For Our Health

Initially RACs demonstration was restricted to only California, Florida, and New York. The results of the demonstration were acceptable because there is a huge amount that was recovered but still there was a lot of room to improve the performance.

Results

The results of RACs demonstration are quite satisfactory in CMS view. According to CMS, the demonstration program by the RACs collected most of the overpayment amounts (about 85 percent) and it was from inpatient hospital providers. Half of the improper payments were the result of incorrect coding.1 Although RACs were unable to identify all the improper payment claims but still they managed to correct $1.03 billion in Medicare improper payments. Approximately 96 percent ($992.7 million) of the improper payments were overpayments collected from providers, while the remaining 4 percent ($37.8 million) were underpayments repaid to providers. The MSP RACs collected fewer overpayments ($12.7 million) than the Claim RACs ($980.0 million)2.

The percentage of correcting improper payments increased gradually as the RACs became more systematic. Through the demonstration of March 27, 2008, out of $1.03 billions approximately 4 percent occurred in FY 2006, 34 percent in FY 2007, and 62 percent in the first half of FY 20083. This should be kept in mind that the total available claims were of $317 billions and RAC were able to identify only 0.3% of it which is $1.03 billions. 14% providers choose to appeal against RAC and 4.6% were overturned.CMS gave an assignment to Econometrica, Inc. to evaluate the validity of the results that RAC produced.

Cost of RAC’s

From its inception through March 27, 2008, the RAC demonstration cost only 20 cents for each dollar collected. RAC contingency fees were $187.2 million over the life of the demonstration. Medicare claims processing contractors’ costs were $8.7 million, and other expenses were $5.4 million.

Lesson learned

There is an enormous impact that RAC has created not only in favor of CMS but also for other companies to start thinking on the lines that CMS has already adopted. It has set the tone and set a new trend of auditing.
The key factors are:

o Claim RACs are able to find a large degree of improper payments weather it is overpayment or underpayment.
o Providers do not appeal every overpayment determination.
o Overpayments collected were significantly greater than program costs4.

A general view is that the Recovery Audit Contractors have made the process easier for CMS, and CMS thinks on the same lines. It is just because the amount of recovery that RAC has recovered. The amount recovered, is it good enough? This is a question to be answered. Overall looking in to the statistics the recovery amount is too high. Payments are made for services that were medically needless or did not meet the Medicare medical guide lines for the setting where the service was provided (e.g. a claim from a hospital for three colonoscopies for the same beneficiary on the same date of service, whereas only one colonoscopy per day is medically necessary; or physical therapy provided in the inpatient setting when the therapy could have been safely and effectively provided in the outpatient setting). The other scenario is when the payments are made is incorrect coding.

Future strategy

Future improper payments can be avoided by analyzing the Claim RACs’ service specific findings. CMS can use this information to implement more provider education and outreach activities or establishing new system edits, with the goal of preventing future improper payments.

References

1. Centers for Medicare and Medicaid Services. “CMS RAC Status Document, FY 2007: Status Report on the Use of Recovery Audit Contractors (RACs) in the Medicare Program.” February 2008
2. The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of 3-Year Demonstration Program, June 2008
3. The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of 3-Year Demonstration Program, June 2008
4. The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of 3-Year Demonstration Program, June 2008