Health Care Providers Face New Intensive Medicare Audits

Summary: Starting in early 2009, health care providers in Indiana, Michigan, Minnesota and other states need to be prepared to face new intensive Medicare audits pursuant to the Recovery Audit Contractor (RAC) Program that pays selected private contractors a percentage of the inappropriate Medicare payments contractors identify during the RAC audits.

The Center for Medicare & Medicaid Services (CMS) has expanded and made permanent its Recovery Audit Contractor (RAC) Program, which uses private contractors to audit health care providers in search of inappropriate Medicare payments. The RACs have strong incentive to root out inappropriate payments because they are paid on a contingency basis on only the improper payments that they identify and recover. The RAC Program started as a very effective federal demonstration project that identified $1.3 billion in incorrect payments, including $933 million in overpayments and $38 million in underpayments, and CMS recently announced a nationwide implementation of the RAC program by January 2010 with the following contractors:

  • Diversified Collection Services, Inc. of Livermore, California, in Region A, initially working in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and New York.
  • CGI Technologies and Solutions, Inc. of Fairfax, Virginia, in Region B, initially working in Michigan, Indiana and Minnesota.
  • Connolly Consulting Associates, Inc. of Wilton, Connecticut, in Region C, initially working in South Carolina, Florida, Colorado and New Mexico.
  • HealthDataInsights, Inc. of Las Vegas, Nevada, in Region D, initially working in Montana, Wyoming, North Dakota, South Dakota, Utah and Arizona.

RAC Program Is Broad in Scope and Audits Begin in Early-2009

Most health care providers and suppliers who submit claims to Medicare are subject to the RAC Program, including physicians and hospitals. Accordingly, providers need to keep a close eye on the RAC Program implementation schedule and plan accordingly. CMS is planning to expand the RAC Program in three waves:

  • Wave 1: Scheduled to Start on October 1, 2008 - States of Indiana, Michigan, Minnesota and others;
  • Wave 2: Scheduled to Start on March 1, 2009 - States of Oklahoma, Texas, Nevada and California; and
  • Wave 3: Scheduled to Start on August 1, 2009 - States of Ohio, Illinois, Kentucky and others.

On November 4, 2008, however, CMS announced a delay in the rollout of the permanent RAC program due to a protest by two contractors who were not selected as RAC contractors. The delay will likely push the start of Wave 1 to early February of 2009 and will likely push back the other waves as well. This temporary reprieve is an ideal time for providers in Wave 1 states to make preparations for intensive RAC audits.

Types of RAC Audits & Appeals

The RACs will perform two types of audits, which will focus on both coding and medical necessity. The first is an automated review covering data only (no medical records) and is designed to identify clear instances of inappropriate payments, such as duplicate payments. The second type of review is a more detailed review focusing on likely or potential errors. During a detailed review, RAC contractors will request medical records from providers and the providers will have only 45 days to produce the records. If the RAC contractors identify improper payments, the provider will be able to appeal the determination. There are five levels of appeal, starting with a request for redetermination with the provider's fiscal intermediary and progressing from there. Providers should keep in mind that the RAC appeals process can be complex and strict deadlines apply.

Preparing for Your RAC Audit

Now that providers in Indiana, Michigan and other Wave 1 states have been granted a short stay of execution, those providers would be well-served to use this time to prepare for the coming RAC audits. Depending on a provider's individual situation, preparations might include the following:

  • Identifying a RAC response leader who will be the primary point of contact with the RAC;
  • Assembling a team of professionals who will be responsible for providing information in response to RAC requests, such as health information managers, compliance officers, finance personnel, legal counsel and medical staff representatives;
  • Conducting an internal audit to identify medical record and payment problems before the RAC audit;
  • Conducting RAC training sessions to prepare key personnel for the RAC audits; and
  • Identifying gaps in staffing, IT systems, records management and so forth that may need to be filled before the RAC audits begin in 2009.

Being prepared for RAC audits and potential appeals will have numerous benefits. Prepared providers will spend less money responding to audit requests, will be better positioned to challenge questionable determinations, will be prepared to file timely appeals and will encounter less overall disruption in their day-to-day operations. Ultimately, the RAC contractors are coming, and they are hungry for recoveries. The question is, which providers will be prepared?