United States: For New Recovery Audit Contracting Cycle, CMS "RAC"s Up Changes

Last Updated: March 19 2014
Article by Stephanie D. Willis

Last month, the Centers for Medicare & Medicaid Services (CMS) announced important changes to the Recovery Audit Program.  The agency had already begun the procurement process to find new Recovery Audit Contractors (RACs) in May 2013, but these recent changes confirm the agency's plans to wind down the current contracts and revamp the program to address some of the criticism levied against it. 

In January, CMS announced its plans to select four Medicare Part A/B RACs and one national DME and Home Health/Hospice RAC in 2014.  The agency also modified the jurisdictional boundaries that each of the Medicare Part A/B RACs would oversee.  Thereafter, CMS's announcements on February 18, 2014 and March 7, 2014 notified providers subject to RAC audits of the following wind-down activities for the current RAC contract cycle:

  1. RACs had until February 21,2014 to send a postpayment Additional Documentation Request (ADR) to a provider;
  2. RACs had until February 28,2014 to send prepayment ADRs under the Recovery Auditor Prepayment Review Demonstration and will continue to complete the reviews for the ADRs they've already sent as of this date;
  3. RACs have until June 1,2014 to send improper payment files to the Medicare Audit Contractor (MAC) for adjustment; and
  4. CMS stated that it generally will not conduct postpayment patient status reviews for claims with dates of admission of October 1, 2013 through October 1, 2014.

By regulation, providers have 45 days to respond to an ADR and RACs have up to 60 days to make a determination on the claim.

In addition, CMS's February 18, 2014 announcement also detailed procedural changes to the determination and appeal process.  As background, there are five levels of appeal for disputes involving Medicare payments.  A provider may appeal an adverse payment determination by a RAC to the MAC, then the Qualified Independent Contractor (QIC), then to an Administrative Law Judge (ALJ) at the Office of Medicare Hearings and Appeals (OMHA), then to the Medicare Appeals Council. 

The changes in the February 18, 2014 announcement concern the RAC's responsibilities before the appeal process begins.  Beginning in the new contract cycle: 

  1. RACs will have to honor a 30-day period for discussion before sending claims for overpayment-related denials to a MAC for adjustment;
  2. RACs will have to confirm receipt of a discussion request from a provider within three days of receipt;
  3. RACs will no longer collect their contingency fee unless the second level (of the five total levels) of appeals has been exhausted;
  4. CMS shall establish ADR limits that will take the different claim types submitted by a facility into account, rather than imposing them on the entire facility's total claims; and
  5. CMS will require RACs to adjust ADR limits based on providers' denial rates so that those with low rates of denied claims will not receive a higher number of ADRs than those with higher denial rates.

These changes are likely a consequence of the scrutiny surrounding the high appeal overturn rate associated with RAC determinations in the past.  According to the American Hospital Association's RACTrac Survey, from the start of the RAC Program in 2010 through the fourth quarter of 2013, hospitals participating in the survey appealed 49 percent of the RAC denials they received – 64 percent of those denials were overturned in favor of the hospital. And of note, 55 percent of the hospitals with RAC denials based on providing medically unnecessary services successfully got those denials overturned by showing otherwise through the appeals process.  Overall, the Office of Inspector General's August 2013 report on Medicare RACs determined that between October 1, 2009 and September 30, 2011, RACs identified approximately 1.1 million claims with overpayments. Providers appealed six percent of these identified overpayments and successfully overturned 44 percent of these determinations. 

High rates of overturned determinations on appeal are not limited to the RAC program, however.  Another OIG report published in November 2012 determined that ALJs reversed prior-level decisions by QICs and decided fully in favor of appellants in 56 percent of appeals in FY 2010 and that QICs decided fully in favor of appellants in 20 percent of appeals in FY 2010.  Ellyn Sternfield, Of Counsel in Mintz Levin's Health Care Enforcement Defense Practice, previously wrote a blog post that detailed how the backlog of appeals has grown astronomically; resulting in the OMHA's temporary suspension of the assignment of most new requests to ALJs.  OMHA held a Medicare Appellant Forum on February 12, 2014, where department heads discussed the productivity of the agency and the status of OMHA's efforts to address its workload in light of resource constraints through policy and procedural changes.

Providers should continue to monitor the Recovery Audit Program's Future Changes and Recent Updates pages for additional information about the new RAC contracting cycle as well as monitor OMHA's website for additional information on OMHA's progress in making the appeals process more efficient.  Despite all of the critiques of the RAC Program and the Medicare appeals process, the Department of Health and Human Services is fully invested in using them as tools to address inaccurate and erroneous payments in the Medicare program.  These recent changes and announcements show the agency's attempts to address provider concerns. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Stephanie D. Willis
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