iProtean—House Lawmakers Want RAC Process Reformed

A bipartisan group of more than 100 representatives from the House wrote Kathleen Sibelius, Director of the Department of Health and Human Services (HHS) last week to express their concerns with the Recovery Audit Contractor (RAC) program and strongly urged reform of the RAC process. The letter noted operational problems in the RAC program and the staggering backlog of appeals.


RACs evaluate the accuracy of Medicare payments to providers. They are able to audit medical records and claims three years after services have been provided, and are paid a commission on the dollar amount of the claims they deny, which ranges between nine and 12.5 percent. “Although the intent of the program is laudable, operational problems within the program have persisted without corrective action by the Centers on Medicare and Medicaid Services (CMS),” the lawmakers noted in their letter.


One of the problems involves the payment structure. RACs have an incentive to deny claims, even when the claims are correct. Data show that when hospitals appeal RAC decisions, 72 percent of hospital Medicare Part A appeals that have reached the third level of the appeals process are overturned in favor of the hospital. This suggests that many RAC decisions may be driven by the incentives the RACs enjoy by denying claims.


The lawmakers noted that without more oversight measures in place, RACs have imposed a huge administrative burden on hospitals, which must spend valuable time and resources to appeal denied claims in order to be reimbursed for Medicare services provided.


They also noted the consequences of denials to beneficiaries when their inpatient stay is inaccurately denied by a RAC. “They pay higher out-of-pocket expenses under Medicare Part B and are sometimes held financially responsible” for some of their care. “This is not the way the Medicare program was intended to operate,” they said.


In the letter to HHS, the lawmakers also cited the recent announcement from the HHS office of Medicare Hearing and Appeals that it has suspended assignment of claim appeals to an Administrative Law Judge for at least the next two years, citing the staggering backlog of cases (460,000 claims in just under two years). The lawmakers strongly recommended that CMS add resources to help resolve the backlog issue so the claims appeal process can resume.


With respect to the RAC program itself, the lawmakers want reforms to ensure auditors are charged with identifying “real claim coding and medical documentation errors” and a more transparent mechanism for informing providers of errors. They also want an alternate payment arrangement with auditors to avoid improper incentives to deny claims for profit and to ensure the auditors focus on prevention of errors. They suggested paying RACs a retainer, as many other government contractors are paid.


(Sources: Letter from House Representatives to Kathleen Sibelius, February 10, 2014; “Lawmakers Tell HHS Medicare RAC Process Should Be Reformed,” Health Lawyers Weekly, February 14, 2014)


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