Unaddressed corrective actions by CMS represented $231 million during the RAC demonstration, according to recent testimony before a Senate subcommittee made public yesterday by the General Accounting Office.

In a prepared statement, "Medicare Recovery Audit Contracting: Lessons Learned to Address Improper Payments and Improve Contractor Coordination and Oversight," Kathleen M. King, Director of Health Care, and Kay L. Daly, Director of Financial Management and Assurance, pointed to three areas for lessons learned from the RAC demonstration.

"Our March 2010 report pointed to three areas for lessons to be learned from the RAC demonstration that could be applicable as CMS expands recovery audits to Medicare Parts C and D and Medicaid and to other agencies' payment recapture efforts." King is quoted as saying in her testimony.

"We found that CMS and the Medicare claims administration contractors did not implement corrective actions for 35 of 58 (60 percent) of the most significant vulnerabilities that led to improper payments during the demonstration. We also found that the unaddressed corrective actions represented $231 million."

Specifically, according to King, agencies should...

1.   Establish an adequate process to address RAC-identified vulnerabilities leading to improper payments. During the demonstration, we found that CMS did not develop a process to take corrective actions or implement sufficient monitoring, oversight, and control activities to ensure the "most significant" RAC-identified vulnerabilities were addressed;

2.   Take steps to address coordination issues between contractors. According to CMS, once the RACs identify errors, Medicare claims administration contractors are responsible for re-processing the claims to repay underpayments or recoup overpayments, conducting the first level review for RAC-related appeals, and informing and training providers about lessons learned through the RAC reviews. During the demonstration project providers noted that RAC determinations resulted in thousands of provider appeals to Medicare claims administration contractors. These appeals and re-processing of claims produced additional workload for the Medicare claims administration contractors, who are also responsible for adjudicating the first level of appeals. The appeals and adjustments workload led to coordination challenges for the Medicare claims administration contractors and RACs. As a result, CMS learned that regular communication between the RACs and the Medicare claims administration contractors regarding RAC-identified payment vulnerabilities was important due to their interdependence; and

3.   Oversee the accuracy of RACs' claims reviews and the quality of their service to providers. During the demonstration project, providers stated that the contingency fee payment structure CMS employed created an incentive for RACs to be aggressive in determining that paid claims were improper. RACs were paid contingency fees during the demonstration project even if their findings were later overturned on appeal. For the national program, CMS changed its payment of contingency fees so that RACs will have to refund contingency fees received on a determination overturned at any level of the appeal process. CMS also established performance metrics the agency will use to monitor RAC accuracy and service to providers.

The testimony was given before the Senate Homeland Security and Governmental Affairs' Subcommittee on Federal Financial Management, Government Information, and International Security.