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CMS Begins Nationwide Medicare Recovery Audits (RAC Audits)

In an effort to move-the-bar and collect on perceived overpayments to providers, Medicare is taking aggressive strides to accelerate the acceptance of evidence-based health care and lighten the load of a strained national budget.  After spending the past 30 years collecting and analyzing outcomes data from internal programs (CERTs, HPMPs, QIOs, etc.), both Congress and CMS have committed unprecedented resources to enforce evidence-based coverage policies and stop Medicare fraud.
 
Medicare PSC audits, Medicare ZPIC audits, Medicaid Integrity Contractor audits and the Medicare One PI system are all examples of ongoing CMS audits and initiatives focused on provider payment.  However, CMS is adopting recovery audits (or RAC audits) as the first real tangible effort to push hospitals and physicians down a path of revolutionizing the clinical practice of medicine.  Using a classic "carrot and stick" approach, CMS has combined clinical pay-for-performance (P4P) incentives and value-based purchasing initiatives (the carrot) with the strong arm of RAC medical collection agencies (the stick) to insure both hospitals and physicians are doing their part to facilitate a more nationalized, evidence-based healthcare structure.

"If it's not documented, it’s not done” - this has been the charge of every hospital HIM department head and compliance officer for the past 20 years.  Now both Medicare & Medicaid are adopting evidence-based coverage policies, defining clinical payment criteria, replacing QIOs with RACs, forcing the issue of evidence-based outcomes, verifying supporting medical documentation and insuring claim payment levels.  CMS has hired independent medical collection agencies - Recovery Audit Contractors (RACs) - to lead the way and they are paying 9% - 12.5% contingency fees to guarantee the outcome ($187.0M in fees were paid during the 3-year demonstration project).

From 2005 - 2007, the Centers for Medicare and Medicaid Services (CMS) undertook the RAC demonstration project in Florida, New York, California (South Carolina, Massachusetts & Arizona were added late in 2007) while preparing for a nationwide roll out in 2009.  In addition to an initial $36.2M in FY 2005, the RAC audits recovered $332.9M in FY 2006 and a staggering $610.9M in FY 2007 in overpayments to providers in the demonstration states.  In addition to law enforcement efforts to stop Medicare fraud, CMS estimates billions of dollars in overpayments for patient services will be identified with the national RAC audit focus.

                o  Medicare RAC Audits - 2006 Status Report
                o  Medicare RAC Audits - 2007 Status Report
                o  Medicare RAC Audits - 2008 Summary Status Report
                o  Medicare RAC Audits - National Expansion Schedule
                o  Recovery Audit Program Overview - Legislation & Regulation

During the demonstration period, the RACs made approximately 525,000 overpayment determinations and providers filed over 118,000 RAC appeals.  Of the 118,000 RAC audit appeals, providers won approximately 40,000 cases or 34% of all RAC appeals cases settled in California, Florida & New York.

Based upon outcomes from the demonstration project and the Statement of Work for the nationwide audit program, RACs are clearly leveraging the prior work of their peers.  Quality Improvement Organizations (QIOs), Comprehensive Error Rate Tests (CERTs) and the Hospital Payment Monitoring Program (HPMPs) all have played a vital role in guiding the initial stages of the RAC audit process.  As a result, 85% of Medicare RAC audit identified overpayments have been directly related to coding assignment, determination of medical necessity and/or a need to enhance detailed documentation gathered in support of submitted  claims (these are similar outcomes to other previous CMS audits).

It is critical that providers realize that Recovery Audit Contractors have the ability to analyze claims with payment dates reaching as far back as October 1, 2007.  Providers should also be very aware of the potential Medicare fraud & abuse ramifications and consider that a wide range of whistleblower suits have been brought in RAC audit related focus areas.

RACs are initially focusing on picking the low-hanging-fruit and reaching deep into the pockets of hospitals, inpatient rehabilitation facilities and physician practices.  However, RAC auditors and CMS are dedicated to implementing a systematic methodology to insure absolute and ongoing clinical compliance with National Coverage Determinations, Local Coverage Determinations & QIO guidelines.

Under the program, RAC audits focus on CMS established payment criteria and consist of both automated claims history reviews from the CMS database as well as complex clinical reviews of patient medical records.  Specific areas of concentration include those similar to CMS audits such as Medicare PSC audits, Medicare ZPIC audits and Medicaid Integrity Contractor audits (MIC audits) - "not medically necessary services" (or those not meeting the established CMS clinical payment criteria), non-covered services, incorrectly coded claims, duplicate services and incorrect payment amounts.

