Recovery Audit Reform Bill Calls for Financial Penalties

Proposed legislation before Congress aims to improve the performance of Medicare audit programs and calls for financial penalties for certain compliance failures. The bill also contains a number of significant potential reforms.
Representative Sam Graves (R-MO) introduced the Medicare Audit Improvement Act of 2012 (H.R. 6575) October 16.

Financial penalties
One focus of the bill is on improvement of Recovery Auditor operations. Specifically, the legislation would impose financial penalties—which would go to the Medicare trust fund—on the contractors that fail to meet the requirements for the following:

Audit deadlines Completing a determination of each audit of a hospital the Recovery Auditor conducts within the applicable timeframe.

Timely communication If a claim is denied, the Recovery Auditor must sent a demand letter to the hospital in a timely fashion.

Overturned appeals Recovery Auditors must pay a fee to the prevailing party in the case of an overturned appeal. The HHS Secretary will establish a fee schedule to determine the amount of the fee

Postpayment and prepayment audits
In addition, the bill would require a targeted focus on widespread payment errors in postpayment and prepayment audits. It states that the "Secretary shall not approve the conduct of a postpayment or prepayment medical necessity audit by a Recovery Auditor unless such review addresses a widespread payment error rate."

In addition, the bill would require a Recovery Auditor to stop any audit if the applicable payment rate error were no longer widespread. The HHS Secretary sets the error rate at 40% using a statistically significant sampling of claims submitted by hospitals in the Recovery Auditor’s jurisdiction. The rate also takes into account claim denials overturned on appeal.

The Secretary would evaluate this rate annually and reduce it as necessary to account for changes in payment error rates to improving billing practices.

The legislation also lays out guidelines for the newly launched prepayment review program. Specifically, it states that the Secretary shall "establish guidelines under which consistent criteria for minimum payment error rates or improper billing practices occasion prepayment review by contractors."

In addition, the Secretary will not approve the conduct of a postpayment of prepayment medical necessity audit by a Medicare administrative contractor (MAC) unless it also meets the aforementioned error rate requirement.

Recovery Auditor transparency
The reform bill also introduces something that providers nationwide have been calling for—greater transparency. If passed, the Secretary would publish on the Internet information about:

Audits
Denials
Denial rates
Appeals
Appeal rates
Appeals outcomes at each of the five stages of appeal
Net denials

In addition, the Secretary will publish results of any performance evaluation of the Recovery Auditor conducted by independent entities selected by the Secretary.

Rebilling: A/B demonstration and accurate payment for rebilled claims
The bill also contains a section on the Medicare Part A/B rebilling demonstration. According to the bill, the Secretary may not prohibit any hospital appeal for the inpatient hospital services provided when the Recovery Auditor denies the admission as not reasonable and medically necessary.

The bill also states that the resubmission of a specified claim shall be deemed to be an original claim for purposes of payment under Part B and provisions under this title relating to:

• The authority of a hospital to resubmit a claim for payment under the appropriate section of this title
• Requirements for the timely submission of claims, including under sections 1814(a), 1842(b)(3), and 1835(a)

Annual limits
The bill includes a combined additional documentation request limit. It would establish annual limits that may not exceed 2% of all prepayment audit requests or complex postpayment audit requests in a year and 500 additional documentation requests during any 45-day period at a given facility.

This section of the bill would take effect on the date the act passes and would apply to claims submitted for payment under title XVIII of the Social Security Act for items or services furnished by providers of services or suppliers on or after January 1, 2013.

Physician validation of medical necessity denials
The last item in the legislation will likely be a popular one among providers. It would require a physician review each claim denial for medical necessity when the person who performed the review and issued the denial for a medical necessity is not a physician. In particular, a physician reviewing a claim would make a determination whether:

• The denial of the claim under the medical necessity review by the non-physician employee is appropriate
• Sign and certify such determination
• Append such signed and certified determination to the claim file

This proposal that a physician validate medical necessity denials will apply to Recovery Auditors, Medicare administrative contractors, and the Comprehensive Error Rate Testing (CERT) contractors.

Industry reaction
Following the release of the bill, the American Hospital Association (AHA) issued a letter of support, stating that "the Medicare Audit Improvement Act of 2012 provides much needed guidance for medical necessity audits, keeping auditors out of making medical decisions that should be between patients and their physicians. In addition, Recovery Auditors are not targeting widespread payment errors and are making subjective decisions on short-stay cases; their operational problems are persistent and widespread."

On the flip side, others, including Nancy Beckley, MS, MBA, CHC, president, Nancy Beckley & Associates, LLC, in Milwaukee, Wis. are more apprehensive about the legislation.

"My concern is that Congress may balance the behavior of the RACs and those inherent program problems with all the money that it returns to the Trust Fund," she says. "The proliferation of Medicare and Medicaid Integrity Programs has continued to drain resources from providers, many of whom can no longer afford to launch efforts to appeal."

Many in the provider community believe the Recovery Auditor program is being implemented and operated without regard to patient care, most notably in the denial of Part A claims and the ability to at least bill Part B claims, which is addressed in this legislation, says Beckley.

"For providers that are participating in the Part A to Part B billing demonstration, they had to give up their Part A appeal rights. My guess is that some providers/hospitals are doing this just for cash flow, yet have no appeal rights, and through this potential legislation their appeal rights will be reinstated," Beckley says.

She continues, "It may be that the whole RA [Recovery Auditor] program is fatally flawed but the misaligned incentives (contingency fees) may not allow putting this on the right course."