House Lawmakers Call for Immediate Reform to the Recovery Audit Contractor (RAC) Process

A bipartisan group of House members called for immediate reforms to the Medicare RAC program in a February 10, 2014 letter to HHS Secretary Kathleen Sebelius.  The letter cites the structure of the RAC audit and payment system as the key problem:  RACs are permitted to audit medical records and claims three years after the services have been provided and are paid a commission on the dollar amount of the claims they deny.  The payment structure incentivizes RACs to deny claims even in cases where the claims are actually correct.  The letter references a November 2012 OIG report that found 72 percent of hospital Medicare Part A claims were overturned in favor of the hospital at the third level of appeal (administrative law judge (ALJ) hearing), demonstrating the considerable administrative burden and financial resources hospitals are forced to dedicate to appealing denied claims in order to obtain reimbursement.

The significant backlog of appeals in the Office of Medicare Hearings and Appeals (OMHA) is also cited as reason reform is needed.  OMHA has suspended assignment of claim appeals to ALJs for the next two years due to a backlog of approximately 460,000 claims.  Notably, the ALJs currently have another 375,000 claims before them.

The letter also points out the concerning impact the RAC program has on Medicare beneficiaries.  When a hospital inpatient stay is incorrectly denied by a RAC, it is the beneficiary who pays the higher out-of-pocket costs under Medicare Part B and may also be liable for the cost of post-acute care services.

The lawmakers recommended immediate reform to the current RAC process as well as the allocation of additional CMS resources in order to ease the OMHA backlog.  Specifically, the letter called for an alternative payment arrangement for RAC auditors and a more transparent mechanism to inform providers of coding and documentation errors so they are are able to avoid those issues in the future.

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