Various restraints on Medicare's recovery audit contractors severely limited their ability to rectify improper payments last year, but hospitals have long welcomed a slowdown in auditing activity.
On Monday, the CMS submitted its annual report to Congress on the state of Medicare's RACs, which are private companies that audit the medical records of hospitals and doctors to find instances of improper billing or erroneous payment from the government.
The report, which covered the federal government's fiscal 2015, noted a dramatic slide in the amount of money returned to Medicare's trust fund due almost entirely to the government's temporary prohibition of auditing inpatient hospital claims.
RACs collectively identified and corrected 618,966 claims, most of which were overpayments to providers. In total, $441 million in improper payments were corrected—$360 million in overpayments were recouped, and $81 million in underpayments were paid back to providers. That represented an 83% decrease from program corrections in 2014, which were $2.57 billion.
RACs returned $141 million to Medicare's trust fund, a 91% decrease from 2014, when the returned amount was $1.6 billion. RACs have recouped $8 billion in improper payments since the program's start in 2009 to 2014, according to the CMS. That accounts for the fees paid to RACs.
The RAC program has been beset with challenges for a few years. In March 2014, the government temporarily suspended the program until it finished procuring new contracts.
The program restarted in 2015 on a restricted basis while the contract process continued, but reviews were limited to claims related to cosmetic procedures and durable medical equipment, as well as a few other types. RACs also were barred from conducting any inpatient hospital patient status reviews.
The change was made following hospital industry and lawmaker outcry about a trend in RAC audits they viewed as troubling. In recent years, RACs had increasingly focused their reviews on short-term inpatient stays where a hospital billed at inpatient rates when it should have billed for an outpatient stay.
Inpatient claims made up the bulk of RAC corrections in fiscal 2014, hitting $2 billion. But the pause in those types of reviews resulted in RACs collecting less than 1% of the $43 billion in improper payments the CMS estimated were paid out in fiscal 2015.
George Indest, president and managing partner of the Health Law Firm, which represents healthcare providers in audit disputes, said the pause of auditing inpatient claims “will have a negative impact on the trust fund and could cause it to run out earlier.”
Members of the RAC industry also immediately voiced their concerns over the program's status. “Medicare recoveries continue to decline due to increased limitations placed on the RAC program,” Kristin Walter, spokesperson for the Council for Medicare Integrity, a lobbying group representing RAC companies, said in a statement after the release of the CMS report.
Emily Evans, a health policy analyst at Hedgeye Risk Management, independently tracks the RAC program and said the “significant reduction in the scope and the scale of the RAC program are a result of poor oversight and execution of the RAC program by CMS."
In addition to the CMS' decision to prohibit inpatient reviews, Evans believes the stops and starts to the program as well as the slow re-procurement throughout 2016 hurt improper payment corrections.
But hospitals have argued RACs have an incentive to find and recoup overpayments, even if they don't exist. Hospitals often appeal RAC findings, which has resulted in a huge backlog. The government is now responsible for clearing that appeals backlog by 2021.
“The RACs' approach of auditing and denying large volumes of claims to maximize their contingency fee payments has imposed a huge burden on providers and resulted in a breakdown in the Medicare appeals process,” said Melissa Myers, senior associate director of policy at the American Hospital Association.
In 2016, the CMS allowed RACs to review inpatient claims but only after a so-called quality improvement organization refers a case to them. The goal is to have RACs focus on cases where there is persistent noncompliance with Medicare payment policies.