Lose Your Medicare Appeal at Reconsideration? Don’t Throw in the Towel Just Yet — Consider the Consequences and Your Options.
(June 18, 2011): As a review of the last several quarters of Medicare appeals statistics reflects, an overwhelming percentage of Medicare providers appealing alleged overpayments through the Medicare administrative appeals process have chosen to “throw in the towel,” so to speak, when they have lost at the reconsideration level. As you will recall, at the reconsideration level, Medicare claims are assessed by a Qualified Independent Contractor (QIC) selected by the Centers for Medicare and Medicaid Services (CMS) to hear the second level of administrative appeals.
According to statistics kept by Q2Administrators, the contractor selected to serve as the Administrative QIC (AdQIC), most Medicare providers have chosen not to appeal claims denials issued the QIC at the reconsideration level of appeal. Nationwide, in the last eight quarters, the percentage of Part B QIC cases not being appealed has risen to an astounding 86%. This trend is also occurring in Part A QIC cases, where the numbers of non-appealed cases have grown from roughly half to 75%.
The purpose of this article is to examine possible reasons why Medicare providers have chosen not to appeal claims denials to the Office of Medicare Hearings and Appeals (OMHA) to be heard by an Administrative Law Judge (ALJ). We also examine points to be considered by providers if choosing to be represented by legal counsel in the ALJ hearing process.
I. The Third Level of Medicare Appeals — ALJ Hearings
For 2011, if at least $130 remains in controversy following a QIC’s denial decision at the reconsideration level, a Medicare provider may request an ALJ hearing within 60 days of receipt of the reconsideration denial decision. ALJ hearings are intended to be non-adversarial proceedings aimed at determining the facts so that questions of coverage and payment may be properly addressed. It has been our experience that the ALJ level of appeal is a provider’s best opportunity to present its arguments in support of coverage and payment.
ALJ hearings are usually held by video-teleconference or by telephone, but you may also ask for an in-person hearing. While an ALJ hearing is the third level of the administrative appeals process, it is the first time that a provider is given an opportunity to testify, clarify points missed by reviewers at lower level of appeal and answer any questions that may be raised by the ALJ.
II. Why Are Most Providers Not Filing Medicare Appeals Past the Reconsideration Level?
When facing an overpayment determination levied by a Zone Program Integrity Contractor (ZPIC), a Recovery Audit Contractor (RAC) or in some instances a Medicare Administrative Contractor (MAC), the first question to be addressed by a Medicare provider is:
“Based on the record and the facts, should we have been paid for the services rendered or the products / devices provided to the Medicare beneficiary?”
The answer to this question isn’t always as easy as it may initially seem. Having said that, the basic rule we recommend that providers follow is fairly simple – if it doesn’t belong to you, give it back. In such a situation, a provider should examine the various reasons why the claim does not qualify for coverage and payment and should take steps to better ensure that any deficiencies are remedied. Additionally, any other overpayments noted must be promptly repaid to the government, with the 60 day period mandated under the Affordable Care Act (ACA).
In cases where a provider (or their representative) contends that a claim does, in fact, qualify for payment, it typically appeals an overpayment assessment issued by a ZPIC, RAC or MAC. Nevertheless, as previously discussed the vast majority of providers who lose an appeal at the reconsideration level choose not to further appeal the denial. In speaking with Medicare providers, the primary reasons for not appealing any further include:
Cost / benefit considerations. By the time a provider reaches the ALJ level, the provider has already endured the time, expense and frustration of unsuccessfully arguing its case through two levels of appeal. By this time, many providers conclude that the amount in controversy does not justify the time and expense of further appealing the QIC’s denial to the ALJ level.
- Many providers are intimidated by the hearing process and do not feel comfortable participating in an ALJ hearing. Despite the fact that ALJ hearings are typically conducted by teleconference, the process can still be quite intimidating. ALJs almost always place testifying providers and their designated “experts” under oath before taking their testimony. Additionally, if a provider has introduced new evidence into the record, it will be required to show “good cause” for its admission at this late stage of the proceedings. Finally, most providers find that the ALJ handling their case is quite knowledgeable and typically has extensive experience analyzing coverage requirements and assessing the adequacy of a provider’s documentation. Providers who have failed to adequately prepare for the hearing are likely to find that the process can be quite difficult.
