On Friday evening the Centers for Medicare & Medicaid Services (CMS) released its long-awaited request for proposals for the Medicare Recovery Auditors (RAs). As this program has been the subject of much political, regulatory, and judicial meddling, there are no surprises. 

The basic contours of the program are the following:

  • There will be five RAC regions instead of the current four. Four of the five regions will be dedicated to audits of inpatient stays (except short-stay inpatient services, which will be subject to a different process), outpatient stays, physicians, inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs), and skilled nursing facilities (SNFs). The fifth RAC will be dedicated to audits of home health, hospice, and durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) claims. This structure is bad news for home health, hospice, and DMEPOS, which have been given little attention to date, their improper payment rates notwithstanding.
  • The four RAC regions will divide the nation so that each region will audit approximately 25 percent of Medicare fee-for-service claims. The fifth region will include the whole country.
  • Areas of interest to auditors will need to pre-approved by CMS and should include those issues raised by watchdogs like the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG), the Government Accountability Office (GAO), and others.
  • Additional documentation requests (basically, requests for medical records) will be issued based on the providers’ denial rates. The better the provider’s compliance record, the fewer audits will be conducted.
  • Payment for recoveries will be issued on a contingency basis. Payment will be made only after the claim exits the second level of the Medicare appeal process, or if the provider declines to appeal.
  • Auditors must sustain an accuracy rate of 95 percent. They will receive a 0.2-percent add-on to their contingency fee for each percent above the 95-percent requirement.
  • Short stay inpatient claims review – the source of most RAC revenue from 2012-2013 – will have a six-month lookback period and must be referred to the RA by a quality improvement organization (another type of auditor) unless there is evidence on gaming.
  • All other claims have a three-year lookback period.
  • Up to 2 percent of claims in a 45-day period are subject to audit. CMS will ensure that claims reviews will be performed across the provider’s spectrum of services and not concentrated in one area such as inpatient hospital claims. The 2-percent amount is subject to reduction throughout the life of the contract at CMS’s discretion.

Responses are due by Dec. 11, 2015. Based on past experience, I would anticipate contracts being awarded around mid-February 2016. Also based on prior experience, we should anticipate a post-award protest, which could delay final awarding of contracts for about 100 days (around June 30, 2016).

Because of the changes to the program and the low number of likely contractors, we anticipate that RAs will demand higher contingency fees – perhaps in excess of 15 percent. 

Based on recent third-quarter earnings calls, we anticipate that HMS Holdings and Performant will pursue contracts. We also anticipate that Connolly, CGI, and possibly PRGX, which exited the program due to all of the uncertainty in 2013-2015, will submit proposals. We fully anticipate that HMS and Performant each will be awarded a region. We believe that Connolly will be awarded an A/B region and the HH/hospice/DMEPOS region. 

Finally, after many years of uncertainty, we feel pretty good about the future of the program. The fact remains that it is a critical part of CMS’s program integrity infrastructure.

Assuming that CMS has learned something from the last several years and that the agency implements a new kinder, gentler approach, the RA program has the benefit of allowing CMS to target specific providers whose billing patterns and practices have raised concerns without penalizing mission-driven entities.

About the Author

Emily Evans is a partner at the Obsidian Research Group in Nashville, Tenn. She also serves as the Monitor Mondays Legislative Analyst. 

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