The Medicare Audit Improvement Act of 2012, a House bill introduced on October 16, 2012 (Bill), proposes to improve the operations of recovery auditors (RACs), as well as increase transparency and accuracy of audits conducted by other Medicare contractors, including Medicare administrative contractors (MACs), fiscal intermediaries and zone program integrity contractors (ZPICs).

The Bill provides for a number of protections for hospitals relating to documentation requests, short-stay denials and physician review of denials. The Bill would limit the number of additional documentation requests from a Medicare contractor related to Part A claims to the lesser of two percent of all such claims for the year or 500 additional documentation requests during any 45-day period. It also would contractually require that RACs and MACs provide for physician review of each denial of a claim for medical necessity when the denial is determined by someone who is not a physician. Under the proposed Bill, MACs are to focus prepayment and postpayment medical necessity reviews on issues with widespread payment error rates, defined as a payment error rate of 40 percent or greater for a particular medical necessity audit. Moreover, the Bill seeks to explicitly allow for rebilling denied Part A inpatient claims under Part B where the services are found medically necessary at the outpatient level.

In addition to the above protections, the Bill also provides for penalties for noncompliant RACs and incentivizes accurate reviews prior to appeal. RACs would face financial penalties if they fail to comply with audit deadlines and timely communication and would owe a fee to the prevailing party for overturned appeals. According to the American Hospital Association (AHA), hospitals are successfully overturning RAC denials 75 percent of the time.

The AHA has long voiced concerns over the burden that Medicare audits can place on hospital resources. The AHA supports the Bill, noting: "No one questions the need for auditors to identify billing errors; but the flood of new auditing programs, along with confusing and conflicting regulations, is drowning hospitals with a deluge of redundant audits, unmanageable medical record requests and inappropriate payment denials."