RAC Reforms Leave Providers Skeptical

Despite changes designed to improve audits of medical service billings to Medicare, healthcare providers are still crying foul.

Change is coming to Medicare's Recovery Audit Contractors program this year, but healthcare providers do not expect the reforms to take hold for several months and say the claims review program is deeply flawed.

The Centers for Medicare & Medicaid Services is implementing a set of changes to the RAC program, with the agency marshaling the initiative on three fronts:

• Reducing provider burden
• Enhancing CMS oversight of audit contractors
• Increasing program transparency

The reforms include a dozen measures designed to ease the administrative burden on providers such as requiring RACs to have a "contractor medical director" who is a physician.

"While we're pleased that CMS has acknowledged the administrative burden on providers, they're still tinkering around the margins," says Melissa Jackson, senior associate director for policy at the Washington, DC-based American Hospital Association. "Financial incentives drive RACs to make inappropriate denials of claims. Change won't come until RACs face financial penalties for poor performance."

RAC reforms are being implemented as part of new contracts CMS is awarding to the program's audit contractors. The originals were signed in 2008, and existing contracts are slated to expire in 2016.

The first new contract was awarded last month to Connolly LLC, a subsidiary of Atlanta, GA-based iHealth Technologies. Connolly will be serving as the RAC program auditor for durable medical equipment, home health, and hospice claims.

The bidding process for the other four RAC contracts, which correspond to geographic areas of the country, is stalled in federal court. The pending contracts include authority to review Medicare Part A and Part B claims—the bulk of Medicare spending.

In May 2014, the incumbent contractor for Medicare RAC Region B challenged the CMS bidding process at the US Court of Federal Claims in Washington, DC. CGI Federal Inc., based in Fairfax, VA, reviews Medicare claims in seven states: Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio, and Wisconsin.

In August 2014, Federal Claims Judge Mary Ellen Coster Williams rejected CGI's request for injunctive relief, ruling the CMS bidding process for RAC auditors did not violate federal law.

CGI had alleged the CMS "payment terms were inconsistent with customary commercial practice, unduly restrictive of competition, and violated the recovery audit program's enabling statute as well as prompt payment requirements," according to William's ruling.

The appellate court is set to hear oral arguments on the case early next month.

Jackson says providers are not expecting CMS to award more RAC contracts until the CGI case has been resolved in six to nine months.

CMS 'Beginning to Implement Improvements'
Last week, a CMS spokesman said the agency is committed to reforming the RAC program. In June, CMS announced the establishment of a provider relations coordinator to help increase program transparency and offer more efficient resolutions to providers affected by the medical review process.

"The provider relations coordinator serves as a point of contact for providers and associations regarding questions and concerns related to the medical review process and the recovery audit process that they are not able to resolve by contacting the Medicare administrative contractor or recovery auditor directly."

Hospital Associations Seek RAC Crackdown
CMS has taken some steps forward to reform the RAC program but a giant leap is required to address healthcare provider concerns, hospital association officials say.

In the new RAC contracts, Jackson says CMS has improved a vexing claim-review process linked to patient admission status. Designation of patient status has significant Medicare reimbursement implications, with inpatient services billed at Medicare Part A rates drawing higher reimbursement than outpatient services billed at Medicare Part B rates.

Jackson says CMS is making it easier to resolve one of the worst RAC scenarios for hospitals: claims for medical services that are billed at the Medicare Part A inpatient rate that RAC auditors deny because the claim should have been billed at the Medicare Part B outpatient rate.

CMS has shifted away from an all-or-nothing struggle through Medicare's five-level system for claims review and appeals, she says. "The hospital has been out the whole payment if it loses in appeal.  Now, CMS is allowing us to rebill at the outpatient rate."

The reforms slated to be implemented in the new RAC contracts include a key provision for claims that RAC auditors contest over patient admission status.

Currently, auditors can look back three years to contest billing at inpatient rates, but providers only have one year after the first billing for a Medicare claim to switch billing to the outpatient rate. Under the new contracts, RACs will only be able to look back six months to review claims for patient admission status.

"They're trying to tweak things without revising that one-year billing requirement," Jackson says.

The AHA is skeptical about a RAC reform that is intended to speed the claims appeal process by shortening the amount of time RAC auditors have to make their determinations, she says. Under new RAC contracts, auditors will have 30 days to render claims determinations; the current contracts allow 60 days for determinations.

In December 2013, Chief Administrative Law Judge Nancy Griswold issued a memorandum that details the claims appeals backlog at the federal Office of Medicare Hearings and Appeals. She reported that the backlog had mushroomed over a period of less than two years, rising from 92,000 claims to 460,000 claims.

"Our concern is there is a low compliance rate now with the 60-day decision timeframe," Jackson says. "Hospitals face a financial penalty if they miss a deadline. We believe there should be similar penalties for RACs."

She says auditors have a strong financial incentive to deny claims, noting that RACs bank as much as 12.5% of the claims money they recover for Medicare. "The financial incentives are far and away the number one issue."

Basic Flaw Remains
Ivy Baer, senior director and regulatory counsel at the Washington, DC-based Association of American Medical Colleges, said the financial incentives for RACs must be overhauled.

"The basic flaw in the program, which only Congress can fix, remains: RACs continue to be financially incentivized to find disallowances and are not subject to monetary penalties if those disallowances are appealed and overturned. CMS's changes appear to lessen that incentive, though not with direct financial penalties," she says. "RACs will not receive a contingency fee until after the second level of appeal is exhausted, but they still will not be penalized if the appeal is successful."