- The ALJ hearing process has become considerably more complicated due to the participation of ZPIC personnel. Over the past year, the ALJ hearing process has become quite complicated when dealing with large, “big box” overpayment cases. For instance, in cases when damages have been extrapolated, it is quite common for representatives of the ZPIC who issued the initial denial decision to attend the hearing as a “participant.” When this occurs, ZPIC representatives often include an attorney representing the ZPIC, a statistician who will be prepared to support the extrapolation applied in the case, and a clinician (typically a Registered Nurse) who will testify why the claims allegedly do not qualify for coverage.
In cases where a provider’s third-party biller has agreed to handle claims appeals, few billers have agreed to pursue a denial past the reconsideration level of appeal.
III. Consequences of Not Taking Your Medicare Appeal to the ALJ Level
Assuming that no extended repayment plan has been established and the alleged overpayment has not already been repaid, the MAC will initiate recoupment of the alleged overpayment 30 days after the QIC issues its denial decision. Unfortunately, this will occur regardless of whether a request for ALJ hearing is filed in a timely fashion.
Should a provider choose not to further appeal, its important to recognize that its “claims denial ratio” will increase. As the government and its contractors increasingly rely on “data mining” when identifying potential targets for audit, providers with a high error rate will likely find their practices subject to further scrutiny.
IV. Don’t Give Up on Properly Billed Claims – Consider Your Options Before Declining to Pursue a Medicare Appeal
As Medicare claims audit and assessment efforts increase (through CMS’ use of ZPICs, PSCs and RACs), health care providers will be under increasing pressure to ensure that all statutory and regulatory medical necessity, documentation, coding and billing requirements are met. Despite a provider’s best efforts to remain compliant, it may find that its practice or clinic is alleged to have been overpaid by a Medicare contractor. Should that occur, we strongly recommend that you retain qualified, experienced legal counsel to represent your interests as early in the Medicare appeals process as possible.
Should you choose to handle the appeal yourself and lose at the reconsideration level, contact experienced legal counsel before deciding to discontinue the appeal. Depending on the facts, you may find that it is both cost-effective and advisable to have your case handled at the ALJ level by experienced legal counsel. When retaining counsel, there are several important questions that you should ask:
“How much of your law practice involves health law issues?
Please describe the extent of your experience handling large, complex administrative appeals of denied Medicare claims.
Please describe your experience in challenging statistical extrapolations applied to an alleged overpayment in a case.
How often have you responded to AdQIC appeals of favorable ALJ decisions?
How often have you handled MAC appeals?
Can you provide provider references?”
Hopefully, your practice will not face a large administrative appeal of denied Medicare claims. However, should such an event occur, you need to be ready to respond to the contractor’s audit.
In addition to representing a wide variety of providers in the administrative appeals process, our Firm has been retained by a number of other law firms to assist them with large, complex administrative appeals. After representing health care providers for many years in administrative hearings, involving literally tens of thousands of claims, it has been our experience that the ALJ level of appeal is the single best opportunity that a provider has to present its arguments in support of payment.
While there are no guarantees in litigation, working with qualified clinical personnel, experienced legal counsel can effectively present a provider’s arguments in support to an ALJ assigned to hear the provider’s case. Keep in mind, the trier of fact is an attorney – not a clinician or a consultant. Experience, coupled with an in-depth knowledge of the statutory and regulatory requirements may prove essential in proving your case. The ALJs we have practiced before have been attentive, knowledgeable, willing to listen to the provider’s viewpoint, and perhaps most importantly, FAIR. Neverthless, it is the job of your legal counsel to present the facts in a concise, coherent, persuasive fashion. If your practice is facing an ALJ hearing, consider the benefits of retaining experienced counsel when considering your options.
Liles Parker attorneys have extensive experience representing Home Health, Hospice, CMHC, DME, Ambulance, Physician Practices, Nursing Homes, SNFs, and PT / ST / OT Therapy providers in the Medicare administrative appeals process. Our attorneys also work with providers to help better ensure that their Compliance Program addresses applicable statutory and regulatory requirements. Need assistance? Call us for a complimentary initial consultation. We can be reached at: 1 (800) 475-1006
Be Prepared — ZPIC and QIC Representatives Are Increasing their Participation in ALJ Appeal Hearings.
