Last year, Medicare providers and members of Congress began expressing their concerns over the Recovery Audit Contractor (RAC) Demonstration Program overseen by the Centers for Medicare & Medicare Services (CMS). In November, troubled that the RAC program was adversely affecting the quality of patient care, these members introduced legislation in the House of Representatives to impose a 1-year moratorium on the program. Although it remains to be seen whether CMS can propose appropriate adjustments to the RAC program in time to forestall legislative action, changes to the RAC program are on the horizon.
Traditionally, Medicare fiscal intermediaries and carriers evaluate a small percentage of claims (<5%) to determine whether improper payments were made to providers under Parts A and B of the Medicare program. However, based on concerns that these administrative reviews are insufficient to protect the integrity of the Medicare program, Congress enacted Section 306 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA).
Section 306 requires CMS to conduct a 3-year demonstration project to evaluate whether RACs could provide a cost-effective means of identifying and reconciling improper payments. Reimbursed on a contingency-fee basis, the RACs would keep a percentage of recovered overpayments and have a strong financial incentive to ferret out improper payments. This demonstration is the first time that CMS has reimbursed a contractor on a contingency basis for claim review and overpayment collection work.
In early 2005, CMS announced that three RACs would evaluate claims in three states as part of the demonstration: PRG Schultz, International (Calif.), HealthData Insights (Fla.), and Connolly Consulting (N.Y). Starting in March 2008, CMS intends to start expanding the program with a goal of having it nationwide by 2010.
Backlash in California
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In May 2007, more than half of California’s Congressional delegation notified CMS expressing concern that the RAC demonstration lacked sufficient oversight. They wrote that PRG Shultz was denying nearly all claims for patients with joint replacement procedures admitted into inpatient rehabilitation facilities (IRFs). As a result, IRFs were being forced to divert resources away from patient care to appeal these RAC determinations. The delegation urged CMS to examine PRG Shultz and require it to refund any contingency fees received for cases that are overturned on appeal.
In September, the California delegation became aware of a CMS decision to “pause” PRG Shultz’s evaluation of IRF claims. Although pleased at the suspension, the delegation was incensed at CMS’s failure to respond to their requests for additional information on the nature of the pause. On Nov. 1, 2007, it warned CMS of possible legislation and asked for a written explanation by Nov. 7, 2007.
When CMS did not respond, Representatives Lois Capps (D-CA) and Devin Nunes (R-CA) promptly introduced HR 4105, the Medicare Recovery Audit Contractor Program Moratorium Act of 2007, which placed a 1-year moratorium on the RAC program and required CMS and the Government Accountability Office (GAO) to evaluate the RAC program and report their findings to Congress.
Changes proposed
On Dec. 7, 2007, CMS Acting Administrator Kerry Weems finally responded to Capps and Nunes stating that CMS had instituted the “pause” to give AdvanceMed time to perform an independent review of claims denied by PRG Shultz. In the review, AdvanceMed disagreed with 40% of PRG Shultz’s conclusions. In response, Weems proposed: to provide education training for the involved parties; to require PRG Shultz to re-review all denied IRF claims; and to suspend future reviews on IRF claims to reflect the proposed training sessions. CMS also indicated that it would implement changes to the national RAC program.
‘A day late and a dollar short’
In December, the American Hospital Association, the California Hospital Association, and the Healthcare Association of New York State applauded the corrective measures, but expressed concerns of other RAC program deficiencies, which were not addressed.
Similarly, Capps remarked that Weems’ response was “a day late and a dollar short” because Weems did “not address how [CMS] will rectify many of the problems that have arisen since the beginning of the demonstration program, nor [did] it adequately elaborate on how [CMS] will prevent many of these problems in the future.”
Capps described the program as “deeply flawed,” and suggested that the RAC demonstration was “already harming health care providers and threatening patient care in California, New York and Florida.”
Because CMS’s proposals to change the RAC program have not been enough to placate the critics of the RAC program, it is likely that additional changes – whether administrative or legislative – are on the horizon.
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Anthony H. Choe, JD, MPH, is a health care attorney for Arent Fox LLP in Washington, DC.
