Congress Takes Up RAC Reform Bill

If the bill adversely affects the RAC revenue stream, then lawmakers who are reluctant to raise taxes and committed to pay-as-you-go funding would have to find a way to offset the revenue loss to avoid deficit spending.

Legislation before Congress would rein in what many providers view as costly, overly burdensome, and outright abusive practices by Recovery Audit Contractors.

The Medicare Audit Improvement Act of 2015 has generated bipartisan support in the U.S. House, with 14 Republicans and nine Democrats signing on as co-sponsors, since the bill was introduced last month.

A key component of the bill eliminates contingency fees that pay RACs between 9% and 12.5% of every claim they deny. Providers have long complained that these contingency fees incentivize RACs to deny claims because they have no financial reward if they determine that any particular claim was appropriate. Nor are RACs penalized when appeals of their claims denials are successfully overturned, which the American Hospital Association says happens 72% of the time.

Instead, the bill calls for RACs to be paid a flat fee, similar to those paid to all other Medicare contractors.

"They have created a business that incentivizes with contingency fees these businesses to get into the game and report negative findings," says Gretchen Case, director of compliance and revenue integrity at Cedars-Sinai Medical Center in Los Angeles.

"If they took that away and paid the auditors without any kind of bias coming into these things that is the first step in making it a level playing field."

The bill has yet to be scored by the Congressional Budget Office, however.

RACs returned about $3.75 billion in allegedly faulty Medicare claims to the federal government in 2013. If the bill adversely affects that revenue stream, then lawmakers who are reluctant to raise taxes and committed to pay-as-you-go funding would have to find a way to offset the revenue loss to avoid deficit spending.

AHA Executive Vice President Rick Pollack said the bill "makes long-overdue repairs to the broken RAC program."

"Physicians do what is best for their patients and make medical decisions based on the care needs of their patients. But recovery audit contractors second guess medical decisions and divert resources from patient care," Pollack said in prepared remarks.

The bill would also:

• Reduce payments to RACs that are inaccurate in their audit findings and have a high number of appeals overturned.
• Amend rules to allow hospitals to rebill claims when appropriate.
• Require RACs to make inpatient claims decisions using the same information the physician had when treating the patient, not information that becomes available after patient discharge.

Case says the RAC program has created an extreme financial burden on hospitals.

"We've had to put in place an infrastructure to reply to RACs in a timely manner, because we have no recourse if we pass up our limitation of days to respond, unlike RACs who can continue to go on and on and on to the point where they have to do a settlement to resolve accounts," Case says.

Case says Cedars-Sinai has had to create an entire department just to deal with the demands of RACs. "We've had to develop a focus team around case management, definitely with nursing experience, physician leadership, etc., which we had to do almost overnight," she says. "A lot of hospitals couldn't do that right away. They didn't have the means to do it. Those of us that could did."

"We've had to buy databases to monitor and track this because of the sheer volume. We needed to know where it was in the audit process, what was at risk, what were we saving, what was the rate of return, and the legal fees," she says. "Everyone was very worried about entering this appeal process without legal counsel."

The AHA has issued a new report that it says details the hidden costs that hospitals incur by haggling with RACs. For example:

• Hospitals report an average of $1.4 million per hospital in claims under appeal; some larger hospitals have $20 million tied up in the appeals process.
• On average, hospitals hire or reassign 2.2 full-time-equivalent employees to handle the operational aspects of RAC audit requests and the appeals process.
• Hospitals report that they dedicate an average of 2,868 staff hours a year to the appeals process. Nearly 75% of hospitals report that they reassigned staff to fulfill RAC-related duties.
• Hospitals spend on average $117,000 annually to hire external services to assist in RAC audit management.
• Fifty-five percent of hospitals report that RAC audits and delays in the appeals process have created significant issues with the availability of capital resources.
• Hospitals report delaying other priorities such as hiring personnel, updating equipment, implementing health information technology and updating buildings.

Case says hospitals "are not above being audited," but that the incentives around RACs make it untenable for many providers.

"We do audits with our [Medicare Administrative Contractors] all the time. We have a very collaborative relationship," she says. "If have an issue, we do corrective action. We know they are going to monitor it. We make resolutions and corrections. And then we go off audit."

"With the RACs, if you demonstrate a level of effectiveness and compliance, you never go off of it on a particular issue. They just keep coming because they have no reason not to. There is no penalty for them financially and there is no reason for them as a business model not to continue to appeal. And they bank on the fact that some hospitals will not be able to," Case says.

"These hospitals can't defend themselves and so they accept those findings, but I would love to know the percentage of RAC findings that were due to hospitals that just were not able to respond."