The Need to “Recover” Recovery Auditing

Abstract

The Medicare Trust Fund is at risk of insolvency due to various contributing factors.  One important problem is the high number of improper payments made by the Centers for Medicare and Medicaid Services (CMS) each year.  CMS implemented the Recovery Audit Contractor (RAC) Program to recover improper payments and return money to the Trust Fund.  The RACs were effective at returning money to the Trust Fund (more than $10 billion since the program began^[1]) primarily via the audit of acute hospital claims for patient status (specifically, observation or inpatient admission) which carry the highest rates of improper Medicare payments.^[2]  However, there were some negative consequences.  The two most significant disadvantages were:  that the provider community was enormously unhappy with RAC activities due to the administrative and financial burden they imposed; and that a backlog of appeals developed at the third level of the Medicare Appeals Process. 

CMS instituted several administrative changes, and one crucial regulatory change, which were intended to reduce both provider burden and dissatisfaction and the volume of appeals.  These changes altered the types and numbers of claims that the RACs can audit.  Unfortunately, these modifications also brought such significant changes to the RAC program that only a small fraction of the monies previously recovered by the RACs are being returned to the Trust Fund.

Regulatory change is needed so that the CMS RACs can, again, effectively return monies to the Trust Fund. CMS should:  clarify the guidance pertaining to the hospital admission decision by defining and codifying observation as an admission status; and reestablish RAC auditing of acute hospital patient status claims to increase the amounts being returned to the Trust Fund via recovery of improper payments.  To improve the appeals process, CMS should:  codify the RAC Discussion Period to make it a mandatory part of the RAC review process, thereby shifting the burden to RACs and reducing the number of appeals entering the Medicare Appeals System; and make Local Coverage Decisions mandatory authority to improve consistency of Administrative Law Judges (ALJ) decisions on appeal.

[1] Council for Medicare Integrity. 2016 State of the RAC Program. (2016) at p2, online, accessed at http://medicareintegrity.org/wp-content/uploads/2016/03/2015StateOfTheProgram-FINAL.pdf

[2] Ibid.