After a two-year delay as a result of a contract protest by CGI, the Centers for Medicare & Medicaid Services (CMS) has awarded the new Recovery Audit Contractor (RAC) contracts. The announcement, as reported here by RACmonitor, was made on Monday, Oct. 31.

The awarding of the new contracts raises new issues and concerns. 

Among those awarded the new contracts is Performant Recovery for Region 1, an area encompassing the upper East Coast along with Ohio, Michigan, Indiana, and Kentucky. Cotiviti, formally known as Connolly, was awarded Regions 2 and 3, encompassing the central and southern U.S. HMS was awarded Region 4, the western half of the U.S. and a few East Coast states. Region 5, with responsibility for the national durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) and home health/hospice auditing, was awarded to Performant Recovery.

Performant, based in Livermore, Calif., has received complaints about harassing phone calls and deception in its collection practices, according to Edward Roche, founder of Barraclough, LLC. “A check of shows a number of lawsuits filed against Performant under the Fair Debt Collection Practices Act (FDCPA),” he said.

Roche said Cotiviti, LLC, based in Atlanta, also faces litigation. Its subsidiary, Connolly, working with Cost & Compliance Associates, LLC has been accused of common law fraud for “claiming commissions for recoveries that were not obtained as a result of their audit.”

“Connolly has been associated with massive numbers of DRG downgrades,” Roche wrote in an email to RACmonitor. “Cotiviti, LLC earned around $541 million in 2015, but its second-quarter report for 2016 shows $301 million, so it appears to be growing. In the past year, its stock has risen 85 percent. The announcement on Oct. 31, 2016 started the stock on a steep rise, (and it is) up by more than triple after the announcement.”

Roche said that HMS Holdings Corp. is a holding company based in Irving, Texas that has a complex structure and is involved in a number of sectors, not only in Medicare auditing, noting that the company has been sued for fraud and breach of the implied covenant of good faith and fair dealing. The case was dismissed, however, according to Roche.

“Notably absent from the awardees was CGI,” Ronald Hirsch, MD, told RACmonitor. “Their 2014 protest of the RAC contracts was based on the new contingency fee payment timeline; CGI objected to the proposed delay in payment of the contingency fee until after the second level of appeal.”

Hirsch said it is not known if CGI entered a bid on the current contracts and was not chosen (or whether it chose not to bid at all). 

The irony that CMS would announce the awarding of the new contracts on Halloween was not lost on healthcare attorney Steven Greenspan, who asked the question of whether this was meant as a trick or treat to America’s hospital leaders.

“(It) depends on your perspective,” Greenspan wrote in an email to RACmonitor. “Recovery Auditor activity had just become nonexistent, and providers were experiencing a lull in the action, yet many in the auditing and enforcement communities see these awards as a step in the right direction, allowing (RACs) to again start looking for improper payments and putting an end to a very delayed process.”

Against the backdrop of nearly a million backlogged appeals at the Office of Medicare Hearings and Appeals (OMHA), Greenspan expressed concern regarding the addition of  any new auditing activity, suggesting that potential appeals would be inappropriate right now.  

Sharing the concern of the backlog at OMHA is healthcare consultant J. Paul Spencer, who asked in light of Monday’s announcement by CMS, what happens to the outstanding appeals now languishing at OMHA for providers in the old Region B? 

“With CGI now removed from the future RAC picture, this now sun-setting contractor will more than likely be inclined to squeeze every last contingency fee out of the expired contract,” Spencer said in an email to RACmonitor. “For this particular portion of the RAC universe, clouds of uncertainty remain.”

But for now, the limit on additional documentation requests (ADRs) should also represent a concern for healthcare providers, Roche noted.

“The limits on ADRs are burdensome,” Roche said, noting that the year is broken down into eight segments of 45 days each. “One-half of one percent (0.5 percent) of the total number of claims filed in the previous year divided by eight is the baseline for each 45-day period.”

Roche claims that this number can be jacked up by RACs depending on how many claims are denied.

“If around one-half of reviewed claims are denied (during) the previous three 45-day segments, then the number of ADRs can be tripled,” he said. “If the number of claims denied is 91percent or more, then the number of ADRs can be increased by 10 times.” 

According to Roche, the problem is that these are denied claims, but since the period for adjudication on denied claims is so long and there is a 66 percent success rate in appeals for hospitals, “there is no penalty to the RAC for a high number of reversed denials, (and) it is easy to deny large numbers of claims, leading to more and more ADRs.”

If there is good news in the CMS announcement on Monday, it’s that the new RAC contracts will be guided by the enhancements announced by CMS in 2015. 

Hirsch said the new improvements include a six-month lookback period for patient status reviews, a 30-day time limit to complete a review, and a 30-day waiting period to allow time for a discussion prior to forwarding the denial to a Medicare Administrative Contractor (MAC).

“CMS has also put into place a carrot-and-stick approach to RAC performance, with an increase or decrease in the contingency fee based on the RAC’s first-level overturn rate in comparison to an expected 10-percent rate,” Hirsch said.

Although the CMS announcement is raising many questions within the industry, not knowing when the new contractors will begin requesting records marks a big unknown. 

“Because there is still the possibility of another protest, the date on which the new contractors will begin requesting records is still unknown,” Hirsch said. “Furthermore … audits of coding, medical necessity, durable medical equipment (DME), and other areas will likely start once CMS gives the go-ahead.” 

And the contentious “two-midnight rule” that has confounded providers is still off the table for auditing. 

“RAC audits of short-stay inpatient admissions for compliance with the two-midnight rule will not begin until CMS gives the Beneficiary and Family Centered Care Quality Improvement Organizations (BFCC-QIOs) approval to refer hospitals (that) performed poorly on their audits,” Hirsch said. “Based on the requirements set forth by CMS and the initial results of the latest rounds of audits, there should be no RAC activity in this area for at least a year.” 

And that could be Halloween 2017.

This article has been corrected to show that RAC Region 1 encompasses the upper East Coast along with Ohio, Michigan, Indiana, and Kentucky. Region 4, includes the western half of the U.S. and a few East Coast states. 

Share This Article