Featured in Health Business Daily, Feb. 27, 2012, and featured Health Business Daily Story, Feb. 23, 2012

With Error Rates Remaining High, the RAC Prepayment Review Demo Returns Soon

Reprinted from REPORT ON MEDICARE COMPLIANCE, the nation's leading source of news and strategic information on Medicare compliance, Stark and other big-dollar issues of concern to health care compliance officers.

By Nina Youngstrom, Managing Editor
February 13, 2012Volume 21Issue 6

CMS has hit the reset button on the recovery audit contractor (RAC) prepayment review demonstration, which will start “on or after June 1, 2012,” according to a Feb. 3 announcement on the agency’s website. CMS also will begin a second demonstration for power mobility devices that was postponed at the same time, but it has been “significantly revised.”

These initiatives, which are designed to reduce improper payments, were put on hold in late December in response to industry concerns.CMS has hit the reset button on the recovery audit contractor (RAC) prepayment review demonstration, which will start “on or after June 1, 2012,” according to a Feb. 3 announcement on the agency’s website. CMS also will begin a second demonstration for power mobility devices that was postponed at the same time, but it has been “significantly revised.”

These initiatives, which are designed to reduce improper payments, were put on hold in late December in response to industry concerns. But they will be back in action soon, a reflection of CMS’s preference for techniques that prevent improper payments instead of chasing them after the fact (RMC 1/9/12, p. 1).

Medicare administrative contractors (MACs) are conducting prepayment reviews on different risk areas around the country. But one former CMS official says prepayment reviews are too expensive to trigger a paradigm shift. Medicare processes a billion claims a year, “so they can’t do a significant percentage [of reviews] on a prepayment basis,” says Washington, D.C., attorney Don Romano, a former director of the CMS Division of Technical Payment Policy who is now with Foley & Lardner LLP. Instead, there will be targeted strikes in areas where there is reason to believe specific providers don’t understand billing requirements or are committing fraud.

The RAC prepayment demonstration will take place in 11 states: Pennsylvania, Ohio, North Carolina, Missouri, Florida, Michigan, California, Texas, New York, Louisiana and Illinois.

The demonstration for power mobility devices (e.g., power wheelchairs) has been revamped. It originally required prepayment review and prior authorization for power mobility devices in certain states, but CMS has eliminated prepayment review, among other changes it made.

Meanwhile, CMS has been moving ahead with a third demonstration, on Part A-to-Part B rebilling (RMC 11/21/11, p. 1). That allows participating hospitals to resubmit claims for allowable Part B payment after an auditor has determined that the Medicare beneficiary met the requirements for Part B services but not for an inpatient stay. There are two catches: CMS only pays 90% of the Part B reimbursement for rebilled claims, and hospitals can’t appeal if they’re deemed ineligible under Part B. But rebilling is allowed for medical-necessity denials by RACs, Medicare administrative contractors and the comprehensive error rate testing (CERT) contractor. CMS will accept only 10% of the nation’s hospitals into the demonstration, and “I heard anecdotally that CMS got 380 applicants,” says Romano. Participating hospitals can quit the demo, but they can’t appeal claims rebilled under Part B, he says.

It’s no surprise these programs are back and that Medicare watchdogs will hammer away at payment errors from all angles. Of the 10 federal-government programs with the highest improper payment amounts in fiscal year 2011, four are Medicare and Medicaid, according to Feb. 7 testimony from Beryl Davis, director of financial management and assurance for the Government Accountability Office, who appeared before the House Committee on Oversight and Government Reform’s Subcommittee on Government Organization, Efficiency and Financial Management.

Which Programs Ranked the Worst?

Specifically:

  • Medicare fee-for-service won the top spot, with $28.8 billion in improper payments, according to the GAO. That’s an 8.6% error rate, and the primary causes were medically unnecessary services and insufficient documentation.

  • Medicaid was number two on the ranking of improper payments in all federal programs, accounting for $21.9 billion in overpayments, which is an 8.1% error rate. The primary cause was ineligible or indeterminate eligibility status of Medicaid beneficiaries.

  • Medicare Advantage came in fifth, with $12.4 billion in improper payments, an 11% error rate. The main causes were insufficient documentation, and errors in the transfer and interpretation of data and payment calculations.

  • The Medicare prescription drug benefit program (Part D) was 10th, with $1.7 billion in improper payments, a 3.2% error rate. The primary causes were payment errors, payment adjustment errors and the complexity of the program.

However, the GAO official said that some federal agencies reported progress in driving down error rates. “For fiscal year 2011, [Office of Management and Budget] reported that governmentwide agencies recaptured $1.25 billion in overpayments to contractors and vendors. Over half of this amount, $797 million, can be attributed to the Medicare recovery audit contractor program,” Davis said.

The government is now intensifying efforts to prevent improper payments, Davis says. Preventive controls include eligibility verification, predictive analytics, training programs, and timely resolution of audit findings. For example, before paying Medicare fee-for-service claims, CMS uses predictive analytic methodology to screen them, Davis said. This new “Fraud Detection System” has been in place nationally since June 30, 2011.

Given the error rates, the focus on program integrity won’t end anytime soon, says Brian Flood, a national managing director for KPMG. “There’s no silver bullet, but they have at least started giving the programs the necessary push from the top and finances to support the mission of collecting improper payments,” he says. The government has to continue to use technology, such as data mining and predictive modeling, in addition to human intervention (e.g., prepayment and postpayment reviews) to achieve the overpayment reductions set forth by President Obama and described in the GAO report, he says.

For more information on the CMS demonstrations, visit www.cms.gov/CERT/02_Demonstrations.asp#TopOfPage.


Start your own subscription to Report on Medicare Compliance and save! For a limited time, receive a $75 discount off any new newsletter subscription at the AIS Marketplace – just enter coupon code “NEWS75” at checkout.

It's quick and easy to sign up for FREE access to AISHealth.com!

Why do I need to register?