(February 12, 2011): Over the last year, we have noted an important trend when representing Medicare providers in post-payment overpayment cases at the Administrative Law Judge (ALJ) level of appeal. Medicare contractors are actively attending and participating in many ALJ hearings. The virtual “Courtroom” where ALJ hearings are typically held (most ALJ hearings are now held by teleconference or video-teleconference — few are conducted in person) are no longer attended by only a provider, its attorney and the Judge. Instead, it is now relatively crowded, requiring the scheduling of experts and the testimony of various clinical specialists — representing not only the provider, but also one or more government Medicare contractors. Although mostly limited to “big-box” cases where the amount at issue ranges from $100,000 to several million dollars, we have even had Medicare contractors attend ALJ hearings involving alleged overpayments of only a few thousand dollars.
This proverbial ”sea change” in how the government and its contractors view their role in working to help ensure that alleged overpayments stay in place demands that providers reconsider their decision to represent themselves in ALJ appeals hearings. While many health care providers feel comfortable handling an ALJ hearing on their own when the only parties on the teleconference or on the video-teleconference are the Judge and the Medicare providers themselves, it is a completely different situation when one or more contractors elects to participate in the hearing and present their denial reasons to the ALJ. The purpose of this article to examine this trend and discuss a number of considerations that Medicare providers should be taking into account when deciding whether or not to represent themselves at ALJ hearing, without an attorney.
I. Rights / limitations of a ZPIC or other contractor when acting as a “participant” in an ALJ hearing.
Pursuant to 42 C.F.R. § 405.1010, both representatives from the Centers for Medicare and Medicaid Services (CMS) and its contractors may participate in an ALJ hearing. Moreover, an ALJ may request that CMS or its contractors participate in a hearing. As the regulatory provisions provide:
“(a) An ALJ may request, but may not require, CMS and/or one or more of its contractors to participate in any proceedings before the ALJ, including the oral hearing, if any. CMS and/or one or more of its contractors may also elect to participate in the hearing process.
(b) If CMS or one or more of its contractors elects to participate, it advises the ALJ, the appellant, and all other parties identified in the notice of hearing of its intent to participate no later than 10 calendar days after receiving the notice of hearing.
(c) Participation may include filing position papers or providing testimony to clarify factual or policy issues in a case, but it does not include calling witnesses or cross-examining the witnesses of a party to the hearing. (emphasis added).
(d) When CMS or its contractor participates in an ALJ hearing, the agency or its contractor may not be called as a witness during the hearing.
(e) CMS or its contractor must submit any position papers within the time frame designated by the ALJ.
(f) The ALJ cannot draw any adverse inferences if CMS or a contractor decides not to participate in any proceedings before an ALJ, including the hearing.”
While ZPICs and other contractors may not “cross-examine” a Medicare provider or its witnesses during an ALJ hearing, contractors have easily worked around this regulatory obstacle. Rather than confront a provider directly, a contractor will merely point out their concerns or make a specific point to the Judge. The presiding ALJ will often then merely ask the provider the same questions first raised by the ZPIC. As a result, a Medicare contractor never has to cross-examine the provider but his points and questions are still ultimately answered. For instance, the following very simple exchange might occur during an ALJ hearing:
“ALJ: I would like to hear the Medicare contractor’s views regarding the medical necessity of this E/M claim.
ZPIC: Your honor, the 1997 E/M Guidelines clearly reflect the types of situations which would qualify as “High Complexity.” We don’t believe that the facts here represented that level of complexity. Additionally, the physician is now alleging that the patient suffered from multiple serious co-morbities which complicated the medical decision-making required. Where is there proof that the patient had these conditions?
ALJ: Dr. Smith, can you point out where these medical conditions are documented in the medical records submitted?”
In most instances, a provider should expect the ZPIC’s challenge to be much more pointed that the example cited above. In any event, the bottom line is simple, under the current rules, it remains quite easy for a ZPIC to point out weaknesses in the provider’s case. ALJ’s are seeking to determine the facts and decide whether the claims at issue qualify for coverage and payment. When a ZPIC raises a concern, most ALJ’s will want to follow-up with the provider in order to obtain an answer regarding the points raised.
Over the last year, we have also seen a marked increase in the number of cases where a ZPIC has chosen to file a post-hearing brief with the Court. This can be especially problematic for providers who choose to represent themselves at hearing because the ZPICs have used this as an opportunity to present new evidence and/or new arguments that were never introduced at lower levels of the case or at ALJ hearing. As a result, the provider is often placed in the position of trying to respond to new arguments, never before presented by the ZPIC or other contractors, at the last minute in the ALJ hearing process.
