Analysis by Editor Tim Rowan
As we have emphasized over the last few months, too much attention is focused on the Recovery Audit Contractor program and too little on other contractors that have the power to reduce home care and hospice revenue today rather than on some unknown date in the future. For the contractors themselves, however, there is ample reason to pay attention. In fact, the reason so much time passed between demonstration and implementation is that several insurance companies and collection agencies whose bids to become RACs were not initially accepted sued to force CMS to reconsider their choices.
Obviously, the expectation is that these contracts will be quite lucrative for the contractors. But are they actually lucrative for Medicare and taxpayers? A quick look at the monies involved in the three-year RAC demonstration is quite revealing. It is clear why losing bidders put up such a fight. It is not clear, however, that Medicare and taxpayers will be significant winners.
Analyze the numbers
According to CMS’s most recently published RAC demonstration evaluation, dated January 2009, a full year after the demonstration ended, RACs corrected more than $1.03 billion of improper Medicare payments over three years. Approximately 96% of these improper payments were overpayments collected from providers, while the remaining 4% were underpayments repaid to providers, leaving a net gain of $954.9 million before program expenses.
While some hospitals and physicians audited during the demonstration did appeal their RAC’s overpayment decisions, the majority did not bother. CMS reports that providers chose to appeal 22.5% of overpayment determinations. Of those 118,051 appeals filed, 40,115 were successful (34%). There were no home care providers audited during the demonstration.
Extrapolating that 34% win rate across all 525,133 overpayment determinations, it is reasonable to calculate that, had providers appealed every overpayment determination instead of fewer than one-fourth of them, more than 210,000 would have been overturned. A 66% win rate across the board would have considerably reduced the government’s $954.9 million gross profit. It is not possible to affix a dollar amount to that reduction, however, as CMS only publishes the number of appeals filed and won, not the total amounts involved. A little educated guesswork will be required to continue our analysis.
Why these hospitals and physicians elected not to contest RAC takebacks more than three-fourths of the time is unknown but there are two logical reasons. Either most RAC accusations were obviously justified and those providers knew appeal success was unlikely or dollar amounts were low and it was decided a lengthy appeal process was not worth the effort and expense. The latter reason begs one more question. If only large recoupments were appealed, what conclusions can be drawn about the amounts Medicare was left with after 34% of appeals filed were successful?
Educated guesses
Simply dividing $954.9 million by 525,133 overpayment cases cannot tell the story. Few would engage legal counsel to recover $1,818.40. It is likely that those 118,051 appeals involved much higher amounts. These were the cases that skewed the average dollar amount per case upward, meaning the takebacks not appealed would have been the ones with dollar amounts well below that average.
Recapping:
- 22.5% of determinations were appealed
- 34% of those were won
- Assuming the average per-case amount, Medicare loses $73 to appeals
- Assuming only above-average cases were appealed, Medicare may have lost twice that much
- Had all providers appealed all cases instead of 22.5% of cases, Medicare might have lost more than $300 million
- The RAC demonstration took place in only 6 states, though they were mostly large states, representing more than 6/50 of the Medicare budget
Rather than allowing our speculation to get too far afield, we will remain with the middle estimate, about $150 million lost to successful appeals over three years in 6 states. Now the government’s net from the demonstration program falls closer to $800 million. But this is not the final net as there are more expenses to subtract. Remember the bounty payments, which are only the beginning.
- 12%, or approximately $100 million, goes to commissions paid to contractors (explaining the battle of the bidders, above)
- Unknown additional amounts to support salaries of government attorneys who represent RACs before Administrative Law Judges
- Unknown additional amounts to support salaries of Administrative Law Judges
We end with Medicare netting somewhere in the neighborhood of $700 million over three years. 2008 Medicare expenditures on beneficiaries, not including HHS and CMS overhead or profits to intermediaries and other contractors, attorneys and judges, totaled about $450 billion, or about $75 billion in those 6 states. The RAC demonstration program, therefore, realized a few points shy of one-half of one percent of the Medicare budget over three years.
Two possible conclusions
Without a doubt, the RAC program will be beneficial to the collection agencies that won the contracts. However, the net returned to taxpayers is not in a dollar range to significantly impact Medicare Trust Fund survival. CMS has two choices. Either it will instruct RACs to be far more aggressive now than they were during the demonstration or it will rewrite its reasons for instituting the program.
Option one is not necessary. A 12% commission is more than enough incentive for the RACs to be as aggressive as the law allows. As a side benefit, it will keep them focused on the deep pockets of hospitals and large physician clinics and away from minimally lucrative home care and hospice providers for a long time. The second option is not entirely a negative. Just as the threat of an IRS audit keeps most taxpayers honest, even if they have never actually been audited, the threat of a RAC audit will have the effect of improving clinical documentation for all types of providers, even if the program does not significantly improve the condition of the Medicare Trust Fund.
As another of this week’s news items explains, healthcare providers are vulnerable to payment denials because of their paperwork more than because of the quality of the care they provide. Judges most often decide clinical documentation does not show evidence that specific treatments were provided, while making no comment on whether the clinician is telling the truth now, in court, that they were provided. History may decide that Recovery Audit Contractors were an expensive way to convince clinicians to chart properly and completely. It will certainly agree that the program provided employment for the handful of collection agencies that participated in the program as contractors. Perhaps both of these judgments will have been worthwhile in the long run, even if they are the only ones.
