Audits of Medicare payments by government contractors would be subject to a host of new oversight reforms under a bill that legislators proposed in Congress in March.

In recent years, audits by contractors have become a fixture in the Medicare program as the federal government has increased its efforts to crack down on waste and tighten health care spending. At the helm of the government’s auditing policy have been recovery audit contractors (RACs), private third-party entities that contract with the government to identify and recoup improper Medicare payments. While RACs have been successful in collecting billions of dollars for the government, many health care industry stakeholders claim that these recoveries have come with other costs, bearing significant administrative burdens on providers.

The American Hospital Association, for example, released in March a survey of more than a thousand hospitals that found that RACs issued nearly 60,000 more medical record requests in the fourth quarter of 2012 than in the third quarter and that over the same period RACs rendered more than 30,000 additional complex audit claim denials, most of which were for claims for short hospital stays where the RACs deemed the hospital setting an inappropriate site of care. Hospitals reported appealing more than 40 percent of all RAC denials and experiencing a 72 percent success rate in overturning them.

In an effort to bring relief to providers, the proposed legislation, the Medicare Audit Improvement Act of 2013 (H.R. 1250), would make major changes to the contractor review process. Among other things, the bill would:

Establish a consolidated limit for RACs and other contractors to make additional documentation requests, limiting such requests to two percent of hospital claims with a maximum of 500 additional documentation requests per 45 days;

Impose financial penalties on RACs whose payment denials are overturned on appeal and require RAC audit rates, denials, and appeals outcomes to be posted online; and

Authorize payment for services on an outpatient basis where a RAC denied the claim for payment only because it deemed the inpatient site of care, but not the care itself, improper.

Whether Congress will ultimately pass the legislation remains unclear. In the last session of Congress, legislators introduced a similar bill, but it never made it past committee review. Even if the newly proposed legislation meets a similar fate, some of its reforms could nevertheless be executed at the administrative level. In March, the Centers for Medicare and Medicaid Services solicited comments on a proposed rule that would allow providers to receive outpatient payment for services for which contractors denied claims for payment only because of the inpatient setting of care. Comments are due by May 17, 2013.