ernieRecovery Audit Contractors (RACs) have identified $365.8 million in improper payments made to Medicare providers from October 2009 through March 2011. The payments were issued as long ago as three years prior to the dates on which they were identified by the RACs, marking the limit of the lookback period in which contractors were allowed to search.


The Centers for Medicare & Medicaid Services (CMS) revealed some figures about these improper payments in a document entitled “2011 FFS Newsletter.” (1) that is posted on their public website.


Missing Data


While the figures are instructive, some important facts do not appear in the document. Most obvious in their absence are any figures related to the existence or outcomes of appeals filed by providers who disagreed with their RAC findings. Also obviously missing from the reports is any data about the overall performance of the RACs themselves, this omission existing despite the existence of the RAC Validation Contractor, which was tasked with evaluating the RACs’ performance as far back as October 2008.(2)


However, if we combine these new figures with some information recently released by the American Hospital Association, we perhaps can identify some more interesting trends.


According to the most recent figures from the American Hospital Association’s RACTrac Survey (3), there have been significant performance improvements made by providers in the appeals process for RAC denials. Numbers from the RAC Demonstration Project have been released and updated several times, and are useful for showing that providers are faring better in appeals.


During the RAC Demonstration Project, the rate of appeal was rather low – less than 13 percent of RAC denials were appealed. Nevertheless, almost 65 percent of those appeals resulted in denials being overturned in favor of the providers. Such a high rate of success might be encouraging to providers, but the low number of overall attempts suggests that the value of mounting an appeal is questionable in the eyes of many providers.


The cost of an appeal can be high, and must be compared against the cost of the denial. According to various estimates, appeals can cost a provider at least $2,000 up to as much as $7,000 per case (depending on who you ask and how you long you pursue an appeal). Nevertheless, it appears that during the permanent program, providers are becoming more willing to mount appeals.


We can chart the most current figures using the demonstration project numbers and the AHA RACTrac survey information. Chart 1 below shows a clear upward trend in both the number of appeals filed and number of appeals won in the permanent program.


Chart 1: Appeals as a Percentage of RAC Denials



If we then combine this data with the latest figures from the new CMS newsletter, we find a pattern that can be interpreted as disturbing. If we project the future results of the permanent program using a similar rate of improvement as seen in the demonstration program, the numbers are truly staggering.



(1) “2011 FFS Newsletter

(2) CMS Recovery Audit Contractor Updates October 2008.

(3) AHA’s RACTrac Survey




Chart 2 below uses all the available figures and adds a projection for FY 2011. We assume here that the last two quarters of FY 2011 will produce figures identical to those that were reported for the first two quarters (while that is not very likely, there is no reason to think they will be lower).



Chart 2: Annual Over payments Identified by Year



The disturbing projected trend is not illustrated here, but can be estimated simply by doubling the FY 2011 figures – which would estimate FY 2012 recovery totals to come in at more than $900 million, with perhaps about $800 million recovered after subtracting successful appeals.


For now, however, let’s just consider the average cost for a single facility. While there are many facilities that have yet to be subject to any RAC activity, their numbers are likely to dwindle, if not disappear entirely.


Doing the Math


According to the American Hospital Directory, there are 4,042 active acute-care hospitals in the U.S. Those facilities have a total of 703,293 beds. If the most recent fiscal quarter can be used as an accurate estimate of the recoveries RACs can produce, then we have the following data:


$162 million in overpayments / 4,042 facilities = $40,079 per quarter  => $13,360 per month, per facility.


Or, calculated by beds:


$162 million overpayments / 703,293 beds = $230 per bed per quarter  => $77 per month, per bed.


The RAC program is identifying a monthly average of $77 in improper payments for every bed in the U.S. Whose beds, you might ask?


In the past we’ve heard estimates of the RACs costing about $10 per bed, per facility, per year. Perhaps that figure was for administrative costs only. This figure obviously far exceeds that estimate and we have yet to add any administrative costs.


I have talked to many RAC coordinators in large, well-equipped hospitals that sport huge revenue streams. What puzzles me is how many of these coordinators tell me that they cannot get approvals to perform much “preemptive” auditing in their facilities. They are only given staff and funding to do reactive work, responding to the ADRs that come in from the RACs. Evidently, many hospital administrators seem to believe that they only need to respond to the RACs when they knock on the door.



If there is any lesson or advice to take away from this recent report, it is this:


No facility can afford to disregard the value of proactive and preventative internal audits of their systems for documenting, coding and billing of Medicare claims.


The Medicare RACs are just ramping up. And the Medicaid RACs haven’t even come online yet.


About the Author


Ernie de los Santos is the chief information officer for eduTrax®. He joined the company at its inception and has been responsible for the creation, development and maintenance of the eduTrax® portals – a set of Web site devoted to providing knowledge, resources and compliance aids for U.S. healthcare professionals who are involved in revenue cycle management.


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Random Sampling, Extrapolation and Appeals: Core Components of Defending a RAC Audit

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