Some RACs are paused. Others aren't. Our experts explain.

Here's a quick timeline on CMS's Recovery Audit Contractor (RAC) program:

  • Hospitals were relieved in February when CMS halted the program.
  • The agency in August said that it would reinstate the program on a limited basis to identify situations in which providers have inappropriately billed Medicare and recoup overbilled funds.
  • However, the status of specific audits remains unclear, and many are unsure when CMS will reinstate the program in full.

The Daily Briefing's Clare Rizer sat down with Eric Cragun, The Advisory Board Company's senior director of health policy, and senior research analyst Joe Weissfeld to take a look at which audits the agency plans to reinstate, what is happening with audits that have yet to be renewed, and where the program goes from here.

Question: Let's start with the initial decision—made in February—to pause RAC's pre-payment additional documentation requests from providers. The contracts for those RACs thus ended in June. Can you explain why these audits were put on hold?

Eric Cragun: Sure. The main issue here was the backlog of appeals.

For context, HHS's Office of Inspector General in May said that, according to estimates from the Office of Medicare Hearings and Appeals, the backlog will reach a million claims by the end of this fiscal year. 

Three member FAQs about the initial pause on RAC audits

Q: CMS in August said that RACs would recommence audits for certain programs and procedures. But the agency didn't restart all types of RAC audits. Can you explain which reviews they're reinstating—and why these in particular?

Cragun: CMS has indicated most of the restarted reviews will be done on an automated basis. A limited number will be complex reviews on certain claims, including spinal fusions, outpatient therapy services, durable medical equipment, prosthetics, orthotics and supplies, and cosmetic procedures.

Plainly, CMS began audits on these procedures because they were some of the least controversial audit subjects.

Q: Can you give an example of the more controversial audits that the agency is holding back on?

Cragun: Sure. Here's the main holdout: RACs will not scrutinize inpatient claims to determine whether the care was delivered in the appropriate setting.

This is significant because challenges to claims for short-stay inpatient cases generated 91% of CMS's savings from RACs, but also resulted in significant controversy. The controversy led to the development of the "two-midnight rule," which modified the criteria for inpatient admissions. However, the two-midnight rule has only led to more controversy and full implementation of the rule has been delayed.

A look at the future of the two-midnight rule

Q: When do you expect to see the full RAC program back up and running?  

Joe Weissfeld: When CMS announced the RAC audit pause in February, the assumption was that audits would restart once they signed new contracts for performing the audits. And CMS in August expressed hope that the new RAC contracts will be awarded later this year. 

But a ruling issued in September by the U.S. Court of Federal Claims indicated that new RAC contracts would likely be delayed by at least a year until late 2015.

The Court granted a request from CGI Federal to stay the awards of new RAC contracts in RAC Regions 1, 2, and 4, the regions subject to litigation recently brought by CGI against CMS and HHS, while appeals in the case remain pending.

So the timeline for new contracts is very unclear at this point.

Q: In the meantime, should we expect to see RACs resume reviews of inpatient status designations?

Cragun: Well, the most recent SGR patch included a measure prohibiting CMS from allowing RACs to audit inpatient stay claims for appropriateness of setting until March 2015 unless there is evidence of fraud or abuse.

Beyond that, it is not clear when CMS will restart audits of short-stay inpatient cases.

CMS has been gathering feedback on alternatives to the two-midnight rule for defining inpatient stays and may wait to start inpatient status reviews until it addresses concerns about the rule. 

Some have speculated that they may wait until new RAC contracts are in place, but it is not clear whether this is the case.

 Q: How is the backlog of appeals coming along? Do we have updated numbers on that?

Weissfeld: Figures from August of this year suggest that the average processing time for appealed claims continues to grow despite the pause, with appealed claims resolved in August having taken an average of 496 days to resolve, up from 221 days in FY13.

Best practices for audit preparations

After Medicare's highly successful recapture of payments through the RAC program, post-payment audits from government and private payers are expected to occur more frequently. This study will help institutions comply more efficiently and successfully with auditors' requests.

After reading this study, members will be able to:

  • Conduct periodic self-audits and data-mining exercises;
  • Create a simplified audit workflow to minimize employee stress; and
  • Identify rulings whose appeals process is cost justified and selectively pursue such cases


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