Medicare Recovery Audit UPDATES

December 2, 2009 - Connolly HealthCare was approved by CMS to initiate the auditing of 24 new issues this week in Region C.  These issues specific relate to MS-DRG focus areas and claim submission issues.

November 15, 2009 - Hospitals throughout the southeast reportedly started receiving denials this week from Connolly HealthCare relating to a wide range of automated audit issues.

November 12, 2009 - The Obama administration and CMS started an aggressive rollout of fraud related public relations articles and specifically highlighted outcomes from recent law enforcement investigations.  Based upon the scope and direction of the governmental reports (as well as the imminent adoption of healthcare reform), we expect unprecedented growth in law enforcement activities throughout 2010 aimed at perceived provider fraud & abuse.

August 3, 2009 - Today, Connolly Healthcare posted the first list of CMS approved issues relating to automated RAC audits.  Seven CMS payment criteria issues have been initially approved for automated audits in South Carolina and are expected to be quickly approved for the remaining states located in RAC Region C.  Designated the "unlucky 7", this first round of CMS approved RAC issues includes Blood Transfusions, Untimed Codes (most likely Physical Therapy initial and re-evaluation codes), IV Hydration Therapy, Bronchoscopy, once in a lifetime procedures, pediatric procedures and Pegphilgrastim injection codes.

An overview of the initial Medicare RAC audits "Unlucky 7" can be found on the RAC audits section of the Connolly Healthcare website.

June 28, 2009 - Professionals from Castle Rock Medical Group (a wholly owned subsidiary of Jackson Davis HealthCare) were asked to present a RAC audits & appeals update to the TxHIMA annual convention in Dallas and were joined by Jackson Walker, L.L.P. (one of Texas' leading health law firms).  CRMG and Jackson Walker would like to thank TxHIMA and the Texas hospital representatives for a terrific session and unsurpassed hospitality.

May 1, 2009 - CMS has posted an update to the RAC Audit and RAC Appeals education schedule for the state of Texas.  The Texas Hospital Association (THA), CMS and Connolly Consulting have canceled the "live" sessions and this information is being be made available by THA through their website.

March 19, 2009 - CMS has announced the tentative outreach schedule for state-by-state provider RAC audit & RAC appeals education.  This outreach process was mandated as part of the national roll out and is designed to offer additional insight and respond to provider questions relating to the program.

February 6, 2009 - The Centers for Medicare & Medicaid Services (CMS) announced the settlement of RAC audit protests by both PRG-Schultz and Viant.  Based upon the settlement, PRG-Schultz and Viant will be retained as sub-contractors to the primary RACs in each region.

Important note to IRF providers and physicians:  PRG-Schultz sub-contracted with Viant during the RAC audits demonstration project and they made a significant impact in challenging Inpatient Rehabilitation Facility (IRF) admissions throughout California ($59.7M in IRF admissions were denied in California).

February 6, 2009 - The Government Accountability Office (GAO) website was updated this morning to show that a resolution and settlement had been reached in conjunction with the RAC contract award protests.  Both protests have been "withdrawn" by PRG-Schultz and Viant - opening the door for the full national RAC audit rollout to commence effective immediately.

February 1, 2009 - The Government Accountability Office (GAO) continues its review of protests filed by PRG Schultz and Viant.  Both organizations filed formal protests in connection with the permanent RAC awards and the GAO was required to initiate an automatic 100 day "stay" in the nationwide rollout of the RAC audit process.  CRMG will continue to closely monitor the GAO review of the awards and give providers notice as soon as the GAO decision becomes available.  The GAO decision to both protests is due the week of February 9, 2009.

January 5, 2009 - CMS released updated information on recovery audit appeals activity through August 31, 2008 for the RAC audit demonstration states.  According to CMS, RACs denied 525,000 claims (275,000 Part A and 250,000 Part B claims).  Providers challenged 22.5% of RAC denials and filed 118,000 RAC audit appeals (57,000 Part A appeals and 61,000 Part B appeals).  To date, providers have won approximately 40,000 RAC appeals or 34% of all cases filed for appeal.

November 28, 2008 - CMS released revisions to monthly statistical reporting for Medicare appeals activity reflected on form CMS-2592.  Due to the anticipated level of RAC appeals and associated workload, CMS will be tracking separate statistics for RAC appeals versus other Medicare appeals.  Specifically, this will allow CMS to more accurately allocate funds directly for RAC appeals activity.

November 14, 2008 - The December '08 issue of Eli's Research Report was released today and offers an in-depth look at CMS & RAC audit challenges to both inpatient and outpatient physical medicine providers.  Inpatient rehabilitation providers were hit particularly hard during the demonstration project and have been facing intense RAC auditor reviews relating to the meeting of medical necessity criteria and documentation requirements.

