Auditors Recouped $214M in Medicare Improper Payments in 2016

September 28, 2018 - Recovery Audit Contractors (RACs) returned significantly more Medicare improper payments to the program’s trust fund during the 2016 fiscal year (FY), a recent CMS report to Congress shows.

In FY 2016, the Medicare auditors returned a net of $214.09 million to the Medicare Trust Fund after accounting for administrative and operating costs for the RAC program. The previous fiscal year, the auditors returned a net of $141.87 million to the public healthcare program.

The greater savings stemmed from a 7.5 percent increase in Medicare claim corrections in FY 2016, which ran from August 2015 to July 2016.

In total, the Medicare auditors identified and corrected $473.92 million in improper payments stemming from over 380,200 claims submitted in FY 2016. Of the total improper payments corrected, $404.46 were overpayments to providers and $69.46 million were underpayments paid back to providers.

In comparison, the auditors identified and corrected $440.69 million in Medicare improper payments in FY 2015, with $359.73 million being overpayments and $80.96 million being underpayments.

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The boost in Medicare improper payment corrections resulted in a higher program return on investment (ROI). The ROI was $4.57: 1 in FY 2016 versus just $2.48:1 the previous year.

CMS also noted that each RAC earned an overall accuracy score of 91 percent of higher for claims adjusted during the fiscal year.

Based on the program’s FY 2016 results, the Council for Medicare Integrity is calling on an expansion of RAC audits.

“It’s more important than ever that Medicare billing oversight be made a priority to make every program dollar work for beneficiaries,” Kristin Walter, spokesperson for The Council for Medicare Integrity, recently said in a press release. “We must expand the RAC program to review more claims on a post-payment basis and we ask Congress to give CMS the authority to begin RAC pre-payment claim reviews to evaluate and correct claims before they are paid in error.”

“We urge lawmakers to continue their support of the RAC program as a Medicare solvency safeguard ensuring future healthcare coverage for the millions of retirees and disabled individuals who rely on these critical benefits each day,” she added.

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The group also urged lawmakers to reconsider a recent change to the program made during the 2016 fiscal year. In FY 2016, CMS refined the Additional Documentation Request (ADR) limits placed on RACs, which restrict the specific subset of Medicare claims to be reviewed for billing accuracy to 0.5 percent.

CMS intended for the updated ADR limits to encourage RACs to only select claims with the highest risk of improper payments and help providers anticipate potential RAC audits.

However, the Council for Medicare Integrity argued the new limits unnecessarily scaled back the program.

“The vital billing oversight provided by the RAC Program continues to be severely hampered by an ADR limit that allows 99.5 percent of Medicare FFS claims to be paid without review – resulting in the second year in a row that less than 1 percent of the improper payments identified by independent Comprehensive Error Rate Testing (CERT) were recovered,” Walter stated.

Hospitals groups, however, are not pushing policymakers to expand the Medicare RAC program. In fact, the American Hospital Association (AHA) has recently spoken out against the program, arguing that RACs are contributing to the significant Medicare appeals backlog.

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CMS pays RACs a contingency fee based on the number of improper payments they successfully recover and the claims' amounts.

But the AHA contends that the contingency fee arrangement incentivizes the auditors to identify and recoup as many overpayments as possible. As a result, providers are appealing a greater number of their RAC denials, creating a backlog that is slated to reach 950,250 cases by the end of the 2021 fiscal year.

According to data from AHA hospitals, six out of ten RAC-reviewed claims in  2016 did not have an overpayment, and hospitals appealed almost one-half (45 percent) of all RAC denials.

Appealing RAC denials worked in favor of providers, the data also showed. About 27 percent of hospitals said RACs reversed a denial during the discussion period before the formal appeals process, and 62 percent of RAC denials going through the formal appeals process were overturned in favor of the provider.

Providers have a shot at keeping their reimbursement, but the appeals process comes at a cost. In 2016, 43 percent of hospitals reported spending over $10,000 managing the RAC process, and another 24 percent spent over $25,000.

In the report to Congress on the RAC program’s FY 2016 results, CMS emphasized that RAC denials have high overturn rates, but the rate does not indicate that the auditor incorrectly identified and attempted to correct a Medicare improper payment.

“The receipt of an appeal and the reversal of a RAC decision do not necessarily mean the RAC was incorrect in its determination regarding the claim as it was billed,” CMS wrote. “Automated and semi-automated reviews are often denied correctly. However, as noted above, the provider can correct billing errors during the appeals process by adding a modifier, correcting the number of units of service, providing additional documentation, or modifying the claim so that it follows CMS policy for payment.”

Despite CMS’ defense, the AHA called on a federal judge in 2016 to require HHS to modify the RAC program to disincentivize auditors from denying claims.

“The Court should order the Secretary to implement a more effective check on the RAC program by imposing financial penalties on RACs for high reversal rates,” the hospital group advised. “In order to effectively deter indefensible claim denials, the financial penalties must be significant and must be linked to a meaningful level of the appeals process.”

Another federal judge recently called on the AHA to recommend strategies to HHS on to reduce the Medicare appeals backlog. As part of the court order, the judge asked the hospital group to expand on its RAC program suggestions.