Medicare Recovery Audit Contracting

This testimony discusses preventing and addressing government payment errors in the Medicare program. Medicare, which provides health insurance for those aged 65 and older and certain disabled persons, is susceptible to improper payments due to its size and complexity. Because the Medicare program has paid billions of dollars in error each year, the Centers for Medicare & Medicaid Services (CMS)--the agency that administers Medicare--conducts a number of activities to reduce improper payments. CMS administers the Medicare program with the help of Medicare claims administration contractors, which are not only responsible for processing and paying approximately 4.5 million claims per day, but for also conducting pre-payment reviews of claims to prevent improper payments before claims are paid, as well as post-payment reviews of claims potentially paid in error. To supplement these and other program integrity efforts, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 directed CMS to conduct a 3-year demonstration project on the use of a new type of contractors---recovery audit contractors (RAC)---in identifying underpayments and overpayments, and recouping overpayments in the Medicare program. The RAC demonstration program began in 2005. Subsequently, the Tax Relief and Health Care Act of 2006 required CMS to implement a national recovery audit contractor program by January 1, 2010. Since the conclusion of the demonstration project, CMS and we have reported on improvements needed for the RAC national program. For example, in a June 2008 report evaluating the demonstration project, CMS reported its intent to make a number of changes to the RAC national program to better address RAC-identified vulnerabilities, respond to provider concerns, and streamline operations. In March 2010, we reported on weaknesses in the agency's actions to address improper payments and CMS concurred with our recommendations. The findings in both reports are important in light of the administration's recent commitment to reducing payment errors in federal programs. In addition, the Patient Protection and Affordable Care Act mandates the use of RACs to identify overpayments and underpayments and to recoup overpayments made in Medicare Parts C and D and the Medicaid program. Not only can CMS's experience with RAC contractors benefit its other programs, but lessons learned from the RAC program may also assist other agencies' payment recapture audits, increase the funds recovered, and help prevent such improper payments from being made in the future. Our testimony is based on our March 2010 report13 and will focus on the lessons that can be learned from the RAC demonstration about (1) developing an adequate process and taking corrective action to address RAC-identified vulnerabilities leading to improper payments, (2) resolving coordination issues between the RACs and the Medicare claims administration contractors, and (3) establishing methods to oversee RAC claim review accuracy and provider service during the national program.

Our March 2010 report pointed to three areas for lessons to be learned from the RAC demonstration that could be applicable as CMS expands recovery audits to Medicare Parts C and D and Medicaid and to other agencies' payment recapture efforts. Establishing an effective recovery audit program involves developing processes to take corrective action on underlying vulnerabilities that lead to improper payments; coordinating the activities of various parties that have responsibilities related to the payment process; and assuring recovery audit contractor accuracy and service through oversight. Specifically, agencies should (1) establish an adequate process to address RAC-identified vulnerabilities leading to improper payments. During the demonstration, we found that CMS did not develop a process to take corrective actions or implement sufficient monitoring, oversight, and control activities to ensure the "most significant" RAC-identified vulnerabilities were addressed; (2) Take steps to address coordination issues between contractors. According to CMS, once the RACs identify errors, Medicare claims administration contractors are responsible for re-processing the claims to repay underpayments or recoup overpayments, conducting the first level review for RAC-related appeals, and informing and training providers about lessons learned through the RAC reviews. During the demonstration project, providers noted that RAC determinations resulted in thousands of provider appeals to Medicare claims administration contractors. These appeals and re-processing of claims produced additional workload for the Medicare claims administration contractors, who are also responsible for adjudicating the first level of appeals. The appeals and adjustments workload led to coordination challenges for the Medicare claims administration contractors and RACs. As a result, CMS learned that regular communication between the RACs and the Medicare claims administration contractors regarding RAC-identified payment vulnerabilities was important due to their interdependence; and (3) oversee the accuracy of RACs' claims reviews and the quality of their service to providers. During the demonstration project, providers stated that the contingency fee payment structure CMS employed created an incentive for RACs to be aggressive in determining that paid claims were improper. RACs were paid contingency fees during the demonstration even if their findings were later overturned on appeal. For the national program, CMS changed its payment of contingency fees so that RACs will have to refund contingency fees received on a determination overturned at any level of the appeal process. CMS also established performance metrics that the agency will use to monitor RAC accuracy and service to providers.