On September 1, 2011, CMS released on its website an updated Statement of Work for the Medicare Parts A and B Recovery Audit Contractor (RAC) Program, which replaces the Statement of Work previously issued in 2007.  The Statement of Work is an “umbrella” document which is incorporated into each Medicare RAC’s Task Order and outlines the scope of authority of those contractors in conducting program audits.  The new Medicare RAC Statement of Work includes several important revisions of which providers should be aware.

New Name for the RAC Program

  • A noticeable update in the new Statement of Work is that CMS has changed the name of the Medicare “Recovery Audit Contractor Program” to the “Recovery Audit Program” and consequently modified all references to “RACs” to “Recovery Auditors.”  However, for the sake of simplicity, this article will refer to RACs as opposed to Recovery Auditors.

Clarifications to Medicare RAC Audit Parameters

  • The new Statement of Work emphasizes the Medicare RACs’ responsibility to review all claim and provider types for overpayments and underpayments that have a high propensity for error based on Comprehensive Error Rate Testing (CERT) results and other CMS analysis.  At the same time, however, it admonishes the Medicare RACs to ensure that processes are developed to minimize provider burden to the greatest extent possible when identifying Medicare improper payments.  This may include refining audit parameters to select only those claims with the greatest probability of impropriety and that the number of additional documentation requests (ADRs) to the provider do not impact the provider’s ability to provide care.  On the other hand, the Statement of Work now “encourages” Medicare RACs to use extrapolation techniques for certain claim types, indicating that “extrapolation may be cost effective for low dollar claims that require complex review that have a history of having a high error rate.”

New Claims Review Process: Semi-Automated Review

  • The updated Statement of Work also acknowledges a new type of claims review process that may be conducted by Medicare RACs.  In addition to existing “automated reviews” and “complex reviews,” a Medicare RAC may now engage in a “semi-automated review” which is “to be used in [cases where] a clear CMS policy does not exist but in most instances the items and services as billed would be clinically unlikely or not consistent with evidence-based medical literature.” 
  • The Statement of Work describes the semi-automated review as a two-part review.  First, the Medicare RAC identifies any billing aberrancies which have “high indexes of suspicion to be an improper payment” through an automated review using claims data.  Second, the RAC sends a notification letter to the provider explaining the potential billing error that is identified.  The letter must indicate that the provider has forty-five days to submit documentation to support the original billing.  If the provider decides not to submit documentation, or if the documentation provided does not support the way the claim was billed, the claim will be sent to the provider’s claims processing contractor for adjustment and a demand letter will be issued.

Required Timing and Effect of the Demand Letter

  • Other issues addressed by the new Statement of Work include clarification regarding the required timing and effect of a Medicare RAC’s demand letter.  The new Statement of Work clarifies that the Medicare RAC is responsible for issuing the demand letter on the same date the provider receives its remittance advice from the Medicare Administrative Contractor (MAC) because the remittance advice and demand letter begin interest accrual, inform the provider of its appeal rights, and begin the appeal/recoupment timeframes.  If the Medicare RAC fails to issue timely demand letters, the Statement of Work indicates that CMS may suspend recovery audit activity in that RAC’s jurisdiction.  However, this process will change beginning January 1, 2012 due to a recent update to the Medicare Financial Management Manual at Chapter 4, Section 100.5, which transfers responsibility for issuing demand letters from the RACs to MACs.  For more information about MAC-issued demand letters, as outlined in CMS Transmittal 192, click here.
  • All providers receiving a demand letter (and/or review results letter) from the Medicare RAC are now availed an opportunity to discuss the improper payment with the RAC in a “discussion period.”  The discussion period will be used to determine if the provider has other information relevant to the payment of audited claims.  The Medicare RAC must respond to written requests for a discussion period within thirty days of receipt, but the RAC need not respond if it is notified that the provider has initiated an appeal.  This means that a provider may have a difficult time simultaneously pursuing both informal discussions with the RAC and an appeal within the 30-day limitation on recoupment timeframe.

New Time Limits and Requirements Regarding Interactions with Providers

  • Some of the more subtle updates outlined by the new Statement of Work include changes to certain policies that may be of practical consideration to many providers.  Many of these updates establish timeframes in which the Medicare RACs must communicate or interact with audited providers.  For example, Medicare RACs will not receive their contingency fee in cases where more than sixty days have elapsed between receipt of the medical record documentation and issuance of its review results letter to the provider, unless granted an extension by CMS.  Medicare RACs must now also respond to all e-mail inquiries within two business days of receipt, including requests from CMS as well as inquiries from providers and other external entities.  In addition, CMS may now institute a maximum payment amount per medical record that a RAC would be required to pay the provider.

The updated Medicare RAC Statement of Work may be downloaded here.