Congress created the Recovery Audit Contractor (RAC) program to help the Centers for Medicare and Medicaid Services (CMS) identify improper payments made to providers by Medicare and Medicaid. The enormous growth in appeals to RAC determinations since Congress expanded the program in 2010 was unanticipated four years ago when the goal of ferreting out fraud was paramount.

This summer, a subcommittee of the US House Committee on Oversight and Government Reform heard from Nancy Griswold, Chief Administrative Law Judge (ALJ) for the Office of Medicare Hearings and Appeals (OMHA), who revealed publicly what health care providers have known for a more than a year: A staggering 545 percent growth in RAC appeals over two years has made the 90-day ALJ review requirement — established by Congress in 2010 — untenable, and has pushed adjudication time frames to 387 days as of June 30, 2014. Presently, OMHA has over 800,000 pending appeals and receives a year’s worth of appeals every four to six weeks.

With new resources, ALJs have managed to tackle 72,000 appeals per year. Hiring more judges alone will not solve the RAC problem. At the beginning of 2014, OMHA suspended any further assignments of appeal request by providers. This delay means some health care providers may wait years to recoup payment for claims challenged by RACs.

Congress has no intention of putting the brakes on RACs given the billions in improper payments that have been identified and returned to the Medicare Trust Fund. Even so, physicians and hospitals have been burning the phone lines of their elected representatives, complaining about the impact large holdbacks have had on their margins and the high rates of reversals many have experienced through appeals. Administrative issues, such as having a signature in the wrong place on a claim, are often cited as the basis for many initial denials which further logjam the appeals process.

Legislation introduced by Rep. Sam Graves (R-MO) is a direct response to provider frustration with RACs. Presently, the House legislation has an overwhelming 231 co-sponsors. Similar legislation filed by Sen. Roy Blunt (R-MO) has 16 co-sponsors. Neither bill has received a vote, but has served to increase pressure on CMS to better manage its contractors. Health care providers continue to advocate for administrative and legislative remedies. Among the suggestions include greater and earlier CMS engagement and more appropriate performance requirements for its contractors, who many believe need to be reined in from practices that result in their high percentage of incorrect claim determinations and a failure to resolve such errors with the provider informally to eliminate burdensome appeals.

New RAC Contacts Delayed, Under Challenge

For some time, observers believed that by August 2014, CMS would finally approve the next round of RAC contractors and implement some program reforms. A technical protest of the new contract payment terms from CGI Federal, the contractor responsible for the bumpy rollout of the state health exchanges, is expected to further delay new RAC contracts into 2015. Last week, CMS told RACs they may begin automated audits which will continue until new contracts are in place.

The new contracts are expected to make a number of administrative remedies to try and ensure the RAC program is more responsive to the providers they are auditing such as requiring auditors to wait 30 days to allow for discussion before sending claims to the Medicare Administrative Contractors (MACs) for collection. RACs will also have to wait until providers have moved through the second level of appeals before collecting their contingency fees, which are thought to range from 8-12 percent. New contracts are also expected to change the number of documents RACs may request for claims and to adjust these based on providers denial rates. It is not likely these changes will go far enough for most providers caught up in RAC uncertainty.

CMS Offers Settlement Deal for Hospital RAC Appeals

CMS has offered to settle certain disputed hospital claims held up indefinitely as part of RAC claim audits. CMS has offered eligible hospitals 68 cents on the dollar to resolve all denied patient status review claims related to admissions occurring before October 1, 2013. Many of these claims are stagnating in the appeals process. The Agency has been encouraging hospitals to take advantage of the settlement terms to “alleviate the burden of Medicare appeals on both the hospital and Medicare system,” according to the CMS website. A few hospitals have already come forward to accept the deal which expires October 31, 2014.

Not all hospitals or claims will be eligible for settlement. For example, only acute care and critical access hospitals will be eligible for settlement and CMS will consider only claims that have exceeded the statutory timeframe for appeal. Hospitals will be expected to submit spreadsheets showing every claim they believe is eligible for the settlement. Complexities in reimbursement are likely to impact settlement results, and hospitals who seek settlement will forfeit the ability to collect cost-sharing from patients.

House Ways and Means Health Subcommittee Chairman Kevin Brady (R-TX) is challenging the Department of Health and Human Services’ (HHS) authority to settle hospitals’ appeals of denied claims, specifically questioning the proposed settlement terms. Mr. Brady takes issue with the “all or nothing” approach of settling claims and has called upon HHS Secretary Sylvia Burwell to demonstrate how it reached settlement terms, suggesting the 68 percent rate may be double what a recent analysis by the Medicare Payment Advisory Commission (MedPAC) support.

Federal Judge Throws Out American Hospital Association Lawsuit

On September 17, 2014, a federal judge rejected an American Hospital Association (AHA) lawsuit against CMS that challenged the Agency’s policy to prohibit hospitals to resubmit an outpatient claim after the RAC denied it as an inpatient claim. Because CMS requires outpatient claims must be billed within one year from the date of service regardless if the time of the RAC denial of the inpatient claim occurs later. AHA initiated legal action in 2012, and is considering an appeal.