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CMS Announces RAC Pre-Payment Review Demonstration Program

The Centers for Medicare & Medicaid Services announced a Recovery Audit Contractor (“RAC”) Pre-Payment Review Demonstration Program on November 15, 2011. The announcement of this program is a major shift in the RAC program because previously RACs were only allowed to conduct post-payment reviews of providers. Although the program is a demonstration and will only affect providers in 11 states, it confirms that CMS policy has shifted from the “pay and chase” model to a more aggressive, proactive and preventative model.

The Pre-Payment Review Demonstration Program (“Demonstration Program”) will be conducted for three years from January 1, 2012 to December 31, 2014. It will be implemented in 11 states. Seven of the states were chosen because of “a high level of fraudulent claims and providers” (MI, FL, CA, TX, NY, LA and IL) and the remaining four states were chosen because of high claims volumes of short inpatient hospital stays (PA, OH, NC and MO). The Demonstration Program will build on the RACs’ existing infrastructure to review claims and will initially focus on inpatient hospital claims, specifically short stays. CMS will choose more specific claim types of reviews as the Demonstration Program continues and RACs will review the claims selected.

The Pre-Payment Review RAC Demonstration Program reflects the ongoing difficulty to balance Medicare program integrity and the detrimental effect a pre-payment review has on Medicare providers. Pre-payment review is an aggressive method for contractors to audit providers and proactively prevent improper payments. However, pre-payment review threatens providers because it significantly impacts cash flow and there are no substantive criteria or procedures in place to determine placement on or removal from pre-payment review. With the harsh impacts of pre-payment review on providers, we also have concerns about RAC auditors being financially incentivized through a contingency fee to place providers on pre-payment review.

For more information on pre-payment review, the RAC Demonstration Program for pre-payment review or RAC audits, please contact a Wachler & Associates attorney at 248-544-0888.