Health Care Providers Brace for Medicare Audits

The Physician’s Corner

Preparing for Recovery Audit Contractors (RACs)

By Henry Tulgan, M.D., FACP

In 2003, Congress, under Section 306 of the Medicare Prescription Drug, Improvement and Modernization Act, created a new program called the Recovery Audit Contractor program (RAC). The new program is intended to detect and correct administrative and resource waste in the Medicare program. It began in 2005 in California, Florida and New York, and expanded in 2007 to Arizona, Massachusetts and South Carolina. By 2009, the RAC program existed in 44 states and the District of Columbia. The program is set to roll out in the rest of the states in 2010.

Unfortunately, although hospitals started planning for the program immediately, many physicians are not as aware of the details as they need to be to ensure proper compliance. There are four jurisdictions for RACs. They are not based on geography. For example, Massachusetts is covered by Diversified Collection Services located in Livermore, Calif., whereas the state of California is covered by a firm in Nevada.

Each RAC is staffed by nurses, therapists, certified coders and a full-time physician contractor who serves as the medical director. RACs perform their functions on a contingency-fee basis and receive payment based on the amount of improper payments they correct (both overpayments and underpayments). Contingency fees are negotiated with the Centers for Medicare and Medicaid Services (CMS) and vary by region. Under a 2008 contract, contingency fees range between 9 and 12.5 percent. The number of records a RAC may request is based upon provider type: The maximum number of records a RAC will review for inpatient hospitals and other similar facilities (inpatient rehabilitation facilities, hospices and skilled nursing facilities) is 10 percent of the average monthly paid Medicare claims with a maximum of 200 records. Note: CMS has imposed a limit on the number of records RACs may request of 200 claims per 45-day period. The record limit request for other Medicare Part A billers is 1 percent of the average number of monthly Medicare episodes of care, again with a maximum of 200 claims. Limits for practitioners (including physicians, podiatrists and chiropractors), based on the NPI submitted on claims are:

• Solo practitioners: 10 medical records per 45 days
• Small partnerships, consisting of 2-5 individuals: 20 medical records per 45 days
• Mid-size groups, consisting of 6-15 individuals: 30 medical records per 45 days
• Groups of 16 or more: 50 medical records per 45 days
• Other Part B Billers: 1% of the average number of monthly Medicare claims with a maximum number of 200 records per 45 days

However, these numbers will be increasing soon. From April through September 2010, the limit on the number of records that can be requested for review will increase from 200 to 300 for providers and suppliers who bill more than 100,000 claims to Medicare. In addition, RACs can request permission to exceed the limit in the latter six months of the fiscal year. There are two types of audits:

• Automated audits rely on available data and usually involve clear errors, such as billing for duplicate procedures on a single day.
• Complex audits involve a request for medical records by an auditor and concern areas that may be susceptible to errors based on the auditor’s knowledge of the industry.

Several organized medical groups have advocated on behalf of physicians to CMS that claims for evaluation and management of a patient’s condition that reflect cognitive decision making should not be subject to review. These advocates also argue that RACs should not be allowed to extrapolate the results of reviewing a limited sample of a provider’s records to arrive at a higher overpayment amount. It is not clear if these attempts will be successful.

Some audits are focusing on whether short-stay hospital admissions are necessary. Currently, RACs can review claims as far back as three years from the current date, as long as the claim was made after October 1, 2007. Physicians should prepare for RACs by conducting their own practice audits to ensure that all claims are coded and submitted according to Medicare rules. They should also visit RAC websites to familiarize themselves with the types of claims errors that have been identified.

Physicians must also be aware of the 120-day window to appeal adverse actions of an audit. This can involve a five-step process. Several law firms have developed expertise in this area. When in doubt, early consultation with one of them may be advisable. Hopefully, the increased use of electronic medical records for documentation of services and of automated billing services with built-in safeguards will help protect physician practices from audit problems. Although RACs are required to follow the same regulations as Medicare contractors from established programs, the fiscal and legal consequences for unprepared practitioners could be severe. Careful preparation may save both a lot of apprehension and substantial costs.

Next: CME Instructions