Kusserow’s Corner: Senate Aging Committee Reports CMS Failing With Its Contractors

In a series of recent blogs, I have reported on the problem of the multi-year backlog of appeals to administrative law judges (ALJs) that led to the Office of Medicare Hearings and Appeals (OMHA) suspending new cases from being filed. I reported on House hearings on the subject. Now coming from the Senate is a related attack on what appears to them as a system that is not working the way it should.

The Senate Special Committee on Aging released a bipartisan report on Medicare audit programs, including the recovery audit contractors (RACs) that expressed concern that the government’s “strategy to reduce improper payments is actually a strategy aimed more at identifying and recovering improper payments that have already occurred.” They noted a “significant burden is being placed on providers as result of the larger number of audits, many of which may be duplicative.” This is resulting in providers losing millions of dollars that are tied up in appeals because of increasing numbers of Medicare audits. The contractors receive contingency fees of between 9-12.5 percent for their recoveries. A recent OIG report was cited that found providers were successful in 72 percent of the inpatient claims denials that they appealed. Another finding was that most errors identified by the contractors were overruled by ALJs upon appeal. Many from the industry pointed out they won the vast majority of appeals with less than a quarter of the appealed recoveries sustained. In many cases, millions of dollars were withheld during the appeals process. The report also stated that “contractor error rate reduction plans must be overseen more effectively by the CMS.”

The Committee noted that the administration has added considerable manpower over the last several years to investigate cases, increase audits, and analyze more data to fight fraud in the Medicare program, including launching a $77 million technology screening system designed to proactively prevent fraudulent providers from joining the system and prevent bogus claims from being paid in the first place. Despite all these new resources being employed, improper payments within Medicare’s largest sector increased for the first time in five years, jumping from $30 billion to $36 billion. What this means is that improper Medicare payments climbed from 8.5 percent in fiscal year (FY) 2012 to 10.1 percent or $50 billion in FY 2013, despite all efforts by the administration.

The Committee expressed concern that the government’s “strategy to reduce improper payments is actually a strategy aimed more at identifying and recovering improper payments that have already occurred.” It blamed the administration for lax oversight of its confusing maze of private fraud prevention contractors, noting a fundamental flaw in the way certain contractors are paid because they are paid based on the dollar amount of fraud they identify. The Committee made a number of recommendations to CMS:

  • Consolidating post-payment review activities to the maximum extent possible;
  • Considering financial incentives aimed more at the reduction of improper payment rates in a given contractor’s jurisdiction, rather than solely on the amount of improper payments identified;
  • Strengthening its review of contractor error rate reduction plans; and
  • Emphasizing provider education.

In response to the criticisms, CMS reported making changes as it prepares to award a new round of contracts. For example, the contractors won’t be paid their contingency fees until their decisions have been upheld at the second level of the six-stage appeals process.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2014 Strategic Management Services, LLC. Published with permission.