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Medicare payment investigation program could step up physician audits


The first phase of the Medicare Recovery Audit Contractor program was a boon for budget-minded policymakers on Capitol Hill, but the controversial plan promises another potential headache for physicians.

Key Points

The first phase of the Medicare Recovery Audit Contractor program was a boon for budget-minded policymakers on Capitol Hill, but the controversial plan promises another potential headache for physicians.

The private firms hired by CMS are charged with identifying overpayments and underpayments of the more than 1.2 billion Medicare claims submitted by U.S. health-care providers each year, including hospitals, physicians, skilled nursing centers, labs, and ambulance companies.

The obvious incentive for CMS is to focus on recouping overpayments to providers. But the fact that contractors earn a percentage of the money collected has contributed to the program's unsavory reputation.

Moreover, the news that RAC is here to stay has sparked concern that it's only a matter of time before the program's focus turns to primary care practices.

"It's a bounty-hunter program," says Elizabeth McNeil, vice president of federal government relations for the California Medical Association. "[RACs] have cost California physicians resources, time, and hassles for the modest amount of money they have collected."

California was one of the initial three RAC states, chosen because of its high volume of Medicare claims. Perhaps not surprisingly, its providers were also the hardest hit by RAC auditors-accounting for $318 million, nearly one-third of the total collected from six states in the program's first three years.

RAC generated so many protests by health-care providers in California that nearly half of the state's congressional delegation wrote to CMS in May 2007, expressing concern that the demonstration model lacked sufficient oversight.


In RAC's initial phase, contractors focused on higher-dollar, low-volume claims that were generated mostly at hospitals-the "low-hanging fruit," according to David C. Harlow, principal of the Harlow Group LLC, a law firm in Newton, Massachusetts. This time around, Harlow says, the whole tree of Medicare providers could be up for grabs.

"With the broader rollout of the RAC program, I expect that all claims will be scrutinized," he says. "While low-hanging fruit is still more attractive, there should be less of a sense of urgency from the contractors' perspective; thus, physician audits are more likely in this latter phase."

Likewise, Mike Campea of the American Osteopathic Association believes that more small- and mid-sized practices-including primary care-are likely to face audits as RAC unfolds.

"Because the RAC has been successful in identifying and recovering overpayments for CMS during the three-year demonstration, we anticipate with the expansion of the RAC nationwide that there is a high probability to include primary care as part of its review of hospitals, along with other medical specialties," Campea says.

Connie Leonard, director of CMS's division of recovery audit operations, explains that while CMS can't predict whom RAC contractors will investigate, "We would expect the mix to be somewhat the same [as it was in the initial phase], at least in the beginning."

"Physicians need to be aware and be prepared, but the goal is not to put any physician out of business," Leonard says.

Physician groups assert that frustrations are compounded by contractors who sometimes cultivate undue stress for audited providers, who may be required to devote exorbitant amounts of time and resources to fulfilling RAC requests. Such demands could prove particularly onerous for smaller practices with fewer office staff.

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