II. Who will show up from the ZPIC’s or PSC’s office?
Medicare providers should keep in mind that both ZPICs and Program Safeguard Contractors (PSCs) are quite sophisticated and are becoming more and more active in the ALJ hearing process, often replying to arguments presented to the Judge by a Medicare provider. Moreover, it is not uncommon for a ZPIC to send as many as three professionals to participate in an ALJ hearing — all of whom may ultimately defend the ZPIC’s initial denial of the provider’s Medicare claims. One of the ZPIC representatives very well may be an attorney. A ZPIC contractor against whom we regularly litigate often sends a licensed attorney to respond to pro-provider arguments that the claims qualify for payment because they were not reopened in a timely fashion or that even if the claims do not meet all of the applicable coverage requirements, any overpayment would still qualify for “waiver.” The ZPIC’s attorney may also respond to a number of limited arguments presented by a provider when trying to get a statistical extrapolation declared invalid by an ALJ. It has been our experience that the ZPIC’s attorney is typically polished, smart and prepared. When facing an unrepresented physician, the ZPIC’s lawyer would likely easily address any non-medical arguments presented by a Medicare provider. A second ZPIC or PSC representative likely to participate in an ALJ hearing is the contractor’s statistician. He is responsible for defending the legitimacy of the statistical sampling and extrapololation methodology employed by the ZPIC or PSC when extrapolating the damages in a case. While a significant number of physicians and other health care providers are knowledgeable in statistics and mathematics, few know or understand the regulatory requirements which must be met before a contractor may engage in statistical sampling and seek to extrapolate damages. As a result, few unrepresented providers have been able to convince an ALJ that an extrapolation is invalid. While the additional cost of engaging a statistical expert to review a ZPICs extrapolation actions can be costly, it is likely required if a provider hopes to have a reasonable chance of challenging an extrapolation. Finally, it is quite common for a ZPIC to send a third representative (typically a Registered Nurse) to provide clinical testimony in support of the ZPIC’s decision not to cover and pay certain claims, often citing the ZPIC’s own unique interpretation of LCD and LMRP requirements (an interpetation withwhich we often disagree). Overall, an unrepresented provider is often unprepared to address and respond to the many legal, statistical and clinical arguments presented by the various ZPIC participants in an ALJ hearing.
While ZPIC and PSC representatives are now regularly participating in ALJ hearings, they are not the only contractors who are prepared to rise to the challenge. Representatives of the Qualified Independent Contractor (QIC) have also been participating in some ALJ hearings. In cases we are aware of, the QIC representative has been an attorney working for the contractor. Nevertheless, there is nothing to prevent a clinician working for the QIC from attending the ALJ hearing and presenting the QIC’s arguments why certain claims did not qualify for coverage and payment. Additionally, in at least one fairly recent case we handled on behalf of a provider, a Medicare Administrative Contractor (MAC) clinical reviewer chose to participate in the ALJ hearing.
III. What are the differences between a “party” to a hearing and a “participant” in a hearing?
As 42 C.F.R. § 405.1010(c) reflects, there are significant differences between a “party” to an ALJ hearing and a “participant” in an ALJ hearing. As we previously discussed, a “participant” does not have the right to call witnesses or cross-examine parties or their witnesses. Additionlly, participants do not have the right to object to the issues described in the ALJ’s “Notice of Hearing.” As CMS has argued, these elements are “cornerstones” of the adversarial process. In the absence of these cornerstones, a proceeding is not considered to be adversarial, even though multiple Medicare contractor representatives may participate in an ALJ hearing. As a result, since the proceeding was not adversarial in nature, a provider will be precluded from seeking to have its attorney’s fees paid under the “Equal Access to Justice Act,” even though it ultimately prevailed at hearing. While perhaps technically correct, the idea that ALJ hearings are truly “non-adversarial” when Medicare contractors choose to join as a “participant” is flatly untrue. ZPIC lawyers, clinical reviewers and expert statisticians have proven themselves to be highly capable and effective when arguing their positions, despite the fact that their role in the hearing was considered to be “non-adversarial” in nature. To their credit, even though both sides may be passionate about their position on the issues, all of the ALJs we have practiced before have kept a strict rein on the proceedings.
