CMS Says RACs Returned $488 Million To Medicare Trust Fund in FY 2011

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Medicare fee-for-service Recovery Audit Contractors returned $488 million in improper payments to the Medicare Trust Fund in fiscal year 2011, according to the second annual RAC report from the Centers for Medicare & Medicaid Services, which was sent to Congress Feb. 5.

The report, Recovery Auditing in the Medicare and Medicaid Programs for Fiscal Year 2011, said RACs identified and corrected $939 million in improper payments in FY 2011, and $488 million was returned to the Trust Fund upon taking into account “all costs, underpayment determinations that are paid to providers, and appeal reversals.”

The $939 million in improper payments included $797 million in overpayments and $142 million in underpayments, according to the report.

By comparison, RACs in FY 2010 identified and corrected $92 million in improper payments, including $75 million in overpayments and $17 million in underpayments, according to CMS's FY 2010 report to Congress (15 HFRA 781, 10/5/11).

The FY 2010 report did not include information on recovered payments returned to the Medicare Trust Fund.

The report explained that a RAC is a CMS contractor “whose primary task is to review Medicare claims data and determine if the claim was appropriately paid.” CMS said it spent $129 million on the Medicare FFS RAC program in FY 2011, which included $82 in contingency fees for the individual RACs and $47 million in administrative costs.

Under Section 6411(c) of the Affordable Care Act, CMS is required to submit an annual report to Congress on the effectiveness of the RAC program.

RAC Expansion

In addition to the improper payments information, the report included an update on RAC expansions in Medicare Part C, Part D, and Medicaid, which are required under Section 6411 of the ACA.

The report said CMS expects to award a RAC contract for Medicare Part C in the summer, and said the Medicare Part D RAC, ACLR Strategic Business Solutions, completed an evaluation focused on identifying improper payments for prescriptions either made by excluded providers or fulfilled by excluded pharmacies.

“Recoupment began in the first quarter of FY 2013 for those plans that did not appeal findings identified in the RAC's initial audit review,” the report said.

As for Medicaid, the report said that several states had implemented Medicaid RAC contracts by the end of FY 2011, and others had issued requests for proposals.

The CMS report also included information on improvements it made to the RAC program in FY 2011, including:

• launching the esMD system, which allows for the electronic transmission of medical records;

• creating an opportunity for RACs and claims processing contractors to meet annually to discuss and collaborate on program issues; and

• issuing a modified RAC statement of work putting greater emphasis on review claims with high error rates.


Hospitals and RACs

Robyn Bash, senior associate director for federal relations at the American Hospital Association, told BNA that while AHA recognizes the need for a claims review program, RACs have significantly increased the administrative burden for hospitals.

Bash said “a flood of new auditing programs are drowning hospitals with a deluge of duplicative audits, unmanageable medical record requests and inappropriate payment denials.”

The AHA, along with four hospital systems, filed a complaint against the Department of Health and Human Services on Nov. 1, 2012, arguing that RACs have improperly demanded hospitals to return Medicare payments (16 HFRA 899, 11/14/12).

The complaint, filed in the U.S. District Court for the District of Columbia, asked the court to prohibit an HHS policy that allows RACs to deny claims due to the fact that a service should have been provided on an outpatient basis as opposed to an inpatient setting.

Hospitals are experiencing a growing number of RAC claims denials that are proving to be inaccurate, Bash said, adding up “to hundreds of thousands of dollars in unjust recoupments of payments for medically necessary care.”

Bash said that when hospitals appeal their RAC denials, they have a 74 percent success rate, according the October 2012 AHA RACTrac survey.

However, Bash said not all hospitals have the necessary resources to appeal RAC denials, and she said the appeals process also does not have the resources to resolve appeals in a timely fashion.

“CMS must increase its oversight of contract auditors to prevent inaccurate payment denials and make its overall auditing effort more transparent, timely, accurate and administratively reasonable,” Bash said.

RAC Program Concerns

Robert L. Roth, an attorney with Hooper, Lundy & Bookman, P.C., told BNA that the jump in recoveries from FY 2010 to FY 2011 “may not be quite the unqualified success that CMS seems to want to portray in its report to Congress.”

Roth said that much of the growth in recoveries is most likely attributable to the RAC program's transition from a six-state demonstration project to a national program.

He said some of the recoveries in the report may also be short-lived, particularly those associated with hospital short stays, which the report said represented a significant part of the FY 2011 recoveries.

Roth said the short stay recoveries “are based on the recovery of the full amount Medicare paid for the inpatient stay, whereas ALJs [administrative law judges] are now routinely remanding appeals of those recoveries for a determination of how much would have been paid if the services had been provided in an outpatient setting (assuming the inpatient stay was not medically necessary).”

Roth also said he expected more RAC claims denials to be overturned in future reports. The FY 2011 report said that only 3 percent of all RAC claims denials were challenged and overturned on appeal. However, out of the 61,000 claims denials appealed by providers, 43.6 percent were overturned.

“Given the 43.6% error rate and the recent spate of short stay remands to determine payments to be made to the hospitals, providers would be well-advised to be proactive with regard to appealing RAC denials, which could result in a somewhat different report for 2013,” Roth said.

By James Swann  

The CMS RAC report is at

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