Recovery Audit Contractors: They’re Back!

The Centers for Medicare and Medicaid Services (“CMS”) announced recently that it will resume implementation of the permanent Recovery Audit Contractor (“RAC”) program, a program aimed at detecting and correcting improper payments in the Medicare fee-for-service programs. The RAC program, which was suspended last November when PRG-Shulz and Viant protested the contracts that were awarded to four others, will proceed with the two companies serving as subcontractors as part of the settlement.

CMS awarded RAC contracts last October and plans to roll out the permanent RAC program in phases through 2009 in four regions, with additional states being added to each region throughout the year. The current regions and their corresponding contractors are as follows:

• Region A, awarded to Diversified Collection Services, Inc. of Livermore, Calif., covers Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and New York.
• Region B, awarded to CGI Technologies and Solutions, Inc. of Fairfax, Va., covers Michigan, Indiana and Minnesota.
• Region C, awarded to Connolly Consulting Associates, Inc. of Wilton, Conn., in Region C, covers South Carolina, Florida, Colorado and New Mexico.
• Region D, awarded to HealthDataInsights, Inc. of Las Vegas, Nev., in Region D, covers Montana, Wyoming, North Dakota, South Dakota, Utah and Arizona.

CMS reports that it recovered nearly $700 million in improper Medicare payments through its RAC demonstration program, conducted from 2005 to 2008. The RAC program was made permanent under the Tax Relief and Health Care Act of 2006, which requires the Department of Health and Human Services to expand the program to all 50 states by no later than 2010.

Despite its success, the demonstration program was not without its critics. Health care providers were troubled by the fact that RACs were paid on a contingent-fee basis. RACs received a portion of the overpayments they discovered and recovered even if their determination was ultimately overruled. Additionally, RACs were not required to engage the services of a medical director when assessing medical necessity claims, could request an unlimited number of medical records from a particular provider, and were only required to do limited reporting on the problem areas they identified. According to CMS, one goal of the demonstration project was to identify opportunities for improvement before the program is expanded nationally. As a result, CMS attempted to address many of the perceived flaws in the RAC demonstration program by amending the statement of work for the program. Among other changes, the RAC statement of work:

• Extends the implementation schedule of the RAC program
• Places limits on the number of medical record requests that may be made by the RAC depending upon the type and size of the provider
• Requires documentation, upon provider request, of the credentials of individual(s) making medical review determinations
• Specifies the contents and timing of RAC findings letters
• Limits RAC reviews to claims with dates of service of Oct. 1, 2007 or later, and shortens look back period to a maximum of three years
• Requires that each new RAC hire a physician medical director (who must be available upon request to discuss claims denials with providers) and certified coders
• Requires that each RAC have, by January 1, 2010, a web-based application that allows providers to customize addresses and contact information, or see the status of cases
• Requires that RAC claims denials be independently audited for accuracy
• Requires that RACs pay back the contingency fee if they lose at any level of appeal, and that CMS publicly disclose the RAC contingency fees

RACs will use automated (data mining) and complex medical record reviews to identify Medicare overpayments. The scope of these reviews will not be unlimited. CMS has excluded several potential sources of information about improper payments from RAC scrutiny, including programs other than Medicare fee-for-service, the cost report settlement process, evaluation and management services, and several others. RACs must follow Medicare rules and policies in making their determinations, and, if an overpayment is identified, the RACs must document their rationale for the overpayment determination and include references to those rules and policies. Nevertheless, providers should be prepared to exercise their Medicare appeal rights in order to challenge unfavorable RAC determinations when appropriate.