The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) recently released a report making some recommendations for improvement of the Medicare RAC program.

The OIG report does not cover much new ground, however. The agency continues to assert that the Centers for Medicare & Medicaid Services (CMS) does not do enough to limit improper Medicare payments, so the thrust of the report includes recommendations that might make the RACs an even stronger anti-fraud program. The most noteworthy recommendation is that CMS include accuracy in the metrics it uses to evaluate the RACs. 

The OIG report is based on data from 2010 – the first year of the program – and 2011. The report included three key recommendations:

  1. CMS should move more quickly on implementing corrective action when vulnerabilities to the program are identified. A vulnerability is defined as any specific payment issue that results in more than $500,000 in improper payments. For 2010 and 2011, there were 46 identified vulnerabilities. Of these, CMS has taken action on 28.
  2. CMS should increase the number of RAC referrals for potential fraud. In 2010 and 2011, three of the four RACs (Performant, CGI Federal and HealthDataInsights, or HMSY) referred a total of six providers to CMS for potential fraud. As of November 2012, CMS had not taken action on any of the fraud referrals.
  3. CMS should develop additional performance evaluation metrics to improve RAC performance and ensure that RACs are evaluated on contract requirements. Currently, CMS does not evaluate RACs on the extent to which they identify improper payments. The RACs instead are evaluated on certain performance categories, including a) business relations, b) quality of product or service, c) schedule/timeliness, d) management of key personnel, and e) utilization of small businesses. The OIG also recommended that CMS include evaluation metrics that include accuracy.

Using 2010 and 2011 data, the OIG calculated the rate at which improper payment determinations were made by the various RACs. Table 1 illustrates the accuracy rates of the various contractors.

Table 1: RAC Payment Determinations Rates of Appeal and Overturn

Keeping in mind that the data for 2012 may be very different, the OIG analysis suggests that Performant is the most accurate of the RACs. HMSY (or HealthDataInsights) has the worst accuracy score.  HMSY’s score may be due to its dependency on one of the more controversial aspects of the RAC program, however.

The provider community has been particularly resistant to RAC determinations regarding setting: services delivered on an inpatient basis that should have been handled as outpatient services. For each quarter that HMSY has held a RAC contract, it has listed inpatient versus outpatient services as its top issue. Since providers have been particularly concerned about improper payment determinations, they have appealed quite a few of them. The administrative law judges (ALJs) generally have ruled in favor of the providers, thus creating a high percentage of overturned improper payment determinations by HMSY.

In response to the OIG’s findings, CMS has indicated that it has revised the 2012 evaluations to include accuracy rates. Furthermore, CMS has indicated that it would consider adding timeliness and accuracy to RAC contracts’ statement of work. The RAC program is currently in re-procurement. If CMS adds these accuracy criteria, it then would become a criterion for ongoing contract compliance by the contractors.

The use of an accuracy metric for performance evaluation and ongoing contract compliance suggests that the lowest-performing RAC or RACs may be displaced by aspiring RACs such as PRG Global, which has operated as a subcontractor to three of the four primary RAC contractors. PRG Global has made it clear to their investors that they intend to pursue a prime contract spot in the next re-procurement, which is anticipated in early 2014.

Regardless of which contractors are chosen and why, CMS’s emphasis on accuracy instead of volume is good news to the provider community, as it will help moderate the economic incentives created by the contingency fee-based Recovery Audit program.

About the Author

Emily Evans is a partner with the Obsidian Research Group.

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