Congress Seeks Limits On RAC Record Requests

Since CMS rolled out the recovery audit contractor (RAC) program as a demonstration program in 2005 and then made it permanent in 2010, hospitals have often chafed at the extra demands made by RACs to produce medical records for review. The RAC program is designed to “detect and correct past improper payments so that CMS can implement actions that will prevent future improper payments.”

For the second quarter of fiscal year 2013, ending March 31, 2013, RACs collected $627 million in overpayments from providers, and refunded $31 million in underpayments. Since 2010, RACs have collected $4.5 billion in overpayments from providers, and returned $334 million in underpayments.

RACs review claims on a post-payment basis, and can ask hospitals for medical records going back three years for review purposes. The four RACs that are under contract with CMS to perform reviews nationwide are paid a percentage of any recoveries as a contingent fee, a system that providers say has provided too much incentive for RACs to overturn initial claims. In addition, providers say that RACs are requesting too many additional document requests (ADRs). The American Hospital Association (AHA) says that there was a 61 percent increase in the number of records requested for RAC audits during 2012.

Proposed Legislation

Both the House (HR 1250) and the Senate (S 1012) are considering similar bills that would limit the maximum number of such additional document requests (ADRs) in a 45-day period to 500 or, in the case of a hospital that receives less than $100,000,000 in Medicare inpatient hospital payments in the previous year, 350.

In addition, the legislation would require a RAC to pay a fee to the prevailing party when a claim denial  is overturned on appeal. The amount of the fee payable by a RAC would be determined under a fee schedule established by HHS. The amount of the fee would reflect the cost incurred by a typical hospital in appealing a claim denied by a recovery audit contractor. The legislation also would prohibit HHS from approving the conduct  of a postpayment or prepayment medical necessity audit by a RAC unless the review addresses a widespread payment error rate, to be determined using a statistically significant sampling of claims submitted by hospitals in the jurisdiction of the RAC and adjusted to take into account claim denials overturned on appeal.

The legislation also would require CMS to publish on its website information about audit rates, denials, and appeals outcomes relating to each RAC. The AHA says that the legislation “proposes transparent and fair audit practices and assistance to hospitals in mitigating excessive overall audit burden.”

Changes to CMS Policy

In April, CMS announced changes to the limit on the number of ADRs that RACs may make to providers that in some cases matches what is in the proposed legislation. For example, the new CMS policy limits the number of claims that may be requested both in one year and in each 45-day period. RACs may demand up to 2 percent of the prior year’s claims in one year; no more than 1/8 of that number may be requested in each 45-day period, equivalent to language in the proposed legislation.

CMS also said that effective April 15, 2013, no more than 75 percent of the documents requested may be from any one type of claim. The claim types include inpatient prospective payment system (IPPS), outpatient PPS (OPPS), skilled nursing facility (SNF), inpatient psychiatric facility (IPF), inpatient rehabilitation facility (IRF), ambulatory surgical center (ASC), and physician claims. Interim and final bills are treated as one claim.

In March, CMS published a proposed rule  which also reflects language in the proposed legislation, under which hospitals would receive payment for all Part B services that would have been reasonable and necessary had the beneficiary been treated as a hospital outpatient rather than admitted as an inpatient when a Medicare Part A claim for inpatient hospital services is denied on the basis that the inpatient admission was not reasonable and necessary or when a hospital determines after the beneficiary is discharged that the admission was not reasonable or necessary.