The government has made extensive efforts to combat fraud in the Medicare and Medicaid programs, recovering a record $4.2 billion in fiscal 2012 from individuals and companies trying to cheat the system. One of the largest sources of recovered monies is the Recovery Audit Contractor (RAC) program.
The RAC program was created through the Medicare Modernization Act of 2003 (MMA) to identify and recover improper Medicare payments to health-care providers under fee-for-service (FFS) Medicare plans. The goal of the RAC program is to identify improper payments made on claims of health-care services provided to Medicare beneficiaries. Improper payments could be overpayments or underpayments. Hospitals have been hit by the audits, with recoveries reaching $3.6 billion since the national program launched in 2010, according to Centers for Medicare & Medicaid Services (CMS) data.1 About $895 million was reclaimed from just six states during the RAC Demonstration Project between 2005 and 2008.1,2
CMS is more alert on the medical necessity of one-day length of stay (LOS) for inpatient admissions and is trying to detect and reduce Medicare waste, fraud, and abuse. Hospital charges represent about a third of the $718 billion spent on U.S. health care annually. Medicare reimbursement is a major source of revenue for hospitals, but some hospitals claim Medicare pays them only 93% to 97% of what it costs to provide patient care, whereas private insurers pay between 115% and 125% of those costs.3,4 These data suggest that private insurers are paying hospitals far more than they need to make up for Medicare’s “underpayment.”
So the first question is: Do hospitals overcharge for care? The next question is: What can be done? Or, in today’s economy, what is being done?
How It All Works
When an RAC determines that a provider was paid for inpatient hospital services but that the patient in question should have been treated as an outpatient, CMS takes back the entire Part A payment. Moreover, CMS takes the position that once an inpatient claim paid under Medicare Part A is later denied (usually years later), the hospital cannot receive Medicare Part B payment except for a few ancillary services. As a result, when an RAC concludes that a hospital should have provided items and services on an outpatient basis rather than an inpatient basis, the hospital ends up receiving little, if any, reimbursement for reasonable and medically necessary items and services provided.5,6
RACs function through a different model. They keep a contingency percentage—9% to 12.5%—of the entire Part A payment.5
Imagine a situation in which a physician decides that a patient needs to be admitted to the hospital for a surgical procedure, and the cost of care provided to the patient—surgery, drugs, and the like—amounts to $20,000. CMS reimburses the hospital under Part A. Two years later, an RAC employee reviewing hospital records overrules the physician’s judgment and decides the patient should have received basically the same care but on an outpatient basis. That decision, taken together with CMS’ Payment Denial Policy, means the hospital will end up receiving essentially no payment for the surgery and other care it provided. The RAC, by contrast, will receive approximately $2,000 for that one case alone.
To Admit or Not to Admit
Medicare expects attending physicians and physician reviewers to make the appropriate bedding status based on severity of signs and symptoms, comorbid and complicating conditions, and the practicality of outpatient management.
