RAC Program Proceeds; Bid Protest Withdrawn

Posted by Jason Greis on February 17, 2009 under Articles | Read the First Comment |  Print

On February 14, 2009 my colleague, Elissa Moore, posted the following informative update on the North Carolin Healthcare Report weblog, of which she is a co-Author.  The posting describes the resumed rollout of CMS’s recovery audit contractor (RAC) program and further details of the RAC program.  Elissa, Brent Rawlings, and I (together with members of Marsh Risk Consulting’s Global Clinical HealthCare Consulting Team) will be discussing the impact of RAC audits on post-acute and acute care providers during a complimentary 1-hour webinar on March 3, 2009.  Please click here for additional information and to register for the webinar.

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On February 6, 2009, the Centers for Medicare and Medicaid Services (CMS) announced that the bid protests to the recovery audit contractor program (RAC) program had been settled and the RAC implementation could proceed. The RAC program, authorized by Congress in the Medicare Modernization Act of 2003 and made permanent in the Tax Relief and Health Care Act of 2006, is intended to detect and correct improper payments in the Medicare program. More than 1 billion Medicare claims are submitted every year by providers and it is estimated that 3.9% of Medicare dollars paid do not comply with Medicare coverage, coding or billing rules. This results in approximately $10.8 billion in under or overpayments. In fact, Medicare is among the top three federal programs with improper payments, according to a January 2008 report by the Government Accountability Office (GAO) and as such there is a renewed focus by the Department of Justice and Office of Inspector General (OIG) to combat health care fraud and protect the Medicare trust funds. The RAC program, in addition to existing fraud detection efforts implemented by CMS, aids this effort by detecting Medicare improper payments (both over and underpayments) and correcting those improper payments (either by collecting money that was overpaid or repaying money where an underpayment exists). Through the RAC demonstration project, the RACs returned $693.6 million to the Medicare trust funds as of March 27, 2008.

The RAC demonstration project concluded in early 2008 and CMS intended to implement the RAC permanent program gradually, beginning in the summer of 2008. CMS awarded contracts to four groups each responsible for a different region under the RAC program. As during the demonstration, the RACs were going to be paid on a contingency basis. However, in November 2008, two groups whose bids were unsuccessful filed a protest with the GAO. Pursuant to the Competition in Contracting Act of 1984, work on the RAC program was stopped until a determination could be made by the GAO. Before the GAO could make a determination, the protest was settled and CMS announced that the two companies that filed bid protests will be subcontractors to the four groups with the permanent contracts. Since the protest has been resolved, CMS will now proceed with RAC implementation nationwide.

As the nationwide RAC program rolls out, providers should note several differences between the RAC demonstration project and the permanent program. Among other changes, the key differences include the following:

1. The RAC “look-back period” has been limited to three years, with a maximum look-back date of October 7, 2007. The demonstration project had a four year look-back period. However, providers felt that this conflicted with the regulation that stipulated that providers were only liable for repaying overpayments within 3 years of the original claim.

2. The number of medical records requested by the RAC contractors will be limited. For inpatient hospital claims, the limit will be 10% of average monthly Medicare claims per 45 days, up to a maximum of 200. For physician claims, the limits will vary based on the size of the practice. For example, larger groups (i.e., more than 16 individuals) will have to submit a maximum of 50 medical records per 45 days. During the demonstration, each RAC could set its own limits. Two RACs set a number limit over a 30 and 45 day period. One RAC used a limit based on financial impact. Because of the variance in limits across the demonstration, CMS decided to establish a uniform sliding scale limit across all four RACs based on size of the provider.

3. RACs will accept imaged medical records on CD/DVDs. CMS will shortly be outlining the format requirements.

4. RACs will be required to have a full time physician medical director on staff. The medical director will oversee the medical record review process, assist nurses, therapists and certified coders upon request, manage quality assurance procedures, and inform provider associations about the RAC program.

5. If a RAC loses a contested audit at any level, the contingency fee must be repaid. During the demonstration, the RACs only had to return the contingency fees if the claim determination was overturned on the first level appeal (i.e., the appeal to the fiscal intermediary). The RACs were allowed to keep their contingency fees on determinations overturned on the second-level (i.e., the appeal to the qualified independent contractor) and third-level (i.e., administrative judge). There were practical considerations behind letting the RACs keep their fees despite a second or third level determination overturn during the demonstration period. Often the appeal process takes longer than three years (the time span of the demonstration) and CMS was afraid that no companies would bid to participate in the demonstration if CMS required the return of fees for determinations overturned years later. These concerns were not as great for the permanent program and were outweighed by the providers concerns that RACs would make inaccurate determinations just to increase their fees.

Providers should begin to familiarize themselves with the RAC programs and prepare for RAC audits. Providers can prepare for these audits by, among other actions, reviewing the CMS website to see what improper payments have already been found by the RACs during the demonstration project. Providers should begin working with counsel and consultants to help identify risks that exist in the organization and to develop plans, policies and procedures for addressing and dealing with these risks.

Elissa Moore
704.342.2218
emoore@mcguirewoods.com