Updated on: June 22, 2012

RACs Fall Short in Third Quarter by $82.5 Million

Original story posted on: August 3, 2011

vaxsom-brown100EDITOR’S NOTE: This is the first in a two-part series by former RAC Region D vice president Vickie Axsom-Brown.

The CMS news of Recovery Audit Contractor (RAC) returns through the third quarter of the 2011 fiscal year has gained much attention. CMS’s goal for 2011 is to accomplish what the RAC demonstration project did from 2005-2008 when almost $1 billion ($992.7 million) in overpayments was returned to the Medicare Trust Fund.  (1)  However, CMS only has averaged about $225 million in corrected billed services per quarter during the current fiscal year, leaving a shortfall of $82.5 million to date.

To make up that difference, the agency would need to correct $307.5 million in services during the fourth quarter – a fact that begs the question of whether providers should start bracing for accelerated recovery activities during the days and weeks ahead.  

The Stats

A quick review of RAC recoveries recorded during the last two fiscal years reveals the following:

- FY 2011, first quarter (October 2010 – December 2010) – A total of $94.3 million in billed services was corrected, with $81.2 million in overpayments reportedly collected and $13.1 million returned to providers.  FY 2011, second quarter (January 2011 – March 2011) – A total of $208.9 million in billed services was corrected (a 122 percent increase over the first quarter), with a total of $185.2 million in overpayments reportedly collected (128 percent increase) and $23.7 million returned to providers (81 percent increase).


- FY 2011, third quarter (April 2011 – June 2011) – A total of $289.3 million in billed services was corrected (a 38 percent increase over the second quarter), with a total of $233.4 million in overpayments reportedly collected (26 percent increase) and $55.9 million returned to providers (136 percent increase).


- FY 2011, through the third quarter – $592.5 million in total corrected billed services, leaving the aforementioned shortfall of $82.5 million.


- FY 2011, fourth quarter – (July 2011 – September 2011) – To meet CMS’s FY 2011 goal an additional $307.5 million in billed services needs to be corrected.


A sampling of CMS’s key target areas affecting healthcare providers is noted below: healthcare delivery issues have been identified in numerous reports and/or publications appearing on CMS, OIG and HHS websites, all related to budget performance for 2011 and 2012. (2)

These performance issues affect all CMS programs – Medicare, Medicaid and the Children’s Health Insurance Program (CHIP) – and ultimately other private and public health services payers as well.

CMS’s projected FY 2011 payment to the Health Care Trust Fund is $229.7 billion – an increase of $15.1 billion over the FY 2010 estimate. (3)


CMS benefit costs for FY 2011 are expected to total $823 billion, with about 102 million beneficiaries – that’s roughly one in three Americans and one-third of the nation’s healthcare expenditures. CMS’s non-benefit costs (including administrative costs) is expected to total $23.5 billion (2.8 percent of the total benefits), or less than one-half of 1 percent of the benefits’ cost.

Key Targets


Making care safer by reducing harm caused in the delivery of care. (4) The aim is to reduce preventable harm by 40 percent from 2010 to 2013, thereby preventing 1.8 million injuries and averting 60,000 deaths of hospital patients during the next three years. Improvements in healthcare quality continue to progress at 2.3 percent per year, a rate that has been deemed too slow. The HHS Inspector General in November 2010 found that one out of every seven hospitalized Medicare beneficiaries is seriously harmed during the course of treatment, with patients being less seriously harmed equally common.  This area wastes over $4.4 billion in Medicare funds annually. The Centers for Disease Control (CDC) reports that, at any one point in time, 20 patients in U.S. hospitals will have a healthcare-associated infection. (5)


- Scrutiny of diagnoses and DRGs that fall within this category can be expected by any and all CMS audit organizations. DRGs and/or diagnoses with high complication and/or co-morbidity and major complications associated with them fall into this category, especially when the condition in question was not present prior to admission or care delivery (for example, a foreign object retained after surgery). (6)

- The AHA website provides a 2010 list of RAC issues for inpatient hospitals and related providers.


- FDA.gov has a Safety MedWatch web page (7) that provides safety alerts on an array of issues ranging from medical products to drugs to recalled products, etc.


- The American Medical Association created the Physician Consortium for Performance Improvement (PCPI), (8) which has evolved to become one of the nation’s preeminent physician-led initiatives dedicated to improving patient health and safety. (9)


Reducing the percentage of improper payments made under the Medicare FFS Program:

- 2008 target 3.8 percent; target exceeded (3.6 percent);


- 2009 target 3.5 percent; target not met (12.4 percent);


- 2010 target 9.5 percent; target not met (10.5 percent);


-  2011 target 8.5 percent; will be reported Nov. 30, 2011.


