December 7, 2010

Prepare for Increased RAC Activity in 2011

By

 

awachler100 Andrew B. Wachler, Esq. and Jennifer Colagiovanni, Esq.  jColagiovanni100

 

 

 

A review of the ever-changing audit landscape suggests that providers should be prepared for increased Recovery Audit Contractor (RAC) activity in both the Medicare and Medicaid programs in 2011.

 

Of particular importance is the expansion of the RAC program to Medicare Part C, Medicare Part D and Medicaid, pursuant to the Patient Protection and Affordable Care Act (Affordable Care Act). The act mandates the expansion of the RAC program to Medicare Part C (Medicare Advantage plans) and Part D (prescription drug coverage) by Dec. 31. This is also the date by which states are required to have contracted with one or more RACs to perform audits of Medicaid providers.  States are expected to implement their individual RAC programs by April 1, 2011. CMS recently issued a letter indicating that state Medicaid directors need to submit a State Plan Amendment (SPA) attesting either that the state will establish a Medicaid RAC program by Dec. 31 or that the state will seek an exemption from the requirements. CMS has indicated that exemptions only will be granted under the most compelling circumstances.

 

States also are required to have adequate processes to handle appeals from adverse audit decisions made by the Medicaid RACs. As long as a state’s existing administrative appeals process (such as one used to handle Medicaid Integrity Contractor (MIC) appeals) is able to accommodate Medicaid RAC appeals, CMS is not requiring states to adopt new administrative review processes. It is important to note, however, that the Medicaid RAC program is active in addition to, not in place of, the Medicaid Integrity Program and audits being conducted by the MICs. Because of the existence of these multiple programs, Medicaid providers are faced with a greater likelihood of audits in the upcoming year.

 

Expect More RAC Audits

 

Providers also are more likely to be faced with significant RAC audits during the upcoming months due to the recent introduction of medical necessity reviews in all four RAC regions. Medical necessity reviews allow the RACs to apply a subjective standard to various services, thus creating increased risks for all providers – even those who believe they are billing and coding appropriately. The RACs steadily have been increasing the number of procedures and issues subject to medical necessity reviews. During the RAC demonstration project approximately 50 percent of identified overpayments were related to medical necessity issues.
It logically follows that medical necessity reviews will continue to be a highly targeted area for the RACs, as is evident by the recent approval of five additional and potentially broad medical-necessity approved issues in Region C. These approved reviews also may include the issue of outpatient reimbursement for inpatient denials.

 

False Claims Liabilities

 

In addition to expanding the RAC program, the Affordable Care Act also creates new risks for false-claim liability when auditors identify overpayments. The act amended federal law to require that an entity that has received an overpayment must return it and notify the appropriate entity (CMS, OIG, or the carrier) regarding the reason it existed. This must occur no more than 60 days from “the date on which the overpayment was identified” or “the date any corresponding cost report is due, if applicable.” Retention of an overpayment beyond this deadline creates liability under the False Claims Act (31 U.S.C. §3729).

 

These changes raise many questions for those involved with the RAC audit process, including:

 

  • Does a denial of an appeal create an overpayment that must be paid back in 60 days?

  • What are the responsibilities for a provider who realizes during the audit process that they received an overpayment?

  • What is the potential liability for a provider who cannot afford to pay back the overpayment?

The Office of the Inspector General (OIG) has yet to offer clarification of many issues surrounding this legislation, including when during the audit process the overpayment return obligations are triggered.   Although the appeals process likely will provide temporary protection from an audit finding being deemed a “known” overpayment, there is some level of risk that the OIG under the False Claims Act could prosecute individuals or entities who do not repay overpayments in a timely manner, especially if there is no good-faith basis for appeal  (e.g., no documentation to support the services provided).

 

False Claims Act liability is significant. Possible penalties include civil fines of $10,000 for each item or service, an assessment of three times the amount claimed for each item or service, and/or exclusion from participation in the federal healthcare programs as well as any state healthcare programs. Moreover, the mere failure to repay an overpayment (even without False Claims Act liability) can lead to exclusion from the Medicaid program.

 

As a result of these changes, it is important for entities involved in RAC audits to consider carefully whether at any stage of the process the facts show a known overpayment. If so, the entity should discuss with legal counsel its obligation to pay back the known overpayment promptly, or risk prosecution under the False Claims Act. Also, providers should be aware of this repayment obligation once the appeals process has been exhausted or abandoned.


 

The Road Ahead

 

After a year of audit expansion, providers can expect to see increased audit activities as we move into 2011. Providers are advised to prepare for audit activities proactively, to develop an effective process to appeal audit claim denials, and to evaluate the risks and potential penalties related to the retention of a Medicare or Medicaid overpayment.

 

About the Authors

 

Andrew B. Wachler is the principal of Wachler & Associates, P.C.  He graduated Cum Laude from the University of Michigan in 1974 and was the recipient of the William J. Branstom Award. He graduated Cum Laude from Wayne State University Law School in 1978. Mr. Wachler has been practicing healthcare and business law for over 25 years and has been defending Medicare and other third party payor audits since 1980.  Mr. Wachler counsels healthcare providers and organizations nationwide in a variety of legal matters.  He writes and speaks nationally to professional organizations and other entities on a variety of healthcare legal topics.

 

Jennifer Colagiovanni is an attorney at Wachler & Associates, P.C.  Ms. Colagiovanni graduated with Distinction from the University of Michigan and Cum Laude from Wayne State University Law School.  Upon graduation, Ms. Colagiovanni was nominated to the Order of the Coif. Ms. Colagiovanni devotes a substantial portion of her practice to defending Medicare and other third party payer audits on behalf of providers and suppliers.  She is a member of the State Bar of Michigan Health Care Law Section.

 

Contact the Authors

 

awachler@wachler.com

jcolagiovanni@wachler.com

 

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