Physicians on the RAC: Medicare Bounty Hunters Come Calling

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Medical Economics Feature - March 2009  


Tex Med. 2009;105(3):43-45.  

By Ken Ortolon
Senior Editor  

Medicare will soon be reaching into physicians' wallets to try to take back some of the money they've been paid for providing health care services to the nation's elderly. And Texas Medical Association officials say the effort could severely threaten the financial viability of physician practices.

Medicare's new Recovery Audit Contractor (RAC) program, designed to ferret out incorrect Medicare payments to physicians, hospitals, and other health care professionals, is expected to roll out in Texas sometime this year. And U.S. Centers for Medicare & Medicaid Services (CMS) officials believe the RACs could save Medicare hundreds of millions, if not billions, of dollars annually by recouping payments for services that were not medically necessary, for claims that were overpaid because of coding errors, for duplicate claims, or for fraud and abuse.

But hospital and state medical society officials in states where the RAC program was pilot tested say the RACs created massive paperwork nightmares for physicians and other health care professionals and took a huge bite out of hospital and physician practice revenues.

And, TMA officials are concerned that the audit contractors likely will be nothing more than bounty hunters looking to turn a fast buck.

"We're very alarmed about this," said Houston ophthalmologist Keith Bourgeois, MD, chair of TMA's Council on Socioeconomics. "Physicians need to understand that the way the RACs work is they get a percentage of the funds they recover. So there is a huge incentive for them to recover as much as they can and very little incentive for them to identify underpayments to physicians." 

Protecting Program Integrity  

In 2005, CMS launched a three-year demonstration project to test whether auditors could produce significant savings for the Medicare program by examining paid Medicare claims for overpayments or underpayments. The project, authorized by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, was deemed necessary because government officials felt the small number of claim reviews done by the Medicare carriers - less than 5 percent of claims paid - was insufficient to protect Medicare's program integrity.

Charles Haley, MD, Medicare medical director for TrailBlazer Health Enterprises, says the RACs do perform a "legitimate" function. TrailBlazer is the Medicare carrier for Texas.

"The big claims-paying contractors like TrailBlazer pay in excess of half-a-million claims every day," said Dr. Haley. "And it's all done with computers, so there are without question claims paid that shouldn't have been paid. And it's a legitimate function to try to collect that money back."

The demonstration was initially launched in California, New York, and Florida with three different recovery audit contractors. In 2007, CMS added Massachusetts, South Carolina, and Arizona to the project.

The RACs review claims filed by hospitals, physicians, inpatient rehabilitation facilities, home health agencies, nursing homes, durable medical equipment suppliers, and anyone else who bills Medicare for health care services.

The RACs have access to all electronic claims filed and can use data-mining techniques to identify claims that contain errors, such as inappropriate or omitted modifiers, payment for discontinued codes, and duplicated claims. They also can request actual medical records from the physician to determine if a claim meets Medicare coding requirements, if the service was for an excluded benefit or not medically necessary, or if the claim should have been paid by another payer.

The demonstration project was enormously successful from Medicare's point of view. In the three years of the pilot, the RACs identified some $900 million in overpayments and only $38 million in underpayments. CMS spent just 20 cents for every dollar it recouped, officials say. 

More Government Intrusion  

But physicians, hospitals, and others in the demonstration states were far from happy with the program.

"First of all, they [Florida physicians] hate it," said Fred Whitson, director of medical economics for the Florida Medical Association (FMA). "The reason they hate it is it's just another invasion by the government getting in their business and reviewing what they do."

Mr. Whitson says Florida physicians were angry because they saw the RACs as bounty hunters because they work on a contingency fee. "The more they collect, the more they make."

He says there were many "growing pains" for the RAC in Florida. The contractor there was HealthDataInsights Inc. (HDI) of Las Vegas, Nev., which is scheduled to be the RAC for most of the western and midwestern states.

One of the initial problems was that HDI was trying to apply current Medicare rules to claims that were three or four years old. Another problem was the volume of medical records requested from physicians. The RAC would identify a potential coding problem area and review every single claim that used that code. For example, HDI took a hard look at the use of modifier 25, which indicates that on the day a procedure or service identified by a CPT code was performed, the patient's condition required a significant, separately identifiable evaluation and management service above and beyond the other service provided or beyond the usual preoperative and postoperative care associated with the procedure that was performed.

"HDI did not pick and choose. They would identify a problem. For example, in hospitals they found the misuse of modifier 25," Mr. Whitson said. "So they checked every single electronic claim regardless of whether it was a solo practitioner or whatever for that error. Then everybody who had that error got sent an overpayment letter."

Mr. Whitson says some physicians who routinely billed using modifier 25 might get 100 recovery letters or requests for medical records review at a time.

Problems in California were even worse. According to a February 2008 article in Orthopedics Today, the RAC contractor there was denying nearly all claims for patients with joint replacement procedures admitted to inpatient rehabilitation facilities. There also were complaints that unqualified personnel were performing medical reviews, the program lacked physician oversight, determinations were inconsistent with Medicare guidance, and no determination of lesser payment due was made in many cases.

The California situation got so bad that two California congressional representatives filed legislation seeking a one-year moratorium on the RAC program. Even though that legislation has not passed in Congress, complaints about the RAC's handling of inpatient rehabilitation claims prompted CMS to order a halt to any further inpatient rehabilitation facility reviews in California in September 2007. 

Putting On the Brakes  

The RAC demonstration project ended in March 2008, but Congress long since decided to move forward with the project. The Tax Relief and Health Care Act of 2006 made the RACs permanent and directed that Medicare expand them to all 50 states by Jan. 1, 2010.

CMS has modified the RAC program to resolve some of the issues that arose during the demonstration. It reduced the look-back period from four to three years and prohibited the RACs from reviewing claims filed before Oct. 1, 2007. CMS also required the RACs to hire a medical director and to post specific billing errors they are looking for on their Web sites.

CMS also set limits on the number of medical records that a RAC can request. For physicians, the limits range from no more than 10 records per 45 days for a solo practitioner to no more than 50 per 45 days for large groups of 16 or more physicians.

While Mr. Whitson expects fewer problems with the RACs once the project resumes, there is still significant concern among hospitals and physicians about the bounty hunter nature of the RAC process and the administrative burden it places on providers.

Ernie Schmid, senior director for policy analysis at the Texas Hospital Association, says the RACs have almost ignored identification of underpayments. "As a practical matter, those underpayments have been a very small part of the errors that they've found," he said. "They don't focus on that, as you would well expect. The incentives are to find overpayments."

Dr. Bourgeois says the fact that more than 90 percent of payment errors found were overpayments also raises concerns. "That's not a representative sample based on what we've heard before," he said.

Mr. Schmid also says the administrative burden is likely to be heavy. "Large hospitals probably are going to end up adding FTEs [full-time equivalent employees] to manage this thing," he said, adding that there will be a ripple effect through the hospital because of efforts to avoid errors and take corrective action. "Almost all areas of the hospital are going to be part of either collecting information, tracking information, or dealing with corrective action," he said.

Dr. Bourgeois says physicians can expect their practices to lose productivity and incur increased expenses as they respond to requests for medical records, appeal repayment requests, and deal with other hassles arising from the RACs.

Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email at  Ken Ortolon.  



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