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RAC Changes on the Horizon

April 4, 2018

The controversial Recovery Audit Program of the Centers for Medicare and Medicaid Services has garnered criticism from the American Hospital Association and other groups for its role in generating a huge backlog of appeals that can take months, if not years, to resolve, straining hospitals’ financial resources in the process.  A 2017 study published in the Journal of Hospital Medicine found that the appeals process for denied claims can drag on for more than four years.

The AHA sued HHS in 2012, claiming that hospitals were illegally being denied Medicare payments for audited outpatient procedures.  “The government’s refusal to pay for this care is harming hospitals and patients,” the lawsuit stated.  “More pertinent here, it violates the Medicare Act and is otherwise unlawful.”  AHA alleged the agency’s bureaucratic backlog wreaks havoc financially with hospitals, particularly smaller institutions, some of which choose not to appeal rather than face a costly appeal process.

A federal judge in the District of Columbia has asked the AHA to submit suggestions for how HHS can address the backlog. As of this past June, HHS’s Office of Medicare, Hearing and Appeals (OMHA) had more than 600,000 appeals pending with an estimated wait time of three years.  The backlog could reach more than 950,000 appeals by the end of 2021.  The judge has asked AHA to submit a list of recommendations by June 22, 2018, after which HHS will have until July 6 to respond, an article in Modern Healthcare reports.  An attorney for the AHA said the organization may suggest that HHS shift responsibility for audits of claims involving medical judgment to Quality Improvement Organizations (QIOs) rather than Recovery Audit Contractors (RACs), noting that QIOs may be better qualified to review the claims because many of them are run by clinicians.  AHA will also request that CMS financially penalize RACs if the majority of their denials are overturned on appeal, arguing that the strong financial incentive for RACs to deny claims puts an unfair financial burden on hospitals.

Despite the ongoing holdups at the hospital level, improvements in the recovery audit process at the individual clinician level could be on the horizon, an article in American Medical News reports.  In letters to CMS, the American Medical Association has requested changes to help lighten the administrative burden on physicians due to the audits.  It appears likely that some of these recommendations will be accepted, including requests for CMS to increase educational efforts for physicians on how to avoid common coding and billing errors; work with practices to address deficiencies that may lead to a high volume of coding and billing errors; consider replacing financial penalties with corrective action plans; and refine reviews using predictive analytics to identify claims at high risk for improper payments.

In the meantime, institutions and practices should prepare for continuing audit activity.  This includes understanding recent changes to the program.  On January 29, 2018, CMS published an update on additional documentation request (ADR) limits (percentage of total paid claims).  CMS will calculate a provider’s denial rate and then use that denial rate to identify the provider’s “adjusted” ADR limit.  Details on how previous denial rates will be used to determine the adjusted ADR can be found here.


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