November 12, 2008 - CMS held Special Open Door Forums for both Medicare Part A and Part B providers (November 12 and November 13) via teleconference to discuss a wide range of issues related to the national rollout of the RAC audits program.  Several CMS professionals weighed-in during the discussion and reiterated previous CMS guidance relating to areas such as the RAC audit process, RAC medical records requests and RAC appeals.

November 4, 2008 - The Centers for Medicare and Medicaid Services (CMS) formally announced the protest of permanent RAC audit contracts by 2 unsuccessful bidders.  PRG-Schultz and Viant both have filed protests with the General Accountability Office (GAO).  With well over $100M in contingency fees at stake, both companies are fighting hard for their piece of the RAC collection agency pie.  While the protests do result in an automatic 100 day reprieve from provider recoupment of overpayments, they do not impact the retroactive nature of the RAC process.  Once finalized, the permanent Medicare recovery audit contractors will be reviewing and denying perceived overpayments back to October 1, 2007.

November 3, 2008 - After establishing and committing to the formal provider RAC audits outreach schedule nationwide, CMS had to cancel all meetings today due to a "protest and stay of performance" relating to the awarding of the permanent RAC contracts.  While details are pending from CMS, this action was taken on behalf of PRG-Schultz (who's stock was down 65% since they lost the permanent RAC contract award: PRGX) who was clearly unhappy with a potential loss of over $100M in anticipated contingency fees from the permanent RAC project.  PRG-Schultz gained the ire of providers throughout California during the demonstration project and their lack of participation in the permanent program was applauded by the California Hospital Association.

October 29, 2008 - CMS formally established limits for the number of medical record requests by the permanent RACs and outlined the methodology for complex review limitations.  Basically, hospitals, inpatient rehab facilities and skilled nursing providers will be limited to the lower of 200 individual record requests or 10% of the provider's monthly claim volume - per 45 day period.  Physician limitations are based upon the size of the practice and range from 10 to 50 medical records per 45 day period.

October 10, 2008 - CMS outlined the RAC audit contingency fee agreements for the Medicare Recovery Audit Contractors in each region.  Ranging from 9% - 12.5%, CMS is paying independent RAC fees based upon the collection of perceived overpayments for services with paid claim dates starting October 1, 2007.

October 6, 2008 - CMS announced the 4 permanent RACs today and reaffirmed the immediate, rapid and comprehensive roll out of the Medicare Recovery Audit program nationwide.  The permanent RACs have been initially assigned to 19 states and 4 different regions as the roll out begins nationwide.  The remaining states will be assigned in early 2009 for implementation later next year (however, ALL states are subject to audit for paid claim dates back to October, 2007).

In conjunction with the formal press release and announcement today, CMS Acting Director Kerry Weems laid out an aggressive plan to combat perceived "fraud" and aggressively pursue provider recoupment nationwide.  While much more information is anticipated over the next 30 - 60 days regarding the RACs and related contact information, the following permanent RACs are in place:

Region A - Diversified Collection Services, Inc. - Livermore , California
Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and New York

Region B - CGI Technologies and Solutions, Inc. - Fairfax, Virginia
Michigan, Indiana and Minnesota

Region C - Connolly Consulting Associates, Inc. - Wilton, Connecticut
South Carolina, Florida, Colorado and New Mexico

Region D - HealthDataInsights, Inc. - Las Vegas, Nevada
Montana, Wyoming, North Dakota, South Dakota, Utah and Arizona

October 5, 2008 - In a press release dated today, PRG-Schultz announced that they received notice from CMS and have not been selected as a permanent RAC audits contractor under the Medicare Recovery Audit program.  PRG-Schultz did receive a RAC audit contract during the demonstration period, but apparently their contingency % bid for the permanent program was too excessive.

September 12, 2008 - CMS released Transmittal 141 today and discussed revisions to the Medicare RAC appeals process and recoupment of perceived overpayments to providers.  In summary, time frames relating to the first 2 steps in the RAC appeals process have not changed (i.e. 120 days to file for redetermination and 180 days to file for reconsideration).  However, in order to stop the automated recoupment of overpayments from RAC audits, providers MUST file within 30 days for redetermination and within 60 days for reconsideration.

September 12, 2008 - CMS Office of Financial Management Director Tim Hill reaffirmed the selection of permanent RAC auditors and a revised time frame for the nationwide roll out at an AHA forum for hospital executives this week.  Mr. Hill confirmed CMS' intention to announce the permanent RACs by October 1 and the initiation of demand letters and medical records request no later than January '09.