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Medicare is implementing an aggressive new nationwide auditing program to crackdown on inaccurate billing.

Under the U.S. Centers for Medicare & Medicaid Services’ (CMS) Recovery Audit Contractor (RAC) program, independent auditing firms (see below) – with their compensation based on the dollar amount of inaccurate billing they uncover – will now be retained in all 50 states to review Medicare claims filed by physicians and all other entities or practitioners who bill the Medicare program.

“Optometry has good record with respect to claim filing accuracy. However, all health care providers should be aware that Medicare is expanding its claim auditing program. There will be more audits and records will be scrutinized even more carefully,” said Roger Jordan, O.D., member of the AOA Federal Relations Committee.

“To minimize the possibility of a time-consuming Medicare audit, as well as ensure prompt payment of Medicare claims, practitioners should review their claim filing practices for adherence to Medicare rules and regulations,” Dr. Jordan advised.

Since its inception, the CMS has relied on a cadre of staff auditors to monitor Medicare claims for inaccuracies. However, as part of an improper billing reduction initiative authorized under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Congress instructed the agency to investigate the use of outside auditors as a means of supplementing its in-house auditing program.

Because the independent auditors are paid a contingency based on the dollar amount of improper payments they identify and return to the federal treasury, the audit firm tends to examine claims closely and tend to be diligent about seeing that overpayments are actually recovered, the AOA Advocacy Group says.

The CMS tested the RAC concept with a three-year (2005-2008) RAC demonstration project that was launched in California, Florida and New York and expanded to Massachusetts, South Carolina, and Arizona in its final year.

After the Congressional Budget Office determined the RAC program was producing immediate results, Congress in 2006 enacted legislation requiring it be made permanent in all 50 states by 2010, using savings from the RAC program to help offset the cost of physician pay increases authorized that year. 

The RAC auditors rely primarily on computers to scan Medicare claims for billing issues, such as duplicate claims and incorrect fee schedule amounts.

RAC auditors are paid contingency fees for all overpayments and inappropriate payouts identified in Medicare Part A and Part B claims reviews. 

However, under the RAC program, auditors are responsible for detecting all types of improper Medicare payments, correcting the payments by either collecting overpayments or paying back underpayments to providers.

President Obama predicts the independent audit initiative will return at least $2 billion during its first three years as a national program, doubling the amount Medicare had expected to recover over that period.

A CMS evaluation found the three-year RAC demonstration project corrected more than $1 billion of Medicare improper payments from 2005 through March 27, 2008.

Based on those results, the agency expects RAC to find at least $2 billion in Medicare billing errors during its first three years as a national program.

Roughly 96 percent of the improper payments ($992.7 million) were overpayments collected from providers, while the remaining 4 percent ($37.8 million) were underpayments repaid to providers.

The vast majority of payment recoveries in the demonstration project came from hospitals rather than health care practitioner offices. Some 85 percent were collected from inpatient hospital providers, and the other principal collections were 6 percent from inpatient rehabilitation facilities, and 4 percent from outpatient hospital providers.

Only about $20 million – or about 2 percent – of the overpayments, was recovered by auditors from physician claims.

Recovery Audit Contractor

 Under the new Recovery Audit Contractor (RAC) program, Medicare claims will be reviewed by one of four firms retained directly by the U.S. Centers for Medicare & Medicaid Services (CMS) to provide postpayment auditing services on a regional basis as follows:

• Region A: Diversified Collection Services — Maine, New Hampshire, Vermont, Massachusetts, Maryland, New Jersey, Delaware, Pennsylvania, Rhode Island, Connecticut, New York, and Washington, D.C.
• Region B: CGI Technologies and Solutions, Inc. – Michigan, Indiana, Minnesota, Wisconsin, Illinois, Ohio, and Kentucky.
• Region C: Connolly Consulting, Inc. – Alabama, Mississippi, Georgia, South Carolina, Florida, North Carolina, Oklahoma, South Carolina, Texas, New Mexico, Virginia, and West Virginia.
• Region D: Health Data Insights, Inc. – Alaska, Arizona, California, Hawaii, Idaho, Montana, Colorado, Wyoming, Nevada, North Dakota, Oregon, South Dakota, Kansas, Nebraska, Missouri, Iowa, Utah and Washington.