Wednesday, December 16, 2009

Trendspotter: Obama campaign against Medicare fraud emboldens RACs

By Ken Terry

Since last March, the domain of Medicare’s new Recovery Audit Contractors (RACs) has expanded from four states to nearly the whole country.

During the three-year pilot that preceded this expansion, the RACs focused mostly on hospitals, and 85 percent of the $900 million-plus in overpayments that were returned to the Medicare trust fund from 2005 to 2008 came from hospitals. Nevertheless, some experts warn that the RACs will eventually pay more attention to physician practices. And, with the Obama administration ramping up its rhetoric against Medicare “fraud and abuse,” the RACs are getting plenty of encouragement.
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President Obama announced the new direction in his healthcare address to Congress in September. “The only thing this [reform] plan would eliminate [from Medicare] is the hundreds of billions of dollars in waste and fraud, as well as unwarranted subsidies in Medicare that go to insurance companies,” he said.

Then, in November, the White House announced that the Centers for Medicare and Medicaid Services (CMS) had made $54.1 billion in improper payments in fiscal 2009, and that the number of erroneous payments by the fee for service Medicare program had roughly doubled to $24.1 billion from the previous year’s level. As a percentage of total Medicare fee for service payments, that represented 7.8 percent, compared with 3.6 percent in 2008. The implication was that if these improper payments could be eliminated, the galloping rise in Medicare costs could be curtailed.

However, as White House Budget Director Peter Orszag quickly acknowledged, the apparent increase in Medicare overpayments was largely due to a change in accounting methods. For example, he said, payments on claims supported by poor documentation or illegible signatures were now being regarded as errors; before, they had generally been disregarded. And this is where the RACs may see an opening to harass physicians who have submitted Medicare claims in good faith for services they actually performed.

According to David Glaser, a Minneapolis attorney who specializes in defending physicians against Medicare audits, the RACs “are nailing people on things like unsigned notes that don’t necessarily take a lot of work. It’s clearly unfair to the doctors, because you’re fighting over that stuff even though there’s no doubt the service was provided. And recently, the RACs have been hinting that if your signature is illegible, that’s a basis for a denial.”

Then there’s the small matter of the RACs’ contingency fees for recovering government money. Those range from 9 percent to 12.5 percent of the funds they collect, depending on the region. This bounty hunting, which Glaser calls a “legitimate concern” for doctors, reflects another new approach of the Obama Administration. For example, the Office of Civil Rights in the Health and Human Services Administration is now empowered to support its investigation of HIPAA privacy violations with a portion of the fines it imposes on physicians and hospitals.

The RACs’ bounty hunting may have one positive aspect, Glaser notes. If the RACs go after physicians for minor rule violations and most of the doctors win on appeal, the RACs won’t get any money in those cases. “So that holds out some hope that they’ll be more rational than the past Medicare audits have been,” he says.

In any case, you should remember that Medicare carriers are still actively auditing physician claims, as well. So, even if the RACs don’t aggressively pursue physicians for some time, you could still feel the sting of an auditor’s letter. And, if the government continues its aggressive campaign against Medicare fraud, those audits might occur more frequently. So mind your Ps and Qs.

Ken Terry is a New Jersey-based freelance writer and the author of the book "Rx for Health Care Reform." In his weekly Trendspotter column, Ken is looking out for trends and changes that may affect your practice.


  1. You bring up a key point- the does not get a fee if the denial is overturned. In the demonstration project the RAC kept the fee even if reversed.
    Therefore every denial should be appealed. The appeal process takes little effort- write a letter of appeal- we have nothing to lose but a stamp and a lot to gain by making the RAC's think twice about going after questionable denials. They won't fight too hard to go after a $250 charge denial if their $20 bounty is eaten up with the work to process the first appeal.

  2. Our RAC audited one of our claims and determined we had UNDER coded an office visit. This was still considered an error but to CMS' favor. We thought everything was OK. But to our surprise, CMS audited the RAC and determined they hadn't conducted the audit according to their guidelines. When CMS reviewed our documentation, they discovered that our notes (electronic) had not been signed and so the whole claim was denied. We had to refund our payment to Medicare while we await the review of our appeal. If this is a preview of what's to come, it will be a real nightmare.