In a report issued on July 9, the Senate Special Committee on Aging called on CMS to shift the focus of its audit procedures from identifying and recovering improper payments to preventing improper payments in the first place.  The committee noted that while CMS was successful in identifying $36 billion in improper fee-for-service payments in FY 2013,  the audit procedures used to discover and collect improper payments are often unduly burdensome on healthcare providers and rarely result in a complete recapture of funds. 

Providers Incur Substantial Costs  in Responding to Audit Requests

Because recovery audit contractors (RACs) are compensated based on the volume of improper payments identified, the committee found that providers incur substantial costs responding to numerous speculative audit requests while high percentages of flagged improper payments are either successfully appealed or go uncollected.  Additional factors listed in the report leading to program inefficiency and unnecessary provider burden include:

  • extensive technical requirements for submitting supporting documents which vary from contractor to contractor;
  • inadequate document tracking resulting in contractors losing supporting documents; and
  • limited options to reverse audit decisions outside of the formal appeals process. 

 Audit Decisions Have Extremely High Turnover

Referring to anecdotal case studies, the committee found that these problems lead to high rates of incorrectly denied claims, with some providers experiencing audit decision overturn rates as high as 90% at the ALJ level and as much as $200,000,000 worth of payments locked up for years in the appeals process, the majority of which will eventually be returned to the provider with interest.  The report also noted that there are discrepancies between the over-turn rates reported by providers and those reported by CMS, and found that there are serious questions about whether the data maintained by CMS on audited claims is complete and accurate.  This problem is further exacerbated by inconsistencies in tracking systems and coverage requirements between the multitude of various CMS contractors.

Recommended Changes to the Contractors’ Compensation Models

Noting that rather than refining existing programs to make them more efficient and effective CMS continues to create new audit programs, the committee issued several recommendations to push CMS and its contractors, specifically the RACs, away from a “pay-and-chase” model to one that emphasizes the reduction of improper payments.  The committee suggested that CMS reevaluate its compensation scheme for RACs to incentivize the reduction of improper payment rates instead of compensating based solely on improper payment identification.  It also pressed for CMS to reduce the compliance burden on providers by consolidating audit activities among all post-payment contractors and offering additional education to providers to reduce deficient claim filings that can result in improper payments.  Finally, the committee called for pre-payment review programs to evaluate and adapt objectives and processes to support the goal of prevention, rather than repayment, of improper disbursements.  It remains to be seen, of course, whether any of these changes will be implemented by CMS, but a recognition of the many issues with the current contractor system is a positive step for the provider and supplier communities.

Additional Resource , Report of the Senate Special Committee on Aging (July 9, 2014)