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OIG Releases Report on RACs and the Actions Taken by CMS to Address Improper Payments, Fraud Referrals, and Performance

In August 2013, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued a study addressing problems and vulnerabilities in Recovery Audit Contractor (RAC) activities, as well as their oversight by Centers for Medicare & Medicaid Services (CMS). RACs are tasked with identifying improper payments and are paid on a contingency fee basis according to their findings. RACs are also obligated to refer potential fraud to CMS.

The report addresses RACs’ efforts at identifying improper payments and potential fraud for the fiscal years (FYs) 2010-2011 and emphasizes the importance of effective CMS oversight over the RACs. The OIG set out to discover and report on four main objectives, including the extent to which:

1. RACs identified improper payments for services billed to the Medicare program;
2. CMS addressed vulnerabilities with corrective actions;
3. RACs referred potential fraud to CMS and CMS took action on those fraud referrals; and 4. CMS assessed RACs’ performance responsibilities
First, the OIG revealed that for FY 2010 and 2011, RACs identified improper payments for 50% of the total claims reviewed, resulting in $1.3 billion in improper payments. According to the latest figures released by CMS, but not included in this study, RACs corrected a total of $2.4 billion in improper payments in FY 2012. According to the OIG report, in FY 2010 and 2011, almost half of the identified improper claims were overturned on appeal by providers; however, only 6% of the identified overpayments were actually appealed by providers. Of all of the recovered or returned improper payments, 88% were from inpatient hospitals.

The OIG also reported that although CMS actively addressed most of the vulnerabilities it observed, CMS did not take action to address all of the vulnerabilities that resulted in millions of dollars of improper payments. In addition, the OIG found that CMS did not evaluate the effectiveness of CMS’s corrective actions in addressing the vulnerabilities, which directly contradicts CMS’s stated policy to do so.

During the period of study, CMS received six referrals of potential fraud from RACs, but as of November 2012 CMS did not proactively respond in addressing the potential issues. Furthermore, in CMS’s duty to evaluate RACs’ performance on their contract requirements, the OIG found that CMS’s performance evaluations did not contain proper metrics.

In addition to postings its findings, the OIG released four main recommendations for CMS. The OIG recommended that CMS:

1. Assess and address vulnerabilities pending corrective action, as well as evaluate the effectiveness of CMS’s currently enacted corrective actions;
2. Certify that RACs are referring every case of potential fraud to CMS, and provide necessary training to RACs to assist contractors in identifying potential fraud;
3. Act timely on RAC referrals of potential fraud; and 4. Improve the performance evaluation metrics CMS utilizes for RAC performance.

CMS concurred with the first, second and fourth recommendations. Although CMS did not specifically address the third recommendation, it stated that it reviewed the six RAC referrals. Four of the six referrals were forwarded to ZPICs to determine if the providers have conducted potential Medicare fraud.

Over the recent years, health care providers have witnessed a steady increase in auditing activity by RACs and other CMS contractors. Wachler & Associates healthcare attorneys regularly defend Medicare, Medicaid, and third party payor audits. For further information on how to successfully defend an audit or implement effective compliance policies to minimize the risk of future overpayment demands, please call an experienced healthcare attorney at 248-544-0888 to schedule a meeting to discuss your concerns.