RAC ‘Em Up

Section 306 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 authorized a demonstration project to pay a contingency fee to Recovery Audit Contractors, or RACs, for reviewing and identifying improper payments in the Medicare fee-for-service program.

The demonstration project took place from March 2005 to March 2008. The RACs were provided with claim information from 2001 to 2007, which covered approximately $317 billion in claims. They were free to review any claims that they felt were most likely to contain improper payments, with some minor exceptions. RACS were excluded from looking at claims for incorrect level of physician evaluation and management codes; hospice and home health services claims; payments made to providers under a CMS conducted demonstration; claims previously reviewed by another Medicare contractor; and claims involved in a potential fraud investigation.

In the demonstration, the RACs conducted two types of reviews: automated and complex. An automated review occurs when a RAC has identified a payment that is clearly in violation of Medicare policy. In such cases, an automatic adjustment is made and the payment corrected. In a complex review, the RAC identifies what is likely a payment error and requests medical records from the provider to conduct a full review. A provider has 45 calendar days to respond to the RAC request for medical records.

In the demonstration project, providers were concerned that the RACs were not correctly interpreting CMS policies and procedures. To address this problem, CMS instituted a “new issue review” process and contracted with AdvanceMed to be the RAC Validation Contractor, or RVC. For each set of claims a RAC wanted to pursue, it was required to submit information to CMS including the provider type, error type, policy violated and potential improper payment amount per claim.

CMS staff would review the information and determine whether the RAC should proceed with its review, or whether the set of claims needed to be reviewed by the RVC. If so, the RAC sent a small sample of claims (and medical records if complex review was required) to the RVC, which would then review the sample and forward a recommendation to CMS on whether the RAC should continue to pursue the set of claims. This process will continue in the permanent RAC program.

As of March 2008, the RACs had identified $1.03 billion in inappropriate payments. Of this figure, $378 million were underpayments and $992.7 million were overpayments.

In the demonstration, four main reasons accounted for the overpayments identified by the RACs: a finding that the services were medically unnecessary (40 percent); incorrect coding (35 percent); insufficient documentation (8 percent); and other reasons (17 percent).

In accordance with Section 302 of the Tax Relief and Health Care Act of 2006, a permanent RAC program has been rolled out and was scheduled to be fully operational by Jan. 1, 2010.

Perhaps the biggest change implemented in the permanent program is the limit on the number of records that can be requested, which varies by provider type. Another change is that the review period has been shortened from four years to three years and, initially, the RACs will not be able to look at any claims prior to Oct. 1, 2007. Another difference is that in the demonstration, the RACs were not allowed to review claims from the current fiscal year. However, this is not a limitation in the permanent program.

During the demonstration, it was optional for the RAC to have a medical director or certified coder on staff. Both positions are mandatory in the permanent program. In the permanent program, the RACs also are required to return phone calls within 24 hours. Providers have a right to speak with the individual who reviewed their claim, and they have a right to speak with the RAC medical director.

Last, in the final program, the RAC will be required to pay back its fee if the denial is overturned at any level of the appeal.

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Jeffrey S. Baird, Esq. is chairman of the Health Care Group at Brown & Fortunato, P.C., a law firm based in Amarillo, Texas. He represents pharmacies, infusion companies, home medical equipment companies and other health care providers throughout the United States. Baird is board-certified in health law by the Texas Board of Legal Specialization. He can be reached at 806/345-6320 or [email protected].