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Recovery Audit Contractors Program: Despite Temporary Delay, RAC Program is Coming to Texas
In the Tax Relief and Health Care Act of 2006, Congress required the Centers for Medicare & Medicaid Services (CMS) to put in place a permanent and national Recovery Audit Contractors (RAC) program by January 1, 2010. The national RAC program is the outgrowth of a pilot program in which CMS contracted with independent auditors to identify Medicare overpayments and underpayments to health care providers and suppliers in California, Florida, New York, Massachusetts, South Carolina, and Arizona. The demonstration project resulted in over $900 million in overpayments returned to the Medicare program between 2005 and 2008 and nearly $38 million in underpayments returned to health care providers.
The goal of the recovery audit program is to identify improper payments made on claims for health care services provided to Medicare beneficiaries. Improper payments may be overpayments or underpayments. Overpayments can occur when health care providers submit claims that do not meet Medicare's coding or medical necessity policies. Underpayments can occur when a health care provider submits a claims for a simple procedure but the medical record reveals that a more complicated procedure was actually performed. Health care providers that might be reviewed include hospitals, physician practices, nursing homes, home health agencies, durable medical equipment suppliers, and any other provider or supplier that bills Medicare Parts A and B.
On October 6, 2008, one year after releasing its RAC request for proposal (RFP), CMS announced the names of the four successful RAC bidders for the permanent program, each of which was awarded responsibility for conducting audits in one of four multi-state regions. Following this announcement, two unsuccessful bidders challenged CMS' award through a protest filed with the Government Accountability Office (GAO), which automatically imposed a "stop-work order" on the RACs. The GAO has 100 days to issue a decision on whether the bidders have made a persuasive case that CMS erred in not selecting them as RACs. Assuming that CMS' original award is upheld, the stay could nevertheless push the new start date for the RAC program to early February of 2009. If the award is overturned, the new date would likely be delayed even more.
What does all this mean for Texas health care providers? Texas is included in Region C, which was awarded to Connolly Consulting Associates, Inc., of Wilton, Connecticut. RAC audits in Texas were scheduled to begin on March 1, 2009, but it appears that this date may be affected by the current delay in the RAC program implementation. Regardless of the delay, Texas providers should rest assured that CMS intends to move forward with the project. CMS also maintains that the "look-back" date for the RAC program will remain October 1, 2007, which means that even if RACs begin their work later, they will still audit claims paid as far back as that date.
The RACs are paid a contingency fee based upon the amount of erroneous payments they identify. During the demonstration project, RACs collected contingency fees even if the outcome of appeals of overpayment determinations went in favor of providers. For the permanent program, CMS has altered its policy regarding contingency fees paid to RACs so that RACs must refund contingency fees on any overpayment determination that is overturned at any level of appeal.
Providers will be notified of the RAC's determination that an overpayment has been identified by means of a demand letter issued by the RAC. During the RAC demonstration project, when a demand letter was issued, providers were required to repay overpayments identified by the RAC within 30 days of the issuance of the demand letter or the Medicare contractor would begin recouping the overpayment. For the permanent program, CMS has instructed Medicare contractors that they may not initiate recoupment when valid appeals have been filed with the Medicare contractor at the first and second appeal levels.
CMS' policy change addresses one of providers' major criticisms of the RAC program (i.e., that there was no opportunity for the provider to appeal before recoupment began). During this appeal process, however, the debt continues to age and interest will accrue. If CMS prevails in a provider appeal, collection activities including demand letters and recoupment may resume after the second level appeal decision is issued.
A revised CMS report issued in January of 2009 showed that of the more than 525,000 overpayment determinations made by the RACs during the pilot program, 118,000 (or 22.5 percent) were appealed by providers. Of these appeals, 34 percent were decided in favor of the provider, resulting in a total of 7.6 percent of all RAC determinations ultimately being overturned. Connolly Consulting Associates, the RAC for Region C (including Texas), had the lowest total number of appeals of all the RACs in the pilot program but had the highest percentage of appeals decided in favor of providers (54.1 percent).
The appeal process is quite complex. Several levels of appeal extending to federal district court are available to providers, but providers must be sure to timely file appeals in accordance with Medicare rules in order to postpone recoupment beyond the initial levels of appeal. Moreover, a provider should present a complete and coherent rebuttal to the overpayment claim at the initial levels of appeal in order to maximize the opportunity to receive a favorable outcome before recoupment can be imposed.
CMS recently announced that the RAC program would be overseen by a newly created "Provider Compliance Group," which will also oversee existing medical review, data analysis, and Medicare/Medicaid error rate measurement programs. CMS' existing "Program Integrity Group," on the other hand, will focus its attention on combating fraud and abuse and will continue to oversee established contractors including Program Safeguard Contractors (PSCs), Zone Program Integrity Contractors (ZPICs), CMS field offices that work with law enforcement to pursue fraud cases, and Medicare Drug Integrity Contractors (MEDICs) charged with investigating Medicare Part D fraud. According to CMS, this split between compliance programs focused on identifying errors and integrity programs focused on combating fraud will allow CMS to more efficiently manage what will be—after the implementation of the RAC program—a huge increase in CMS' monitoring workload. Thus, providers should not assume that the implementation of the RAC program will reduce CMS oversight or eliminate existing auditors such as PSCs. Indeed, overall CMS monitoring of providers is likely to increase.
For more information about the RAC program, please contact Carla J. Cox at 512.236.2040 or cjcox@jw.com or Brandy Schnautz Johnson at 512.236.2310 or bjohnson@jw.com.
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