-  2012 target 6.2 percent.

The Improper Payments Elimination and Recovery Act of 2009 (IPERA, Public Law 111-204) changed the way errors were determined, thereby eliminating clinical judgment based on billing history. (10)  Part C and Part D improper payment goals also are being evaluated via guidelines under development, with implementation targeted for 2012.


Identifying the right care at the right time in the right setting, every time. (11) Any service billing that does not comply with this vision is at risk for audit.


- CMS’s goal is to reduce preventable re-hospitalizations within 30 days of hospital discharge by 20 percent compared to 2010, when 1.6 million readmissions were recorded. Combined projected savings from these measures are estimated at $10 billion for Medicare and $35 billion for the entire national healthcare system.


- Examples of audit categories include short stays, ER visits, inpatient rehabilitation admissions, extensive OR procedures unrelated to primary diagnosis, surgical procedures in incorrect settings, etc.


- CMS is partnering with both public and private sectors in these and other initiatives targeting improper payments.


- Provider service targets are defined by provider type (ambulatory surgery centers, physicians, hospital inpatient, ESRD), with additional information provided in the Quality Improvement Scope of Work dated March 28, 2011. Additional information is available on the CMS.gov QIO website on nursing home excellence.


Remedying insufficient or missing documentation. (12) Submitted medical records often lack pertinent patient facts (i.e. condition, diagnosis, extent of services provided) or requested medical record documentation is not submitted at all.


- Examples include excisional debridement documentation, ER visits and use of modifier 25 during physician E&M visits and procedures.


Eliminating medically unnecessary services. Medical record documentation does not always support that billed services were medical necessary based upon Medicare coverage policy. Discrepancies can involve level of service, unrelated services, location of services, or excessive units.


- Examples include neulasta, blood transfusions and physical therapy. (13)


Eliminating incorrect coding, or when medical record documentation does not support the level of services coded on a claim. These mistakes can cover type of service, excessive units of service, missing modifiers, incorrect modifiers, misidentifying a patient as new, etc. (14)


Eliminating unbundling, or separate billing for services included in primary site billing. This can encompass SNF consolidated billing, inpatient hospital services (labs, ambulance, pathology), wheelchairs (DME) or physician claims (IV hydration, drugs).


Eliminating fraud. (15) Major CMS initiatives are being expanded by increasing the number of law enforcement personnel with training and access to nearly real-time CMS systems data. The Health Care Fraud Prevention and Enforcement Action Team (HEAT) is utilizing this information in order to examine claims payment data for aberrancies, to identify suspicious billing patterns or trends, and to conduct surveillance on target providers or suppliers under investigation for potentially fraudulent practices. HEAT strike-force actions currently are ongoing in Louisiana, New York, Michigan, Texas, California and Florida,  with the intent of increasing HEAT law enforcement ranks by 200 individuals in 2011 (with an additional 200 individuals coming in 2012).


Other matters: services billed but not rendered, duplicate payment error, duplicate billing error, missing/incorrect modifiers, service and provider types do not match, missing/illegible provider signature  in the medical record, delivery of services by a non-authorized provider (DME),  complications, co-morbidities, ambulance during hospitalizations, FI/MAC audits, etc. (16)


CMS FY 2011 Intended Actions

For fiscal year 2011 CMS intends to advance the following targeted accomplishments (list not all-inclusive):

Replace FIs with 15 Medicare Administrative Contractors (MACs) that will process both Part A and Part B claims.


Implement the Provider Enrollment, Chain and Ownership System (PECOS) to help streamline enrollment and provider verification processes.


Perform maintenance and create enhancement of provider reimbursement services cost reporting analysis and application.


Create enhancement of Medicare appeals data collection and reporting.


Foster improvement to national provider access, education, outreach and training.


Ensure vigorous evaluation and certification of internal controls over financial reporting by fiscal intermediaries, carriers, RACs, etc.


Ensure technology advancement of claims processing and enrollment systems to prevent improper payments while promptly compensating honest providers. (17)


Prevent improper payments (pre-payment versus post-payment) whenever possible.

Advance One Program Integrity (One PI) development, which will provide a centralized source of standardized Medicaid data across multiple states, integrated with data from Medicare Parts A, B, and D dating back to Jan. 1, 2006.


