t-powellLast December CMS published proposed regulations to expand RAC audits to Medicare Advantage (MA) plans. These rules will affect both payments from CMS to the plans as well as plan payments to providers. Here is the bad news for the plans, in the agency’s own words:


Section 6411(b) of ACA (the American Protection and Affordable Care Act) expands the use of RACs to all of Medicare (Title XVIII), amending the existing FFS RAC statute at section 1893(h) of the act. The amendments to 1893(h) of the act provide us with general authority to enter into contracts with RACs to identify overpayments and underpayments and recoup overpayments in Medicare Part C and Part D. In addition to the identification of underpayments and overpayments and the recoupment of overpayments, section 6411 of ACA also establishes special rules for Part C and Part D that require RACs to ensure that each MA plan and Part D plan has anti-fraud plans in place and to review the effectiveness of the anti-fraud plans.”


The proposed changes also involve the following:


  • Examining claims for reinsurance payments to determine whether prescription drug plans submitting such claims incurred costs in excess of the reinsurance costs permitted under the statute; and:
  • Reviewing estimates submitted by prescription drug plans and private plans with respect to the enrollment of high-cost beneficiaries (as defined by HHS), and comparing these estimates with the numbers of such beneficiaries actually enrolled by such plans.

Here is the bad news for the providers (plans can hire RACs):


“…the potential for allowing Part C and Part D plans to use RACs within their own plans to identify overpayments in … operations. Working through us, the RAC contractor would come to an agreement with interested MA organizations (MAOs) to conduct claims review. The claims review would be conducted on claims submitted to the MAO for payment to providers serving the MAO enrollees. The RAC would be paid by the MA organization on a contingency fee basis and overpayments the MAO recoups as a result of the RAC activities would be retained by the MAO. In approaching this work, the RAC contractor would consider the use of complex and automated review of claims.”


MA plans are privately held. They have few of the processing tools used by the Medicare MACs.  Most have weak or limited enforcement and auditing departments. Some MA plans are reducing payments by making arbitrary changes to coding of submitted claims in order to increase profits.  What pitfalls will this hold for providers? Here is a short list:


  • RAC audit adjustment practices will be applied to an expanded number of claims.
  • Down-coding work of payers like Humana will educate RAC auditors about coding issues for standard Medicare (this is a “perfect storm”).
  • RAC work will highlight eligibility problems with paid claims, resulting in possible recoveries that may have to be re-billed to the proper payer.


A short list of payer issues includes the following:


  • CMS may eliminate plans that cannot respond to the audits or are shown to have weak compliance departments.
  • CMS will reduce payments to MA plans based on changes from reviewed claims (risk score).
  • Plans will see reductions in reinsurance payments if payments to providers are deemed improper.


How can I respond if I am a hospital provider?


  • Determine the constitution of your MA population.
  • Review issues uncovered by any RAC activity at your facility to date.
  • Review MA payment adjustments as they come in via 835 data files.


Just remember, with the implementation of the new 5010 record set your electronic payment data has become a more valuable source of payment and denial information. For most providers, the hardest part of monitoring MA payment adjustments is knowing what plans are paying them and what adjustments are coming through. Any successful healthcare organization during the next decade will develop the capability to use billing and payment data in real time.

How can I respond if I am a plan?


  • Review the RAC audit plan from CMS.
  • Review your compliance plan.
  • Review your RAP review program.
  • Review filed and paid reinsurance claims for RAC issues.

As this issue pertains to payment reductions to plans:


Medicare Advantage plans receive a “per member per month” payment based on a risk score. As claims are paid, paid claims data is forwarded to CMS.


When RAC auditors review and adjust paid claims data and related supplemental submissions from the MA plan for risk score purposes, these adjustments change the members’ scores, which again are used to determine payments from CMS to the plan. The RAC’s recovery payment adjustment impact on the plan can be computed as follows:


The plan’s monthly payment for a member – (plans contracted “per member per month rate” X revised risk score after adjustments) = recovery amount.


About the Author


Timothy Powell, CPA, is president of TP Consulting. Tim began his healthcare career in the early 1980s running audits of some of the largest chain organizations in the country, such as American Medical International and National Medical Enterprises, while working for Blue Cross of California. Tim has consulted, through his own regional consulting firm and the Big 4 firms for more than 30 years. Tim is an accomplished software developer with 20 years of experience writing and selling applications focused on electronic billing and claims data.


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