Recovery Audit Contractors and Medicare Audits: Successful Strategies for Defending Audits

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The CMS Recovery Audit Contractor (RAC) program has been made permanent and is expanding nationwide, beginning this year. Radiology providers should act now to adopt and implement appropriate compliance programs. Radiology providers should make efforts to understand the Medicare appeals process and should know that many strategies exist that can be successfully employed in the appeals process to defend Medicare audits.

Section 306 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) directed HHS to conduct a three-year demonstration program using RACs. The demonstration began in 2005 in the three states with the highest Medicare expenditures: California, Florida, and New York. The RACs were tasked with identifying and correcting Medicare overpayments and underpayments and were compensated on a contingency-fee basis. The purpose of the demonstration program was to determine whether the use of RACs would be a cost-effective way to identify and correct improper Medicare payments.

The RAC demonstration program proved highly cost effective from the point of view of CMS. Over the course of the three-year demonstration, the RACs identified and collected $992.7 million in overpayments and repaid $37.8 million in underpayments to Medicare providers and suppliers. Based upon information compiled by CMS, the RAC demonstration program cost only $0.20 for each $1 returned to the Medicare Trust Funds.¹

Section 302 of the Tax Relief and Health Care Act of 2006 makes the RAC program permanent and requires the expansion of the RAC program nationwide by no later than 2010. CMS is actively moving forward with this expansion right now. During the final months of the demonstration program, RACs expanded into South Carolina, Massachusetts, and Arizona. CMS plans to expand to 19 states by the summer of 2008, four more states by the fall of 2008, and the remaining states by January 2009 or later.1 CMS plans to announce the names of the permanent RAC vendors sometime after July 31, 2008. Radiology providers in the first 19 states can expect the commencement of RAC auditing activity soon after the announcement of the permanent RAC vendors.

Although RACs are responsible for correcting underpayments as well as overpayments, it is the process of recouping alleged overpayments that is of particular significance to Medicare providers.1 Approximately 96% of the alleged improper payments identified by RACs were overpayments, as opposed to underpayments. The RACs are permitted to attempt to identify improper payments resulting from incorrect payments, noncovered services (including services that are not reasonable and necessary), incorrectly coded services (including DRG miscoding), and duplicate services.2

During the course of the demonstration project, Medicare providers and suppliers raised concerns with certain aspects of the RAC program. CMS has made efforts to address these concerns and has adopted numerous changes to be implemented in the permanent program. Some of these changes follow.

Under the RAC demonstration program, RACs were permitted to reopen claims up to four years following the date of initial payment. Amid arguments that this four-year look-back period violated the provider-without-fault provisions of the Social Security Act, under the permanent RAC program, RAC reviewers have a maximum three-year look-back period. In all states (regardless of expansion date), the permanent program will begin with a review of claims paid on or after October 1, 2007. As time passes, however, the RACs will be prohibited from reviewing claims more than three years past the date of initial payment.2

Under the RAC demonstration program, the RACs were not required to employ a physician medical director or coding experts. Under the permanent program, however, when performing coverage or coding reviews of medical records requested from a Medicare provider or supplier, registered nurses or therapists are required to make determinations regarding medical necessity and certified coders are required to make coding determinations. The RACs are not required to involve physicians in the medical-record review process; however, the RACs are required to employ a minimum of one FTE contractor medical director (CMD) who is a doctor of medicine or doctor of osteopathy and arrange for an alternate CMD in the event that the CMD is unavailable for an extended period. The CMD will provide services such as guiding RAC staff regarding interpretation