HMS Holdings, the Recovery Auditor for RAC Region 4, announced last week that it had lost its third-party liability contract with the State of New Jersey. This is a significant loss. Estimates are that the contract contributed about $25 million in annual revenue. The winning contractor was Public Consulting Group, HMS Holding’s archrival with which it is embroiled in a lawsuit over trade secrets and poaching employees.

HMS Holdings reports that it will protest the New Jersey decision and perhaps seek legal remedies. That process can take months, however. HMS Holdings feels that its submission was not properly scored, and it plans to make that argument as well. Meanwhile, New Jersey has extended the current contract until the end of September.

Also hanging in the balance is HMS Holding’s New York contract, which Oppenheimer Securities recently speculated would not be re-awarded to HMS. Oppenheimer bases this speculation on its understanding that going with HMS Holdings would be four times more expensive than choosing PCG.

Procurement processes are carefully guarded, so no one knows for sure what might happen in the coming months. Yet that did not stop Wall Street from sending HMS stock down 25 percent one recent afternoon.

Possibly coming to the rescue, however, is the recent announcement that the Centers for Medicare & Medicaid Services (CMS) was withdrawing its late 2013 Medicare RAC request for quotes and planned to issue a new request for proposals “shortly.” The Medicare RAC program has been hung up in re-procurement for almost two years, as CMS has worked through protests, lawsuits, and congressional intervention. For the RACs there appears to be light at the end of the tunnel, and for once it is not an oncoming train.

When the contracts are finally awarded sometime late this year or early next year, we anticipate that HMS Holdings will retain their Region 4 contract. It is not all roses, however. The new RAC program is not likely to return to the days of 2011-2013, when the RACs were auditing inpatient claims they deemed more appropriate for outpatient services. Instead, the RACs only will be able to audit those inpatient short-stay claims that have been referred to the RAC by a quality improvement organization (QIO) – and there are some big lingering questions about how much work the QIOs can do. Alternatively, the RACs will be able to audit inpatient claims from providers with high denial rates.

When the new program is finally up and running – in mid- to late 2016 – the RACs will be more constrained than they have in the past. Recent changes to the program have to focus on the traditionally fraud-prone areas of home health, hospice, and durable medical equipment. That means that providers better look lively and spend this downtime buttoning up their processes, especially when it comes to documentation. Unlike large or even modest-sized hospitals, the typical home health agency does not have adequate staff to dedicate to Recovery Auditor management.

So using this quiet period to get ready for the inevitable is time well spent.

About the Author 

Emily Evans is a partner at the Obsidian Research Group.

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