS.
That posed a big hurdle for RACs because providers often appeal the overpayment decisions. And getting past the second level of appeals takes much longer—anywhere from four months to more than a year.
CGI filed a protest against the new payment terms. The company argued that if the CMS wanted to impose the new payment terms, it had to procure contracts through a more time-consuming request-for-proposals process instead of the more straightforward commercial bidding. CGI was not available to comment.
Because the federal appeals court agreed with CGI's protest, the CMS now has two options, said Emily Evans, a legislative analyst at Obsidian Research Group who tracks Medicare's RAC program. The agency can either rebid the contracts through the general commercial process with the original contingency fee structure from 2008. Or it can rebid the contracts through the longer noncommercial process with the new payment terms.
Either way, there will be a significant delay for the new contracts, Evans said. She thinks new RACs won't be finalized until early 2016.
Further muddied by the federal ruling is a separate RAC contract that was announced at the end of last year.
The CMS awarded a separate national contract to Connolly, one of the four incumbent RACs, to find improper Medicare payments for durable medical equipment, prosthetics, orthotics and supplies, and home health and hospice claims. But because Medicare's bidding process is essentially beginning anew, it's unclear if Connolly will be able to audit those areas going forward.
“That sort of puts that contract in purgatory,” Evans said.
CGI, Connolly, HDI and Performant in December had their contracts temporarily extended through 2015 in light of the contract disputes. However, their ability to audit hospitals and other providers has been severely hampered.
RACs are barred by law from auditing short inpatient stays until March 31, a moratorium that has lasted more than a year. Short stays are RACs' bread and butter. They represent a vast majority of recoveries and lead to higher commissions.
Medicare in 2013 turned up the heat on short stays by instituting its controversial two-midnight rule, which stated any hospitalization that lasted fewer than two midnights should be paid as an outpatient stay.
Hospitals have lambasted the two-midnight rule as arbitrary, and they were the driving force behind last year's legislated delay of short-stay audits.
The American Hospital Association wrote a letter to the CMS last month, asking that the enforcement delay on the two-midnight policy be extended until at least Oct. 1. The CMS has indicated it likely won't pursue short inpatient stay reviews until new contracts are awarded, Evans said. There's still the possibility another official delay could be written into Congress' doc-fix solution or patch this month.
Andrew Wachler, an attorney at Wachler & Associates who represents providers, said that the messy RAC bidding process works in the favor of hospitals and doctors. “RACs are not providers' friends,” Wachler said. “With any delay, I don't think providers are going to shed a tear.”
The Medicare program has already felt the effects of the scaled-back RAC program.
In the first quarter of the federal government's 2015 fiscal year, which ran from Oct. 1 though Dec. 31, 2014, Medicare RACs recouped only $48.3 million of overpayments from providers. That was the lowest quarterly total in the program's history and $768 million less than what RACs collected in the same period the year before.
The Council for Medicare Integrity, a RAC lobbying group, has blasted the government's moratorium on short-stay audits. The group said this week that “due to the sidelining of the RAC program, Medicare is on the fast track to insolvency.”
Follow Bob Herman on Twitter: @MHbherman