In explaining the relatively high rate of improper payments to inpatient hospitals, CMS acknowledged that since RACs were paid on a contingency fee basis, their claims review strategy focused on high dollar improper payments such as inpatient hospital claims, giving them the “highest return” relative to expenses associated with reviewing claims and medical records.


CMS also said that during the demonstration, RACs were prohibited from reviewing certain types of claims like physician visits. Other claims excluded for the review process were those previously reviewed by other Medicare contractors and claims under review for potential fraud. Hospice and home health services claims were also excluded.


Selecting Claims for Review

CMS said it did not instruct RACs as to which claims should be reviewed, reporting instead that claims selection methodology was left up to individual RACs. CMS did say that RACs used reports from the OIG and GAO that highlighted Medicare services that were vulnerable to improper payments.


Weak Areas

Incorrect Coding: CMS reported that almost 50 percent of the improper payments were the result of incorrect coding such as a provider submitting a claim for a procedure but the medical record indicated that a different procedure was actually performed.


Medical Necessity: Approximately one-third of improper payments were related to medical necessity. CMS said payments were made for services that were not medically necessary or did not meet Medicare’s medical necessity criteria for the setting where the service took place; for example, a claim from a hospital for three colonoscopies for the same beneficiary on the same date of service when only one colonoscopy per day is medically necessary.


Duplicate Claims: Other errors were identified as hospitals not having or not providing medical records as requested by RACs, billing separately for services already included in other payments, submitting duplicate claims, using outdated fee schedules or being paid twice because duplicate claims were submitted.


Leo D’Orazio is the Managing Director Healthcare for

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