Recovery Audit Reform Bill Calls for Financial Penalties

James Carroll, for HealthLeaders Media, October 31, 2012

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.

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