doctor
In addition to Intermediaries (Part A) and Carriers (Part B), CMS contracts with both
Recovery Audit Contractors (RACs) and Program Safeguard Contractors (PSCs).
Health care provider billings may be audited by one or more of these government contractors.
Additionally, CMS is now contracting with Zone Program Integrity Contractors (ZPICs),
who will replace the duties of the PSCs starting in 2009.

Background
Despite the successes achieved by PSCs, Congress believed that additional measures to safeguard the Medicare Trust Funds were needed. As part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Congress directed CMS to conduct a three year pilot project examining the use of Recovery Audit Contractors (RACs) to detect and correct improper payments.

The demonstration project began as a three year program with two types of RACs – Medicare Secondary Payor (MSP) RACs and Claim RACs. CMS instructed the MSP RACs to focus on finding improper payments made by Medicare that other health insurance companies should have paid. On the other hand, Claim RACs were instructed to identify improper payments made for services that did not qualify for payment. Examples of services not qualifying for payment included:

  • Services that were not medically necessary.
  • Services that providers incorrectly coded.
  • Services that providers did not properly support with documentation.
  • Duplicate claims.

CMS limited the Claim RAC program to three states initially. The three states (California, Florida, and New York) were the three states with the highest Medicare expenditures. As the pilot program proved successful, CMS expanded the jurisdictions of the Claim RACs to include three more states.

Satisfied with the results of the program, Congress passed the Tax Relief and Health Care Act of 2006 to make the RAC program permanent. RACs were not intended to replace other claims review efforts by MACs, PSCs, Benefit Integrity Support Centers or HHS-OIG. In March 2008, the RAC pilot program ended and CMS boasted a total recovery of more than $1.3 billion. Although CMS intends the RACs to recover both overpayments and underpayments, the amount of overpayments recovered in the pilot program vastly overshadowed the amount of underpayments. Approximately 96% ($992.7 million) of the improper payments were overpayments, with only approximately 4% ($37.8 million) of the improperly paid claims being identified as underpayments. Broken down by type of error, the RAC found that claims were:

  • 0.86% were denied based on “medically unnecessary” services.
  • 34.66% were denied based on incorrect claims coding.
  • 7.76% were denied based on insufficient documentation.
  • 16.72% were denied based on other reasons.

While the original plan called for nationwide expansion of the RAC program to be completed by 2010, CMS now expects to complete the expansion by the end of 2009. CMS has contracted with four RACS, each of which will have their own jurisdiction matching the DME Medicare Administrative Contractors’ jurisdictions. The contractors include:

  • Diversified Collection Services, Inc. (Livermore, CA): Region A — Initially working in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and New York.
  • CGI Technologies and Solutions, Inc. (Fairfax, VA): Region B — Initially

working in Michigan, Indiana and Minnesota.

  • Connolly Consulting Associates, Inc. (Wilton, CT): Region C — Initially working in South Carolina, Florida, Colorado and New Mexico.
  • HealthDataInsights, Inc. (Las Vegas, NV): Region D — Initially working in Montana, Wyoming, North Dakota, South Dakota, Utah and Arizona.

(Remaining states are being added in 2009).
RAC Audits and Extrapolations
It is essential to remember that the RACs’ business model is based almost entirely on their ability to identify provider overpayments. RACs are paid on a contingency basis for all accurately identified overpayments. They also receive a percentage for all underpayments identified. The contingency fee paid by CMS is a negotiated amount may vary from RAC to RAC. While private insurers have used this type of payment methodology to pay claims auditors for many years, the RAC demonstration project was the first time CMS had employed a contractor on a contingency fee basis. The contingency fee payment methodology is what makes RACs unique from other Medicare auditing contractors, which are paid through funds appropriated by Congress. We find it especially ironic that HHS-OIG has long criticized third-party billing companies who process Medicare claims for providers because most are paid on a percentage-billed or collected basis, arguing that such a payment methodology incentivizes the billing company to maximize billings, possibly turning a blind eye to overpayments and / or other improperly billed Medicare claims. Nevertheless, the government appears to have problem incentivizing RACs in much the same fashion.

From the outset, providers have been concerned that RACs are little more than “bounty hunters.” CMS disagrees, noting that RACs are also compensated for identifying underpayments, not just overpayments. To date, identified provider overpayments have vastly overshadowed underpayments.

While CMS has not specified which claims RACs is to review or even how they were to identify claims, it appears clear that RACs are not supposed to randomly select claims or merely focus on high dollar claims. Data analyses of claims will be key. Some RACs have used HHS-OIG and GAO reports to identify specific Medicare services subject to vulnerability.

Under the Tax Relief and Health Care Act of 2006, RACs would initially limit their reviews to retrospective assessments of the prior four fiscal years. On November 7, 2007, CMS released a revised Statement of Work for the RACs, limiting the RACs to a review of claims for services provided after October 1, 2007.

RAC overpayments are identified through two types of review: “Automated” and “Complex.” Automated reviews identify claims where the RAC is sure that overpayments are present based on a review of the data. No medical records have been evaluated. Complex reviews identify claims where the RAC believes overpayments are highly likely, but further review of the medical records is required.

Providers generally have 45 days to respond to a RAC request for records. Requests for extension may be sought but should be submitted prior to the deadline. As with any Medicare claims appeal, care should be taken to ensure that appeals are filed in a timely fashion.

RACs may not evaluate services that have previously been assessed by another contractor. These include claims already reviewed (or currently being investigated) by:

  • Part A Intermediaries / Part B or DME Carriers / MACs.
  • PSCs / ZPICs.
  • Benefit Integrity Contractors.
  • HHS-OIG, or other law enforcement agency.
Responding to a RAC Audit
Upon learning of a RAC review or review, providers take great care to appropriate respond. Steps that we take when responding on behalf of our clients include, but are not limited to:

  • Reviewing the dates of the claims to determine whether the RACs reviewed the claims in a timely manner.
  • Reviewing the basis for the denials of the claims and check the denial reasons with the Medicare policies in place for the services at issue.
  • Evaluating the credentials of the RAC reviewer and determine whether they meet industry standards.
  • Reviewing any prior claims audits to determine whether another contractor may have previously audited the claims.
  • Ensure that medical records and supporting documentation are forwarded within the time period required. RACs are permitted to count claims as an overpayment if medical records are not received in a timely fashion.
  • If additional time is needed to properly assemble the medical records required, immediately request an extension prior to the due date.
  • Are there indications that the RAC intends to extrapolate damages?
  • Carefully constructing arguments specifically addressing the reason(s) cited by the RAC in denying the claims at issue. Further, we fully assess the medical necessity issues raised in the appeal, aggressively seeking to have the denial overturned at each level of appeals.

Appeals of claims denials can be complicated. It is imperative that appeals be initiated as soon as possible. Statutory deadlines must be met in order for an appeal to remain valid. Having said that, claims denials must be properly assessed so that supporting briefs and documentation in support of the claims may be presented in a persuasive fashion.

Notably, as part of the pilot program, health care providers chose to appeal only approximately 14% of RAC overpayment determinations. Only approximately 4.6% of RAC rulings were ultimately fully or partially overturned in favor of the providers.

Our firm is experienced in reviewing and assessing overpayment determinations and working with providers to aggressively seek the payment of improperly denied claims. Should you have questions regarding the RAC process, please call us at 1(800) 475-1906.