The Medicare prepayment review demonstration project, proposed by CMS in November 2011, originally set to begin on January 1, 2012, and then delayed on December 29, 2011, will begin on August 27, 2012.

The prepayment audit demonstration will continue through August 26, 2015. The demonstration project will include seven states identified by CMS as having an increased risk of Medicare fraud (California, Florida, Illinois, Louisiana, Michigan, New York, and Texas), as well as four states identified by CMS as having a high volume of inpatient stays (Ohio, Missouri, North Carolina, and Pennsylvania,).

The Recovery Audit Prepayment Review Demonstration Project will allow Medicare Recovery Auditors (formerly called Recovery Audit Contractors or RACs) to review claims before they are paid to ensure that the provider complied with all Medicare payment rules.

Recovery Auditors will review documentation received by providers and will send them a determination on their claim within 45 days of receiving provider documents. The Recovery Auditors also will send providers a letter detailing results of their claims review.

Providers will have 30 days to respond to additional document requests related to the recovery audit prepayment review demonstration, and failure to respond will result in claims denial.

Additional documentation may include clinical evaluations, physician evaluations, consultations, progress notes, physician’s office records, hospital records, nursing home records, home health agency records, records from other healthcare professionals and test reports.

The demonstration initially will focus on MS-DRG 312, an inpatient admission related to syncope and collapse, and will expand to include additional MS-DRGs covering inpatient admissions for conditions related to gastrointestinal hemorrhage, transient ischemia and diabetes.

Any claims going through prepayment review should be excluded from post-payment review by Medicare contractors.