With Section 6411(a) of the Patient Protection and Affordable Care Act (ACA) and the Final Rules found at 42 CFR Part 455, the Recovery Audit Contractor (RAC) program has been expanded to the North Carolina Medicaid program, sending a strong message to hospitals that the government’s focus on program integrity will be around for a long time. 

A main reason for the expansion seen in Section 6411(a) of the ACA was the government’s self-proclaimed, though questionable, success with the Medicare RAC program. That program saw total payment corrections from FY 2010 to FY 2012 reach nearly $1.5 billion, of which nearly $1.3 billion was attributed to overpayments to providers. In 2011, CMS had estimated that the Medicaid RAC program would bring net savings of approximately $2.1 billion over a five-year period, with estimated net savings to the program in fiscal years 2015 and 2016 of $580 million and $630 million, respectively. Why is this important? If for no other reason, it tells hospitals that they should keep a close watch on the continued growth and development of the Medicaid RAC program. Although hospitals throughout North Carolina have not seen a great deal of activity in this area since contractor HMS was awarded the Medicaid RAC II contract over two years ago, current trends clearly indicate increased activity in the area of program integrity and recoupment of improper payments.

Regardless of the number of Medical Record Request letters or Tentative Notice of Overpayment letters seen by hospitals across the state, the structure of the program implemented in 2011 continues to leave the authority with the states to determine the criteria, processes and structure of the Medicaid RAC programs. In its recent passage of the Appropriations Act of 2014, Session Law 2014-100 (Appropriations Act), the N.C. General Assembly has provided several additional tools and powers designed to increase and strengthen the Medicaid RAC enforcement activity in the Division of Medical Assistance (DMA), the agency with oversight over the Medicaid RAC program. Subpart XII-H of the Appropriations Act contains the following mechanisms applicable to the Medicaid RAC program and the Medicaid appeals process:

  • Section 12H.22 stresses the need for a comprehensive program integrity contract and mandates that DMA issue a request for proposals no later than June 30, 2015,  including certain procedures and requirements for a single contract to perform six program integrity functions, two of which are RAC and prepayment review.
  • Section 12H.26(b) amends N.C.G.S. 108C-5 to add a new subsection allowing DMA to utilize a contractor to send notices directly to providers.
  • Section 12H.27(a) amends N.C.G.S 108C-12(d) to place the burden of proof on the petitioner in Medicaid appeals (provider or applicant) from an adverse determination.
  • Section 12H.27(b) amends N.C.G.S. 108A-70.9B to require that the Office of Administrative Hearings (OAH) dismiss the contested case of a Medicaid recipient if the recipient accepts an offer of mediation and fails to attend without good cause.  Previously nothing in that statute could restrict the right of a recipient to a contested case hearing related to contested Medicaid cases.

The points outlined above should be clear signals to hospitals that North Carolina is committed to the continued buildup and success of the Medicaid RAC program, to heightened enforcement related to program integrity generally, and to a pro-agency stance in the notice and appeals process for Medicaid cases.

What does all of this mean for North Carolina hospitals about the Medicaid RAC program? While it is too early to predict with any certainty, one warning is clear—do not let your guard down.  Even though Medicaid RAC activity has not been at high levels within our State to date, the signs point to a heightened focus by DMA and Health Management Systems (HMS), the Medicaid integrity contractor for North Carolina, and an active future for the Medicaid RAC program. As we will continue to do with our contacts statewide and regionally, hospitals should monitor daily activity to identify red-flag areas and billing patterns that may place them on the Medicaid RAC program’s radar screen. 

One essential tool in this monitoring is communication between hospitals and other providers to assess developing trends and to coordinate measures taken to avoid vulnerability in identified enforcement areas.  This communication would include focusing on such areas as certain target diagnostic-related groupings, readmissions, and inappropriate setting determinations, to name but a few. This coordinated approach tracks the collaboration seen for years among the various federal and state agencies active in the arena of program integrity and enforcement. A consistent, coordinated approach is a best practice that will help prepare and position hospitals to respond effectively to future challenges — and it might even keep a relatively straightforward billing or processing error or overpayment from leading to an allegation of fraud, waste or abuse.

Finally, hospitals must have an action plan in place well in advance of the dreaded notice from the Medicaid RAC. Hospitals should know their appeal rights, responsibilities, duties, and deadlines for responses. For all the reasons outlined above, the state has clearly placed the burden on hospitals to be focused from day one when faced with an adverse determination.  Whether a hospital is reviewing compliance policies and procedures, formulating best practices, deciding to fight a tentative decision at the reconsideration level, or appealing an adverse determination to an Administrative Law Judge (ALJ) in OAH, involvement of experienced legal counsel as a part of the hospital’s team is an important, if not essential, component.