IV. Depending on the specifics of a case, many providers would be better off engaging experienced legal counsel to represent their interests in an ALJ appeal.
When faced with an administrative overpayment case that is highly complex, involves a significant alleged overpayment or is based on a statistical extrapolation of damages, we recommend that a Medicare provider retain experienced legal counsel to represent the provider’s interests. While it is possible for an experienced attorney to step in and handle a case at a later level of administrative appeal (such as the QIC and ALJ levels), it becomes more and more difficult to do so in an effective fashion as the case progresses. We have seen a number of cases where a provider has failed to properly establish the record in a case and important supportive documentation stood the chance of not being admitted in the record because the provider failed to introduce it at lower levels of appeal. An experienced attorney can help ensure that the record is properly constructed and no important legal defenses or payment arguments have been left out of the case. Additionally, legal counsel will be able to assess the coverage requirements, identify possible holes in the provider’s case and work with the provider to identify witnesses and obtain supportive evidence to hopefully fill any gaps in the provider’s case.
As a final point, it essential to remember that the trier of fact, the ALJ responsible for presiding over the provider’s case, is a lawyer, not a clinician. Arguably, an experienced defense lawyer — rather than a clinician — is uniquely trained to analyze the legal issues presented, organize the provider’s facts and present the relevant evidence to the ALJ (another attorney). Together, a supporting clinician and a skilled attorney can be a formidable team when presenting a Medicare provider’s case. Moreover, this team is best equipped to respond to any arguments raised by participating ZPIC representatives during the overpayment hearing.
Robert W. Liles and other Liles Parker attorneys in the Firm’s Health Law Practice have extensive experience representing Part A and Part B health care providers and suppliers around the country in ZPIC, PSC and RAC overpayment appeals cases . Should you have any questions about your case or the overpayment appeals process, please feel free to call Roberts for a complimentary consultation. He can be reached at 1 (800) 475-1906.
(December 3, 2010): In recent years, Medicare Administrative Contractors (MACs) have become much more likely to initiate recoupment of alleged overpayments in connection with post-payment audits as soon as they are permitted to do so. The purpose of this article is to examine steps that a health care provider should consider when it is faced with a Medicare appeal and must consider how it will handle the recoupment / repayment issue.
I. Recoupment Considerations When Filing a Medicare Appeal at the Redetermination Level.
CMS’ current recoupment rules effectively vitiate the ability of a provider to use the 120-day period to prepare their case before filing for redetermination appeal. As the limitation on recoupment rules are currently applied, if a health care provider does not file for redetermination appeal within 30 days of the date of the MAC’s demand letter, then on day 41 the contractor will begin recouping the overpayment that is allegedly owed.
As a result, instead of having 120 days to file for redetermination appeal, providers are under significant pressure to file for appeal within the 30 days of the date of the contractor’s overpayment determination letter. To be clear, the 30-day clock does not start when the ZPIC sends out their decision letter. Rather, the clock starts as of the date that is indicated at the top of the MAC’s demand letter, not as of the date that the provider actually receives the demand letter. If the mailing of a MAC post-payment demand letter is delayed, or if the U.S. Postal Service takes longer than normal to deliver the demand letter to the provider (I know, that’s a real stretch of the imagination – nevertheless, just work with me so I can illustrate the problem), the provider won’t even have 30 days to file for redetermination appeal in order to avoid recoupment. Unfortunately, this example is all too real.
In a recent “big box” case we defended, for whatever reason the demand letter was not received by the provider until almost 10 days after the demand letter was dated. As a result, the provider (and our Firm) had to fully assess the ZPIC’s reasons for denial and work up compelling arguments in support of payment in less than 20 days, despite the fact that a provider is supposed to have 120 days after the receipt of the MAC’s demand letter to file for Medicare appeal at the redetermination level.
Notably, if a provider is willing to enter into an extended repayment plan with the MAC (whereby the alleged overpayment is paid out over a 12 – 60 month period), the provider can then take advantage of the full 120 day period to assemble relevant documents, assess applicable coverage and payment guidance and prepare arguments in support of payment. While most providers prefer not to pay anything in recoupment until it is absolutely necessary that they do so, such an approach may be short-sighted. In a number of cases, providers have been unable to track down supporting documentation and assemble persuasive arguments within the 30-day period.
