RACs Incentivized to Find Even Smallest Billing Errors

By using a tool to calculate "extrapolated overpayment," Recovery Audit Contractors can allege fraud long after providers have received payment and thought there was no dispute, says one expert.

This article appears in the February 2014 issue of Managed Care Contracting & Reimbursement Advisor.

Medicare and Medicaid audits are increasing sharply, notes Stephen M. Azia, JD, an attorney with the law firm of Baker Donelson in Washington, D.C., who focuses on reimbursement, compliance, and appeals. RACs are paid a contingency fee for finding fraud by doing post-payment reviews, so Azia says they act as aggressive bounty hunters who can allege fraud long after you have received payment and thought there was no dispute. Zone Program Integrity Contractors have wide latitude to investigate fraud and abuse, which includes requiring pre-payment or post-payment reviews for physician practices under scrutiny, and Medicare Administrative Contractors have similar authority.

See Also: 6 Ways to Avoid Unintentional Medicare Fraud

An increasing threat to physician practices is a tool, used by the various auditors, called extrapolated overpayments, Azia notes. For example, the auditor may look at a sample of 30 of the physician's claims and find an error rate of 60%. They then extrapolate that error rate to a much larger universe of claims by that practice.

"You may have an initial overpayment of $10,000 that becomes a $1 million extrapolated overpayment," he explains. "It is a very dangerous situation facing providers."

Providers may not recognize the original request for repayment as a RAC audit, cautions Sharon Hollander, CEO of STAT Medical Consulting in Los Angeles. Accepting one allegation of fraudulent billing could open the door to many others.

"You may get a single patient refund request and so the doctor tends to just accept it and repay the $70. But Medicare may take that as an admission of guilt and ask you to repay for every time you used that code in the past three years," she says. "You have to look at that claim and appeal it if you can, rather than just sending a check to be done with it."

In her book Medical Billing Horror Stories, Hollander details such incidents, including one physician who was dunned for overpayment on a single claim and paid it, only to have the auditors extrapolate the same code overcharge for the past seven years. The practice ended up paying $100,000 back to Medicare.

Documentation is the key to avoiding that kind of extrapolation disaster, Azia says. You should document well all the time, of course, but when asked for documentation for a sample of claims, take the time to provide thorough documentation on the front end. If you skimp on justifying that first batch of sample claims, you could jeopardize the validity of a much larger number of claims, he says.

"Don't neglect the petty little things in documentation" Azia cautions. "We've seen claims thrown out because they weren't signed, the date was wrong, or even because the signature was illegible. These contractors are looking for technical errors that allow them to put this claim in the fraudulent column. It's a game of 'gotcha' they play sometimes, and even if you win those on appeal, it's a headache."

In addition to the auditors nitpicking your claims, you could be turned in by one of your staff. The False Claims Act includes enticements for staff to blow the whistle on healthcare fraud and offers substantial rewards, notes Dan Purdom, JD, a partner in the Health Care and White Collar practice in law firm Hinshaw & Culbertson's Lisle, Ill., office.

He has represented numerous medical providers who have been involved in federal, state, and regulatory investigations of alleged healthcare fraud and related problems. Purdom taught healthcare fraud investigation at the FBI Academy in Quantico and was an author of the Department of Justice Manual on Prosecution of Healthcare Fraud. In 1986, as an Assistant U.S. Attorney in the Northern District of Illinois, he prosecuted what was then the largest healthcare fraud in the United States, dismantling a $20 million Medicaid fraud scheme.

Under the False Claims Act, intention to deceive payers is not necessary to prove guilt and liability, Purdom explains. Rather, the government only needs to prove reckless disregard resulting in invalid claims, a much lower standard. Reckless disregard can occur when a coder submits incorrect bills repeatedly, perhaps making the same mistake over and over for some period of time, and the practice does not catch the error.

An auditor may find that error, but often a practice insider will realize the problem and report it to regulators. The problem is compounded if the whistleblower can show that he or she notified practice leaders but no action was taken to stop the billing errors or correct past claims, Purdom says.

"If you don't have systems in place to catch those kinds of mistakes, internal audits, that's where you get in trouble," he says. "The Fraud Enforcement and Recovery Act in 2009 expanded the False Claims Act so that not only are false and fraudulent submissions a violation of the act, but now if you have knowledge that you received an overpayment and you don't return that, the inaction can be a false statement. You have an obligation to act on that overpayment."

Selecting the right E/M code can be a challenge, and some providers think they are playing it safe by choosing a code with a value somewhere in the middle of high and low, Hollander says. They hope that by doing that they will stay under the radar with Medicare.

"By doing that they are flagging their claims by essentially telling Medicare that they don't know how to properly E/M code," she explains. "Submitting a flat line value for the codes stands out because Medicare is looking for standard distribution in a bell curve. Not every person in your practice is going to need the intensity of care, so not using the right E/M code doesn't keep you under the radar and instead it gets their attention."