As part of the expansion of CMS' Recovery Audit Contractor ("RAC") initiative from a demonstration project to a permanent program, CMS requires that each of its four RAC contractors have issues subject to RAC review pre-approved by CMS and posted to the RAC's website. By way of background, RAC Audits consist of two types of reviews: (1) automated reviews; and (2) complex reviews. For automated reviews, RACs use data mining techniques to identify obvious payment errors, such as where a provider submitted a duplicate claim for the same service. For complex reviews, the RAC determines that a payment error likely occurred using data analysis. RACs are unable to review claims paid prior to October 1, 2007.1

Approved issues were recently released for Region B for Indiana, Michigan and Minnesota providers; for Region C hospital and physician providers in Alabama, Georgia, South Carolina and Florida; for Region C Durable Medical Equipment ("DME") suppliers in all Region C states; and for Region D for providers in all Region D states.2 As required by CMS, these initial reviews consist only of "automated reviews," which limits the RAC to identifying obvious payment errors, but does not include any medical record review.3 The initial lists of issues primarily focus on outpatient hospital services, physician services and DME.

Issues Subject to Review

CMS has approved for RAC review the following issues for outpatient hospital and physician services:

Click here for table.

For DME suppliers in all Region C states, CMS has approved for RAC review the following two issues:

  • Wheelchair Bundling. Coding guidelines provide that where wheelchair options/accessories are included in the "global" payment for certain codes, the options/accessories are not separately payable.
  • Urological Bundling. Urological supplies consist of catheters and urinary collection devices. Coding guidelines provide that certain components of the catheter kits are not separately billable and are included in the "global" payment for the kit.

The applicable manual provisions and publications detailing the billing and coding requirements for each approved audit issue are provided on the RAC websites.

Next Steps for Providers

Although the approved issues listed above are limited to Regions B, C and D and the specific states indicated, we expect that Region A will likely seek similar approval for automated reviews. Providers who bill for any of the services on the approved list should assess their current billing practices to confirm that these services are being billed correctly. To the extent any issues are identified, providers will want to put processes in place to assure that these services are billed pursuant to CMS guidelines.

Where, as part of its automated review, the RAC identifies a potential overpayment, a demand letter detailing the overpayment amount and alleged billing rule violated will be directed to the provider. While overpayment determinations may be appealed through the CMS appeals process, issues for automated review are typically black and white issues, such as billing twice for the same procedure on the same day, and are unlikely to be successful on appeal.

While no specific issues have yet been approved by CMS for complex reviews, CMS has authorized complex reviews for coding and Diagnostic Related Group ("DRG") assignments in many states beginning in August 2009, with the remaining states subject to coding and DRG review by November 2009. In addition, CMS has approved medical necessity reviews for all states beginning in 2010. Fortunately, providers enjoyed a high success rate when appealing complex reviews during the Demonstration Phase, with some contractors having more than 50 percent (50%) of their reviews overturned. Thus, providers may want to consider devoting more of their limited resources to appealing complex reviews.

We will continue to monitor the implementation of the RAC program and issue additional client alerts as new issues for RAC review are approved by CMS.