On October 16, 2012, the Medicare Audit Improvement Act of 2012^[1] was introduced in the U.S. House of Representatives by Representative Sam Graves. The purpose of this legislation is to reform the Medicare auditing program. This legislation aims to improve the accuracy and transparency of Medicare audits of hospitals as well as increase the accountability of Recovery Audit Contractors (“RAC”).^[2]

RACs have financial incentive to be overzealous and find unnecessary billing errors, because they are paid contingency fees based upon the amount of money they recover.^[3] As a result, the RAC process has resulted in burdensome document requests, unjust recoupments, and inappropriate denials, many of which have been overturned upon appeal.

To improve the conduct of actual audits, this legislation requires the Secretary to issue guidelines for how to conduct Medicare audits.^[4] Auditors will have to follow the criteria set forth in these guidelines. More specifically, this legislation requires the identification of a “widespread payment error rate” for medical necessity audits.^[5] This provision reduces the RAC’s ability to profit from finding minor short term billing errors. Furthermore, the proposed reform limits the number of document requests permitted in a year and in a 45 days period.^[6]

This legislation also seeks to increase the accountability of auditors. Section 3 provides penalties for RACs that fail to meet deadlines or provide timely demand letters. More importantly, RACs will have to pay a penalty for denials that are overturned on appeal.^[7]  This penalty should encourage RACs to perform their audits more accurately. In addition, this legislation increases accountability and transparency through the public reporting of audit rates, total denials, outcomes of appeals, and the net denials after removing the number of overturned denials.^[8] In addition, RACs will have to allow the public to see the results of independent performance evaluations.^[9]

Ultimately, this legislation is a step in the right direction for RAC reform. This legislation needs to be broadened to cover and protect more providers from unjust audits and recoupments. Moreover, this legislation does not deal with the length of the look back period, which could be shortened or further defined. Furthermore, this legislation does not address, but may indirectly affect, state Medicare audits, which use the Medicare RAC model.^[10]

_{[1] Medicare Audit Improvement Act of 2012, H.R. 6575 (“H.R. 6575”)}

_{[2] Tax Relief and Health Care Act of 2006, Pub. Law 109-432, 120 Stat. 2991-2992, Div. B, Title III Sec. 302 (Dec. 20, 2006); Medicare Modernization Act of 2003, Pub. Law 108-173, 117 Stat. 2256-2257, Title III Sec. 306 (Dec. 8, 2003);}

_{[3] Pub. Law 102-432, 120 Stat. 2991, §302(1)(A)(B)(i).}

_{[4] Id. at §3(a)(D)(i-ii).}

_{[5] Id. at §3(a)(C)(i).}

_{[6] H.R. 6575, at §2.}

_{[7] Id. at §3(a)(1)(amending Social Security Act, 42 USC 1395ddd(h)(10)(B)).}

_{[8] Id. at §4(a).}

_[9] Id.

_{[10] Patient Protection and Affordable Care Act, Pub. Law 111-148, H.R. 3590-655-657, Title VI, Part III, Subtitle E, Sec. 6411(a).}