Monitor National Supplier Clearinghouse (NSC) reviews and processes applications received from organizations and individuals seeking to become suppliers of durable medical equipment, prosthetics, orthotics and suppliers in the Medicare DMEPOS program. NSC assigns fraud level indicators to assist in expanded review procedures of suppliers in an effort to better control potential fraud and abuse.  Three field offices exist in high vulnerability areas (New York City, Los Angeles and Miami), with more field presence to deter fraud likely to come.


How to Prepare a Vulnerability Assessment

In seeking to minimize risks, the following questions should be part of any healthcare provider organization’s routine vulnerability assessment:  

1. How does your organization’s data compare to the above list of issues in terms of cost, frequency, total volume and potential errors status?


2. What issues are listed on your RAC’s approved query list? How do your facility’s most costly and most frequently performed services compare to those listed in the RAC query list? Have there been any audits to date? What were the results? How many “no findings,” appeals, and wins or losses have your facility experienced?


3. What has been done by your facility to address RAC appeal results?


4. What high-volume billing issues have not been researched for vulnerability?

My next article will address other CMS agencies that focus on improper payment recoupments and recovery goals, plus their impact on the healthcare delivery system providers.

About the Author

Vickie Axsom-Brown is the president of Audits and Recovery Solutions. She is a 20-year managed care veteran with diverse experience in administering private, state and federal healthcare services.  Her management experience includes time spent as the vice president of Region D RAC services (as the principal lead for CMS, claims processing contractors and HDI services) and as CEO/COO of multidisciplinary, multi-site adult and pediatric medical/surgical providers, including oncology/radiology services, laboratory services, ambulatory surgery centers, upright MRIs, PETs, and others.


Contact the Author


Comment on This Article: editor@racmonitor.com




1. https://www.cms.gov/PerformanceBudget/Downloads/CMSFY11CJ.pdf, CMS Online Performance Index - Page31, MRC19: Ensure Accuracy of the Recovery Audit Contractor (RAC) Program.


2. www.cms.gov/Recovery-Audit-Program, National Program Corrections as of June 30, 2011 (pdf 135KB)


3. https://www.cms.gov/PerformanceBudget/Downloads/CMSFY11CJ.pdf, Payments to the Health Care Trust Funds (+$15.1 billion), Page 5.


4. http://www.hhs.gov/asl/testify/2011/05/t20110505c.html First, Do No Harm: Improving Health Quality and Patient Safety Testimony


5. www.cdc.gov/about/advisory/pdf/ACD_Minutes_04_12_10_Final.pdf - CDC Report


6. http://www.hga.org/pha/Provider/110503-regulaotry-adv.pdf - AHA Regulatory Advisory may 2, 2011 article – Medicare Inpatient PPS:  the Proposed Rule for Fiscal Year 2012.


7. http://www.fda.gov/Safety/MedWatch/default.htm - FDA Safety Information  and Adverse Event Reporting Program


8. www.ama-assn.org/resources/doc/cqi/pcpi-brochure.pdf - PCPI brochure


9.  www.physicianconsortium.org. This brochure provides a list of safety issues that are on most if not all RACs’ audit list.


10. https://www.cms.gov/PerformanceBudget/Downloads/CMSFY11CJ.pdf, CMS Online Performance Index – Pages 89-90, MIP1: Reduce Percentage of Improper Payments Made Under the Medicare FFS Program.


11. https://www.cms.gov/PerformanceBudget/Downloads/CMSFY11CJ.pdf, CMS Vision – Page 2


12. https://cms.gov/CERT/Downloads/CERT_Report.pdf, Pages 5-6 lists error categories used by CERT, RACs, FIs, MACs to determine review/audit categories/topics.


13. www.racaudits.com – list of RAC audits/templates for purchase.


14. www.ahima.org/publications/newsletters.aspx - email alert for coding issues.


15. https://www.cms.gov/PerformanceBudget/Downloads/CMSFY11CJ.pdf, Pages 163-165,….minimizing inappropriate payments, close loopholes, and provider greater value for program expenditures to beneficiaries and taxpayers.


16. http://oig.hhs.gov/oas/reports/region7/71105013.pdf - OIG JULY 2011 REPORT – Trailblazer


17. http://www.cms.gov/apps/media/press/testimony - Wednesday, November 17, 2010 Strengthening Medicare and Medicaid: Taking Steps to Modernize America’s Health Care System,  Donald M. Berwick, MD, MPP testimony


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