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RAC: Calm Before the Storm?

Medicare providers are now experiencing the “calm before the storm” as they await the start of CMS’ latest effort to root out fraud and abuse in Medicare - the Recovery Audit Contractor (RAC) program - which is slated to start nationwide by Jan. 1, 2010. (See below how one health care provider - Golden Living, of Fort Smith, AR - is preparing for the RAC “storm.”)

The Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) Pub. L.108-173, established the Medicare Recovery Audit Contractor program as a demonstration program (which ran from 2005-2008 in 5 states) to identify improper Medicare payments in the Medicare fee for service program. The demonstration program was intended to determine if a more aggressive approach of finding Medicare fraud and abuse was a “cost-effective means” to ensure correct payments to providers and suppliers and to protect the Medicare Trust Fund.

During the demonstration program, RACs were paid on a contingency fee basis, receiving a percentage of the improper overpayments and underpayments they collected from providers. RACs could review the previous four years of provider claims for these types of services: hospital inpatient and outpatient, SNF, physician, ambulance and laboratory, and durable medical equipment. The RACs used proprietary software programs to identify potential payment errors in areas such as duplicate payments, fiscal intermediaries’ mistakes, and medical necessity and coding. RACs also conducted medical record reviews.

In July 2008, CMS reported that the RACs had collected more than $1.03 billion in improper Medicare payments. Approximately 96% ($992.7 million) of the improper payments were overpayments collected from providers, while the remaining 4% ($37.8 million) were underpayments repaid to providers. In the final analysis, 64% of the RACs denials were reversed at one stage or another of the appeal process (including FI redetermination, Qualified Independent Contractor reconsideration and ALJ appeal).

RAC permanent program

The Tax Relief and Health Care Act of 2006, 109 P.L. 432; 120 Stat. 2922, made the RAC program permanent and authorized CMS to explain the program to Medicare providers in all 50 states by 2010.

RAC contractors under the permanent program will analyze claims data using their own proprietary software to identify “clearly” improper payments. When the RAC uncovers such an improper payment, the RAC contacts the provider and requests a refund of any overpayment amounts. The RAC will request medical records and then make a determination as to whether the claim contained an overpayment. RACs apply statutes, regulations, CMS national coverage, payment and billing policies - as well as local coverage determinations that have been approved by Medicare claims processing contractors - to determine whether an overpayment was made. If the RAC determines that an overpayment has been made, it will send a notice of determination which explains how the overpayment was determined, recoupment, the provider’s right to rebuttal and appeal rights. The letter will also notify the provider of the date of recoupment.

Numerous concerns were identified during the three-year RAC demonstration period, and CMS has changed the permanent program to address some of the criticisms:

  • The RAC will no longer keep its contingency fees if the provider wins at any level of an appeal.
  • There previously was no limit on the number of claims the RAC contractor could request each month, but CMS has changed that. For SNFs, RACs cannot request more than 10% of the provider’s average monthly Medicare claims (not to exceed 200 records) within a 45-day period.
  • The 4-year window of claims review was too long in the demonstration period; now, no claim with a payment date prior to Oct. 1, 2007 will be reviewed, regardless of the actual start date for the RAC in a state.
  • RACs lacked Medicare coding and billing experience and appropriate staff for medical necessity review. Now, they’re required to retain coding experts and each RAC must have a medical director.
  • RACs had inadequate claims tracking processes, so now they’re required to establish an electronic claims tracking process.

The nationwide permanent RAC program will be run by these contractors and will involve these states. Additional states will be added to each RAC region in 2009:

Region A: Maine, Massachusetts, New Hampshire, New York, Rhode Island and Vermont
Diversified Collection Services, Inc, Livermore, CA
CMS contact: Ebony Brandon,

Region B: Indiana, Michigan, Minnesota
CGI Technologies and Solutions, Inc, Fairfax, VA
CMS contact: Scott Wakefield,

Region C: Colorado, Florida, New Mexico, and South Carolina
Connolly Consulting Associates, Inc, Wilton, CT
CMS contact: Amy Reese,

Region D: Arizona, Montana, North Dakota, South Dakota, Utah and Wyoming
HealthDataInsights, Inc., Las Vegas, NV
CMS contact: Kathleen Wallace,

RAC appeals process

There are five levels of the appeal process (outlined below). Recoupment of an improper payment will not occur if the provider timely appeals first and second levels of appeals until the Qualified Independent Contractor (QIC) reconsideration decision (2nd level of appeal) is final. If the decision is not favorable to the provider, recoupment can occur even if the provider files an ALJ appeal (3rd level of appeal).

RACs will be required to refund any contingency fees related to a recoupment that is overturned at any level of appeal.

The structure of the appeals process is the same as the normal appeals process for denied Medicare claims:

1st level - the first level of appeal is to the Medicare contractor (FI, carrier, Medicare Administrative Contractor)—NOT to the RAC. It is considered a Medicare request for redetermination. There is a 15-day rebuttal period to the RAC, but it doesn’t stop the 30-day clock running on the request for redetermination. In the RAC permanent program, a provider has 120 days to file a first-level appeal. However, if an appeal is not filed within 30 days the money will be recouped, pending the appeal. The FI has 60 days to respond from the date of the written determination.

2nd level - the second level of appeal is to a QIC. It is considered a request for reconsideration. Providers have 180 days to appeal to this level, but again, recoupment can be avoided if the appeal is filed within 60 days following the date of the redetermination decision. This level is the provider’s last chance to submit documents that will eventually be part of the record should it be necessary to appeal to an ALJ or beyond (unless good cause is shown). The QIC has 60 days to respond. If the provider is unsuccessful at this level, CMS will recoup the overpayment with interest.

3rd level - this appeal is to the Office of Medicare Hearings and Appeals where the case will be reviewed de novo by an ALJ. Hearings are usually conducted by telephone or video teleconference. Providers have 60 days to appeal to this level following receipt of the reconsideration decision. The ALJ’s decision is due within 90 days.

4th level - the fourth level of appeal is to the Appeals Council, also referred to as the Departmental Appeals Board (DAB). Providers have 60 days to appeal to this level. The Medicare Appeals Council has 60 days for reconsideration, and the review is de novo.

5th level - a federal district court is the fifth level of appeal. Providers have 60 days to appeal to this level; the amount in controversy must be at least $1,220.



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