After a three-year demonstration project in five states, the Centers for Medicare & Medicaid Services ("CMS") has deemed its Recovery Audit Contractor ("RAC") program "cost effective." In other words, CMS has concluded that the RAC program has the potential to save Medicare a significant amount of money through identification and recoupment of overpayments made to all Medicare providers, including hospitals, skilled nursing facilities, and hospices. In fact, during the demonstration project, the RAC program identified nearly $1 billion in improper payments to Medicare Part A and Part B providers and netted almost $700 million in recoupments back to the Medicare Trust Fund.

Following a three-month stay of the RAC program due to protests filed by two unsuccessful RAC contract bidders, the permanent program is now back on track to expand nationwide no later than 2010, with the last states, including North Carolina, added by August 1, 2009, or later. CMS recently awarded contracts to four vendors to conduct RAC audits, each responsible for a specific geographic region. North Carolina is in Region C and its Medicare providers will be audited by Connolly Consulting Associates, Inc., which will subcontract with Viant Payment Systems, Inc., to conduct some of its business.

The RACs will also be subject to "quality control" by way of review of their activities by a validation contractor, Provider Resources, Inc. This company will work with CMS to approve issues identified by the RACs for review and will audit for accuracy randomly selected claims on which the RACs have collected payment.

RACs make their money by identifying improper Medicare payments. RACs are paid on a contingency fee basis for identifying both overpayments and underpayments to providers. But the RACs identified a far greater number of overpayments (96%) than underpayments (4%) during the demonstration phase. If a RAC identifies an overpayment and the provider appeals and wins, the RAC loses any contingency fee it received. Despite this "risk" to the RAC, there is still strong incentive for the RACs to aggressively pursue Medicare overpayments.

RAC audits will not occur randomly but will be targeted toward those claims with a high likelihood of being improperly made. These targeted reviews will either be automated or complex. Automated reviews are limited to those claims that are identified as having a certainty of error or that are "clinically unbelievable." Such automated determinations will not involve support data such as medical records but will be limited to the claim itself. Complex audits, on the other hand, involve medical record review and will include claims with a high probability of overpayment. All audits will be based on CMS statutes, regulations, policies, coverage, and payment requirements, as well as local coverage determinations. Of note, improper payments most commonly occur as a result of the following.

• Incorrectly coded services
• Medically unnecessary services
• Insufficient documentation related to the billed service

When conducting a complex audit, the RACs will request medical records from the provider. The number of medical records that a contractor may request is limited to 10% of the provider’s average number of monthly claims, or services in some instances, every 45 days. For example, if Medicare pays an inpatient hospital, skilled nursing facility or hospice for 12,000 claims a year, or an average of 1,000 per month, the contractor can request no more than 100 records every 45 days and, in no event, can the contractor request more than 200 records every 45 days. The provider then has forty-five days after receipt of the record request to submit the records, by secured means, to the contractor for review. Failure to submit the requested records within forty-five days may result in a recoupment demand and loss of the opportunity to appeal it. The contractors may only look back three years and in no event will the look-back period be prior to October 1, 2007. RACs generally have 60 days following receipt of the records to complete their review before issuing to the provider a notice of their findings and, in the event an overpayment is identified, a demand letter.

To appeal an overpayment determination, a provider must go through a relatively complex and technical process involving five levels of appeal.

• Redetermination by the Fiscal Intermediary or Carrier
• Reconsideration by the Qualified Independent Contractor
• Administrative Law Judge
• Medicare Appeals Counsel
• Federal District Court

Each level of appeal has specific time frames in which to file, and failure to follow these time frames may result in the recoupment occurring, despite the appeal or loss of appeal rights altogether. For example, even though you as the provider have 120 days after receipt of the demand letter in which to request a redetermination (the first level of appeal), failure to do so within 30 days may result in the recoupment process starting despite a subsequent appeal. Of note, there is also a brief rebuttal period during which the provider can dispute the contractor’s determination. However, the rebuttal period is not to be confused with your appeal rights. Stay tuned for further information on the appeals process in a later edition of EndNotes.

As a hospice provider, what can you do to prepare for the RAC before the audits begin?

• Designate a RAC team with an individual responsible for coordinating all internal and external RAC communications, including production of medical records, upon the RAC’s request.
• Review and revise, as necessary, your policies and procedures regarding admission and continued coverage requirements.
• Ensure, through internal audits, that your patients are receiving medically necessary services and confirm that such services occurred.
• Ensure that all technical requirements for certification and recertification are being met prior to claim submission and that all claims are coded correctly.
• Ensure that all care provided is consistent with CMS statutes, regulations, policies, coverage, and payment requirements and with local coverage determinations.
• Ensure that requests for medical records are provided within mandated timeframes and establish a system to track record requests.
• Appeal recoupment demands timely and in accordance with the statutory requirements.
• Ensure that medical record documentation is accurate, complete, and in accordance with accepted standards of practice.

Any provider that bills Medicare Parts A and B is subject to audit by the RACs. While the RAC demonstration program recouped most overpayments from hospitals, it also collected approximately $16 million in five states from skilled nursing facilities and $5 million from other providers. Hospices and home health agencies were excluded from the demonstration project for administrative simplification reasons. However, CMS recently clarified that the RACs will likely begin to receive hospice and home health information in May 2009, but does not expect to review hospice and home health claims until "sometime this summer."

Now is the time to get your team organized and educated on the RAC program. Providers who have been through a RAC audit without systems in place have found that records requests have been lost and forgotten or that staff had to be called in and paid overtime to copy records in response to a request. Future issues of EndNotes will include articles on what types of issues the RACs have identified and focused on to date and on navigating the appeals process.