Rep. Louis Capps, D-Calif., is attempting to halt CMS audit program. Source: Sacramento Bee

Rep. Lois Capps, D-Calif., has proposed a bill, H.R. 4105, that would place a one-year moratorium on the use of recovery audit contractors (RACs) under the Medicare Integrity Program Medicare across the United States.

The pilot program, which was launched in 2005, relies on private-sector auditing firms to examine claims filed by hospital and other medical providers and then pays them contingency fees based on how much money they save the government.

 “As increasing numbers of RAC denials are overturned on appeal in favor of the healthcare providers, we are finding a program that is wasting perhaps as much taxpayer money as it is purportedly saving,” Capps said. “Even worse, this whole process of denying payment for legitimately provided services is placing an enormous financial burden on healthcare providers that jeopardizes their ability to care for their patients.”

In FY 2007, auditors identified $357 million in overpayments, $17.8 million or 7.1 percent of which were overturned on appeal, according to the Centers for Medicare & Medicaid Services (CMS). Payments for contingency fees and other administrative expenses totaled $77.7 million. Auditors also found $14.3 million in Medicare underpayments, according to the Wall Street Journal.

According to a RAC status report from CMS, about 96 percent of errors found by auditors were overpayments to providers and the remaining 4 percent were underpayments repaid to providers. Since the program’s inception through Sept. 30, 2007, RACs have found about $370 million in improper payments and approximately $15 million has been paid to healthcare providers for underpayments.

Acting CMS Administrator Kerry Weems said that the program “has proven to be successful in returning overpayments to the Trust Fund and identifying ways to prevent future improper payments.” Weems said CMS has tried to address concerns about the program.

“Despite overwhelming evidence to the contrary, CMS continues its happy talk in favor of the RAC program, calling it a success in recouping Medicare overpayments.  I find these assertions curious when CMS officials admit there are serious problems with the way the RAC was conducted with regard to inpatient rehabilitation facilities, which make up 88 percent of the claims denied,” Capps said.

When the program expands nationwide, all contractors will be required to have a medical director on staff, and CMS will limit to three years how far back into providers' records auditors can search for errors, Weems added. In addition, records before Oct. 1, 2007, would be exempt from auditing.

Opponents of the program say that the contractors are given too much of an incentive to question payments because they receive about 20 percent of returned funds. In addition, healthcare providers say many appeals have not been completed, and many providers will not appeal claim denials because of the amount of money and time the process takes.

“Rather than blindly rushing forward to expand a defective program nationwide, as CMS would have us do, we must address the multitude of problems that have come to light in this troubled program.  And since CMS is unwilling to acknowledge that the serious problems in the RAC program warrant more than just a passing glance, I will continue to vigorously pursue my legislation to put in place a one year, national moratorium on it,” Capps said.