II. Recoupment Considerations When Filing Your Medicare Appeal at the Reconsideration Level.
Once reviewed at redetermination appeal and the MAC sends out its redetermination decision, a health care provider only has 60 days to file for reconsideration appeal if it wishes to avoid any recoupment. Once again, if the provider is willing to enter into an extended repayment plan, it can use the 180-day period permitted by regulation to file its appeal for reconsideration. In many cases, however, the provider insists that we file for reconsideration appeal within the 60 day deadline. Unless the record has been fully assembled, this can be quite problematic. Providers are required to show “good cause” if they wish to have new information (typically in the form of medical records) after the reconsideration level of appeal.
Applying an appeals strategy which attempts to avoid recoupment until the last possible moment only postpones the inevitable. Once a reconsideration decision is issued, most MACs will seek to recoup the overpayment owed by a provider 30 days from the date of the reconsideration decision (not 30 days from the provider’s receipt of the reconsideration decision). While in some cases, we have seen the MAC wait until the current amount owed is recalculated by the ZPIC, the most prudent strategy is to expect for recoupment to begin 30 days from the date of the reconsideration decision letter. Importantly, recoupment will take place regardless of whether a provider files for Administrative Law Judge (ALJ) appeal. Therefore, if the provider has not already done so, it is highly recommended that the provider apply for extended repayment as soon as the reconsideration decision has been received.
III. Impact of CMS’ Current Recoupment Policies on Your Medicare Appeal.
Overall, the recoupment policies currently in place provide a short-term “fix” that is all to often taken by providers, possibly to the detriment of the provider’s case. In many cases, the desire to put off any recoupment merely delays the inevitable by a few months. As a result, it is recommended that providers discuss these options with experienced legal counsel and carefully weigh the benefits and disadvantages of each approach before choosing a course of action in connection with your Medicare appeal.
Robert W. Liles and his team of attorneys and paralegals in Washington, D.C., Houston, TX., and San Antonio, TX have handled a wide variety of post-payment Medicare audits around the United States. Our legal professionals have represented health care providers in front of ALJ in each of the four Offices of Medicare Hearings and Appeals handling ALJ level appeals. Please feel free to call us for a free initial consultation. We can be reached at: 1 (800) 475-1906.
 The term “big-box” case is typically used by ALJs and Medicare contractors to described large, multi-claim post-payment audit cases. In approximately 90% of the big-box Medicare appeal cases handled by our Firm, the ZPIC or PSC has taken an allegedly statically relevant sample of between 25 and 200 claims and has extrapolated the overpayments found in this sample to the entire universe of claims. As a result, in a majority of the cases we have handled, the extrapolated damages sought by Medicare often range from $100,000 to $5,000,000.
(June 25, 2010): The purpose of this series of articles is to assess the Recovery Audit Contractor (RAC) Program from the perspective of physicians, home health, hospice, durable medical equipment (DME) providers, and other relatively small Medicare providers. As many non-hospital providers will acknowledge, early cries of wolf by law firms and consultants did a fine job of initially publicizing the RAC threat. Unfortunately, the threat of a RAC audit now appears to be largely ignored by non-hospital providers due to the seemingly widespread sense that RACs will likely continue to focus their efforts on large, institutional Medicare providers – the ultimate “low hanging fruit” in terms of potential Medicare overpayments.
I. Should Non-Hospital Providers Worry About a RAC Audit?
RACs are, in fact, a real threat to physicians and other small Medicare providers, despite the fact that these particular contractors have passed over these providers in the past.
Over the last six weeks, the Centers for Medicare and Medicaid Services (CMS) has sponsored nationwide conference calls titled “Nationwide RAC 101 Call” specifically aimed at physicians, home health, hospices, and DME providers. Further, CMS conducted two general nationwide conference calls discussing the RAC program that were open to all Medicare providers.
These seemingly innocent informational calls were in fact extraordinarily significant, servicing almost as a “touchstone” for CMS and its RAC auditors. With the completion of these nationwide teleconferences, outreach has now been completed and CMS can affirmatively state that these non-hospital providers have been given multiple opportunities to learn about the program and prepare for an audit. All states are now eligible for review.
While CMS must still approve “issues” prior to their widespread review by the RACs, the contractors now have the billing data that they need to analyze and identify possible targets.
