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Senate Report Finds the RAC Program to be Ineffective in Reducing Improper Payment Rates and Burdensome on Providers

In a report released on July 9, 2014, the Senate Special Committee on Aging criticized the Centers for Medicare and Medicaid Services (CMS) for the increase in improper payments in the Medicare program, despite the increasing amount of audit activity and the resulting burden on Medicare providers.

The report noted that despite an increase in the number of contractors conducting pre and post-payment audits and in audits themselves, there has not been a reduction in the total rate of improper payments made to providers. In 2013, the rate jumped to 10.1%, from 8.5% in 2012. This was the highest rate in the last five years, despite significant efforts to combat improper payments.
The report also found numerous inefficiencies in the Recovery Audit Contractor (RAC) program and with other contractors more generally. For instance, the report noted that often times different audit contractors audit the same provider for claims that have been previously reviewed. This results in duplicative document requests that burden providers. The report recognized that providers often times providers must respond to documentation requests from contractors with their own unique timelines and specifications for proper documentation submission. The inconsistencies among contractors lead to significant confusion and, in some cases, denial of properly billed claims. Also noted was a problem well-recognized by the provider community, the withholding of Medicare funds during the later stages of the appeals process, despite the often the two, three even four year delay before providers receive an administrative law judge (ALJ) hearing decision. According to the report, one large hospital system has over $200 million withheld until its matters are adjudicated. The report recognized that for many providers, the ALJ level of appeal is successful. As an example, the report noted that for another health system, there was a 97% success rate for appeals at the ALJ level. The withholding of funds, especially when they have been properly billed, presents an enormous burden on all healthcare providers, even potentially forcing smaller providers to close their doors because they are unable to absorb the loss in revenue.

The Senate report also criticized the RAC program on some fundamental issues. The report was highly critical of what is termed the “pay and chase” model of reducing improper payments to providers. Although CMS announced its move away from this model to a more preventative model, the report concluded that the structure of the audit programs still encourages “pay and chase.” Under this model, most of the audit contractors seek to recoup improper payments after they have been made to providers. This is problematic for numerous reasons, one of which is that under this model the RACs are paid on a contingency fee basis that is dependent upon the amount of improper claims that they identify. Thus, there is a potential incentive for RACs to keep improper payment rates high in an effort to increase RAC productivity. The report and members of the Senate Special Committee suggested that the RACs should be compensated by how effective they are at reducing the improper payment rate over a designated period of time or by how they prevent improper payments from occurring in the first place.

In order to lower the improper payment rate, the report recommends that:

  • CMS consolidate post-payment review programs to the extent possible;
  • CMS consider financial incentives aimed at reducing the improper payment rate, rather than at the amount of improper rates identified;
  • CMS assess the reliability of data within the RAC Data Warehouse and correct any data errors or omissions;
  • Pre-payment review programs should have defined objectives and scopes of operation related to reducing the improper payment rate, including how to achieve this goal through collaboration of the auditors;
  • CMS more stringently review contractor error rate reduction plans to ensure that Comprehensive Error Rate Testing (CERT)-identified problem areas are in accordance with the Office of Inspector General’s recommendations;
  • CMS ensure that local coverage decisions target high cost, highly utilized services or items and do not create inconsistent access to care;
  • CMS should review the effectiveness of pre-payment review processes in terms of reducing improper payments; and
  • CMS place a greater emphasis on provider education as a means of reducing improper payments.

If you or your entity are currently being audited by CMS and need assistance with the Medicare appeals process or Medicare compliance to proactively prepare for an audit, please contact an experienced healthcare attorney at Wachler & Associates at 248-544-0888 or at

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