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OIG Issues Report and Recommendations on Medicare Recovery Audit Contractors (RACs)

     Recovery Audit Contractors (RACs) are charged with identifying improper Medicare Part A and Part B payments (both overpayments and underpayments) and recouping any such overpayments. There are currently four RACs, each working in a designated region of the country. RACs are paid on a contingency fee basis, calculated as a percentage of overpayments recovered by the Medicare program and underpayments returned to providers. The Department of Human Services' Office of Inspector General (OIG) periodically reviews CMS data from the RAC program and makes finding and recommendations to CMS.

     Based on claims from the fiscal years 2010 and 2011, the OIG issued its most recent report on the RAC audit program in August, 2013, and its findings and recommendations should be of great interest to physicians and other providers which may be subject to RAC audits. The key findings of the report include the following:

• Half of the claims reviewed by the RACs were found to include improper payments.

• $768 million in overpayments was recovered from providers and $135 million in underpayments was returned to providers.

• 32% of the improper payments identified by the RACs were the result of a finding that medical services were delivered in inappropriate facilities and 25% were the result of providers billing incorrect codes.

• Providers did not appeal RACs' findings for approximately 94% of the claims on which the RACs found overpayment.

• Nearly half (44%) of the RAC overpayment findings appealed by providers were overturned on appeal.

• The RACs referred six providers to CMS for potential fraud.

     The OIG did not examine the accuracy of the RAC audits or of appeals findings. The OIG made four recommendations as a result of its findings: (1) that CMS take action on issues which have resulted in over 500,000 improperly paid claims (referred to as vulnerabilities) and evaluate the effectiveness of these actions in decreasing the number of claims improperly paid claims associated with each issue: (2) that CMS ensure that RACs refer all appropriate cases of potential fraud; (3) that CMS review and take appropriate timely action of RAC referrals of potential fraud; and (4) that CMS develop additional performance evaluation metrics to improve RAC performance.

     What the OIG Report means for physicians: The fact that a quarter of all claims with improper payments resulted from RAC findings that an improper code had been billed reinforces the need for physicians to benchmark their use of codes with other physician practices in their specialty and to regularly review their billing practices for accuracy. Such reviews can mitigate a physician's chance of being subject to a RAC audit. Moreover, in the event of an audit, these reviews can provide valuable support for a physician's coding and documentation. It is too early to tell whether the OIG's recommendations on fraud will result in more providers being referred to CMS for potential fraud. However, regular analysis by physician practices of their coding and documentation can go a long way towards ensuring the accuracy of billing, thereby removing the specter of a fraud investigation.

     The finding that nearly half of all appealing RAC overpayment findings are overturned on appeal means that physicians should carefully review RAC overpayment findings and strongly consider appealing adverse findings that a physician practice and its advisors believe to be erroneous.

     Whatley Kallas, LLP has prepared an article on the Top Ten Tips for Physicians Facing RAC or other Medical Audits, which can be accessed at this link.