The hospitals want a federal judge to strike CMS' payment denial policy because it is "contrary to federal law, arbitrary and capricious, and invalid for failure to undergo notice and comment."
The hospitals also want CMS to repay them for the "reasonable and medically necessary services they provide to patients. No matter whether it was provided in the inpatient or outpatient setting, Medicare must pay hospitals for such medically necessary care."
RACs have been a continuing source of friction between hospitals and the federal government ever since they were created as part of the Medicare Modernization Act of 2003. CMS reported last spring that RACs collected $1.86 billion in overpayments from October 2009 through March 2012, but identified only $245.2 million in underpayments.
Hospitals say that RACs are incentivized to aggressively and unfairly flag hospitals bills because the auditors keep a percentage of the money they identify, even if the billing classification is later proved to be justified.
A CMS study found that about 40% of RAC findings are appealed, but providers win those appeals about 75% of the time. Despite the good odds of winning an appeal providers complain that the process is too costly and cumbersome.