II. What Have Other Provider Experiences with RACs Been?
As physicians and other non-hospital providers prepare for possible audit, it is helpful to review hospitals’ experiences when preparing for and responding to a RAC audit. On June 22, 2010, the American Hospital Association (AHA) released its findings that the RAC program is having a widespread impact on almost all hospitals, even though many have not even been subjected yet to a RAC audit. In fact, for the first quarter of 2010 alone:
84% of responding hospitals reported that RACs impacted their organization;
49% of responding hospitals reported increased administrative costs; and
17% of the hospitals using external resources to address RACs hired consultants at an average cost of almost $92,000.
So, what do providers and non-hospital Medicare providers need to know about RACs? This multi-part series will address the following: First, the purpose and impact of RACs; Second, how to respond to RACs when they come calling; Third, some of the emerging issues for physicians and other small Medicare providers regarding RACs.
III. What’s a RAC?
The program was created by Section 306 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). Operating under the direction of the Department of Health and Human Services (HHS), RACs are independent third-party contractors tasked with identifying and correcting improper past Medicare payments. Each of four RACs has jurisdiction over a separate region of the United States.
After a three year demonstration in which RACs identified $1.03 billion in improper Medicare fee-for-service payments, the program became permanent earlier this year. CMS created the following table to clarify the role that these contractors are supposed to play compared to others, such as ZPICs. However, as we will see later in this series, these roles are not clearly delineated and the overlap in the review process can create substantial confusion and waste.
Role of Medicare Review Contractors
Improper Payment Function
|Contractor Performing Function|
|Preventing future improper payments through pre-pay review and provider education||Medicare claims processing contractors|
|Detecting past improper payments||RACs, ZPICs, PSCs|
|Measuring improper payments||CERT [Comprehensive Error Rate Testing]|
|Performing higher-weighted DRG [diagnosis related group] reviews and expedited coverage reviews||QIOs [Quality Improvement Organization]|
RACs are incentivized to hunt for evidence of overpayments in high-cost categories of service and to needle out errors that have nothing to do with actual patient care.
IV. How Are These Types of Contractors Paid?
RACs are paid on a contingency basis so it stands to reason that, during the initial program demonstration, only 4% of improper payments identified were underpayments. This “bounty hunter” approach also helps to explain why prior audits have focused almost exclusively on high-cost inpatient care services. Recent GAO testimony shed light on this situation and may cause RACs or other contractors to shift their focus to entities that do not have hospitals’ long history of review and compliance, namely physicians and other relatively small Medicare providers. Finally, a substantial percentage of overpayments collected by RACs during the demonstration program resulted from preventable coding errors, countering the myth that CMS is primarily focused on weeding out unnecessary service claims.
Providers in Region C may want to consider that the AHA found hospitals in that region, encompassing nearly 40% of all U.S. hospitals including those in Texas, Florida, and Virginia, reported the highest number of medical records requested, the highest amount of dollars targeted in medical record requests, and the highest number of denied claims (47% of the $2.47 million in denied claims reported in the first quarter of 2010).
V. Are There Any Safeguards to Protect Physicians and Other Small Group Providers?
Based on the demonstration program, numerous providers and others have expressed concern that RACs are overly aggressive auditors. Despite some improvements, concerns about the RAC process are likely to persist. As recent testimony by the GAO Health Care Director pointed out, the oversight of RACs leaves something to be desired.
Changes have been made to reduce the RACs unintended incentive to drive up fees (through the improper denial of claims). RACs are now required to pay back their contingency fee if the claim is overturned at any level of appeal, rather than just the first level as in the demonstration program.
Additionally, there are some limitations in place regarding the RACs ability to overwhelm providers with record requests. RACs may not request records more frequently than every 45 days and, for institutional providers, their requests are limited to 1% of all claims submitted for the previous calendar year. This is an overall limit, however, meaning that a RAC may determine the composition of the records in an additional document request. They can – and do – request categories of records up to the limit even if the request is disproportionate the provider’s business.
Finally, none of these improvements address the concern that the first several levels of the appeals process do not provide meaningful recourse for the overly aggressive auditing.
Robert W. Liles and Liles Parker attorneys have extensive experience representing health care providers around the country in Medicare appeals cases. Should you have any questions regarding these issues, don’t hesitate to contact Robert. For a complementary consultation, you may call us at: 1 (800) 475-1906.
 Available at http://www.aha.org/aha/content/2010/pdf/Q1RACTracResults.pdf
 Available at http://www.racaudits.com/uploads/RAC_Demonstration_Evaluation_Report.pdf.