Hospitals preparing for audit program to recover Medicare overpayment

Health-care providers next month get their first taste of a permanent federal audit program that will likely return hundreds of millions of dollars in Medicare reimbursements back to the government.

The Recovery Audit Contractor (RAC) program will in March (pdf) begin a review of Medicare reimbursement in more than two-dozen states including Indiana, Michigan and Minnesota. By August the program will begin in Ohio, Illinois, Wisconsin and remaining states.

Cash-strapped hospital systems are wary of the project that they point out doesn’t subsidize the costs of managing or appealing results of the audits. “It’s basically an unfunded mandate you have to absorb,” said Marilyn Litka-Klein, vice president for health finance at the Michigan Health and Hospital Association.

But the potential savings are dramatic. A three-year test of the RAC program in six states recovered nearly $1 billion. The Congressional Budget Office estimates the program will have a net savings of $1.2 billion this year and return $1.5 billion to Medicare in incorrect reimbursements every year after that through 2014.

“Our mission of the RAC program is to identify improper payments and correct the root cause of the problem,” said Connie Leonard, director of the division of recovery audit operations. “We want to get to the point where Medicare can make the proper payments the first time.”

The RAC program is part of a series of efforts by Medicare to become more efficient while fighting fraud, waste and abuse. The program will review reimbursements to medical durable goods companies, hospital systems and any other organizations that make a claims to Medicare Trust Funds.

The program was delayed late last year after protests by a couple of unsuccessful audit bidders. But those protests were resolved in early February, and the audits were put back on schedule.

The audits are meant to discover under-billing and over-billing. But the project is finding largely mistakes that favored hospitals. Only 4 percent — $38 million-worth – of payment errors found during the three-year trial were underpayments to hospitals, for example. Auditors found more than $990 million-worth of overpayments by Medicare.

“Hospitals should be expecting [RAC] to come in and try and take their money,” said Andrew Wachler, a founding partner of Wachler and Associates in Michigan, which represented hospitals in the trial audit process.

Hospitals associations, health systems and attorneys are concerned on several fronts.

They say the program is unforgiving. For example, if an audit finds that inpatient care should have been billed as an outpatient observation, the outpatient treatment is not paid. “In my opinion, they should [pay],” Wachler said. Leonard said that in some cases the provider may be able to bill for some services.

Plus, it’s often the physicians — not the hospitals — who determine whether a patient gets an inpatient or outpatient procedure. But it’s only the hospital’s reimbursements that are at stake, hospitals say. Leonard said that CMS is open to training physicians in a hospital system if they can be brought together at one time. But, from a payment perspective, the hospital is liable because it receives the reimbursement.

Eighty-five percent of claim denials during the three-year test dealt with in-patient hospital procedures. Roughly one-third of overspent money came from incorrect coding, according to the Centers for Medicare & Medicaid Services (CMS). The government has been urging health-care providers to check their documentation ahead of the RAC program, Leonard said.

“The trouble is, a lot of these claims will be the result of poor documentation — that the services are medically necessary but are poorly documented or there was a coding problem,” said Drew Botschner, general counsel for University of Cincinnati Physicians.

Hospitals need to be prepared before the auditors arrive, Wachler said. Hospitals should designate one person to coordinate RAC requests to speed and focus the effort. Plus, health systems should watch other RAC audits to learn what area auditors are focusing on. Knowing this, hospitals could react to audit findings and be ready to appeal them.

Leonard said health systems that have compliance officers likely will fare well. ”There are facilities out there [that] expend a great amount of time on compliance,” she said. But ”many, because of the economy, haven’t done as much” and may fare worse.

Knowing audit deadlines and understanding audit regulations are crucial, Wachler said. In some cases, evidence that isn’t presented at one phase of the appeals process cannot be presented in a later phase, he said.

Only an appeal filed soon afer the audit is completed would keep Medicare reimbursements with the hospitals until the appeals process is complete.

“I think hospitals can’t be the easy mark and not appeal,” said Wachler, noting that auditors are paid contingency fees based on what they recover.

About 8 percent of disputed reimbursements were overturned on appeal during the trial audits, Leonard said.