Audit Program Has Saved Medicare $10B, Group Finds

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Michael D. Williamson

Aug. 5 — Medicare's Recovery Audit Contractor program has returned more than $10 billion to the Medicare trust fund since the program's inception in 2006, according to a pro-RAC group.

The Council for Medicare Integrity said in an Aug. 5 statement that in the second and third quarters of fiscal year 2015, RACs recovered nearly $176 million.

RACs also have returned more than $800 million in underpayments to Medicare providers for services that initially were underbilled, the CMI said. The RAC program identifies improper Medicare payments to providers, such as hospitals.

Provider billing errors partly explain why the program's trustees have reported that the Medicare trust fund will be bankrupt by 2030, the CMI statement said. Kristin Walter, the CMI's spokeswoman, said in the statement, “As important as the Medicare program is to our nation, it’s appalling that the hospital industry is happy to continue to knowingly pocket $46 billion per year of improperly billed taxpayer dollars that would otherwise extend the life of the program for our most vulnerable citizens.”

Hospital trade associations have long sought reform of the RAC program.

Drop in Overpayment Recoveries 

“Due to restraints placed on the program, the CMS quarterly reports demonstrate a drastic drop in the recovery of misbilled Medicare funds over the past several quarters,” the CMI said.

For example, RACs returned more than $1.43 billion in overpayments during the fourth quarter of fiscal year 2013, according to the group. Since then, the CMI said RAC overpayment recoveries declined each quarter, and hit a low of $48 million in the first quarter of FY 2015.

The drop in overpayments recoveries “is especially alarming due to the recent release of the Department of Health and Human Services 2014 Financial Report that shows the rate of improper billing in Medicare trending steadily upward—from 8.6 percent in FY2012 to an all-time high of 12.7 percent in FY2014,” the CMI said. In addition, the group noted a recent Government Accountability Office report showed that Medicare improper payments represent the highest rate of financial waste governmentwide, with an estimated $46 billion lost in FY 2014 alone.

However, since the first quarter of FY 2015, RACs have started returning more overpayments to Medicare, agency reports show. The CMS report on second quarter FY 2015 performance showed that the RAC program returned more than $81 million to Medicare during that period. The CMS report on third quarter FY 2015 performance showed that RACs returned nearly $95 million to the Medicare trust fund during that period.

Hospital Reaction 

Melissa Jackson, the senior associate director for policy at the American Hospital Association (AHA), told Bloomberg BNA Aug. 5 that hospitals acknowledge that audits are a necessary and appropriate part of the CMS’s oversight of the Medicare trust fund.

“However, RACs’ inappropriate denials have left hospitals without payment for care provided to Medicare beneficiaries, even though no one denies the care was necessary,” and the program should be changed, Jackson said. Specifically, she said the AHA recommends legislation to eliminate the program's contingency fee structure; reduce payments to RACs that are inaccurate in their audit determinations and have high appeals overturn rates; fix the CMS’s unfair rebilling rules by allowing hospitals to rebill claims when appropriate; and require RACs to make their inpatient claims decisions using the same information the physician had when treating the patient, not information that becomes available after the patient leaves the hospital.

When asked to comment on the CMI's statement, the Federation of American Hospitals (FAH), which represents for-profit hospitals, also called for RAC program reform. Charles Kahn III, the FAH's president and chief executive officer, told Bloomberg BNA Aug. 5, “The urgent need to reform the RAC program is widely recognized.”

Excessive RAC audits are the root cause of the administrative law judge (ALJ) claims backlog, according to Kahn. In April, the ALJ backlog contained more than 500,000 unresolved Medicare appeals.

In addition, the Medicare Payment Advisory Commission's (MedPAC) June report cites administrative burdens on hospitals and the lack of RAC accountability for inaccurate audits as reasons to reform the program, Kahn said, adding that the CMS has recognized this problem and is advancing its own reforms. Given all the parties calling for changes to the program, he said “it is no wonder that Congress is considering critical legislation to rein in RACs.”

To contact the reporter on this story: Michael D. Williamson in Washington at

To contact the editor responsible for this story: Nancy Simmons at


Request Health Care on Bloomberg Law