On October 15, 2015, CMS released its annual recovery auditing report to Congress.  CMS’s Recovery Auditor (RAC) program identifies and corrects improper payments through a combination of prepayment and post-payment reviews, and the program has been a lucrative one for CMS in the past.  In fiscal year 2013, for example, the RAC program returned $3.03 billion to CMS for improper payments, after subtracting administrative costs and underpayments.  But that number dropped to $1.6 billion in fiscal year 2014, according to CMS’s latest report, largely because CMS banned its contractors from reviewing inpatient hospital patient statuses in connection with the Two Midnight Rule implementation and Probe & Educate program.

In August 2013, CMS modified how Medicare contractors review inpatient hospital and critical access hospital admissions for payment purposes and prohibited its RACs from conducting inpatient status reviews for claims with dates of admission after October 1, 2013—the date of the Two Midnight Rule implementation. CMS noted in its report that those “inpatient hospital patient status reviews previously accounted for a substantial portion of Recovery Auditor corrections.”

In total, RACs corrected 1,117,057 claims for improper payments in fiscal year 2014.  The inpatient setting still accounted for 84 percent of CMS’s recoveries in connection with the RAC program.  CMS divides the country into four regions for the RAC auditing process.  Region C had the most corrections in 2014 in terms of both overpayments and underpayments—47 percent of the reviewed claims for a total of $1.2 million in corrections.  Region C is comprised of Colorado, New Mexico, Oklahoma, Texas, Arkansas, Louisiana, Mississippi, Tennessee, Alabama, Georgia, Florida, South Carolina, North Carolina, Virginia, and West Virginia.  The other three RAC regions had between $400,000 and $500,000 in corrections.

The full report, entitled “Recovery Auditing in Medicare for Fiscal Year 2014,” is available here.