Updated on: June 22, 2012

RACs: What Went Wrong?

Original story posted on: December 10, 2008

What RACs Saw That Providers Missed


eo D'Orazio is the Managing Director Healthcare for WithumSmith+Brown

Assessing the progress made by Recovery Audit Contractors from March 2005 through March 2008, CMS says that most of the improper payments occurred because providers submitted claims to Medicare for services that were not medically necessary or were incorrectly coded, as well as a focus on inpatient hospital claims that gave them the highest rate of return.


CMS also noted that RACs had undertaken actions to recoup those overpayments and prevent future improper payment but conceded that it would be “difficult” to prevent all improper payments since over one billion claims are processed annually.


In explaining the relatively high rate of improper payments to inpatient hospitals, CMS acknowledged that since RACs were paid on a contingency fee basis, their claims review strategy focused on high dollar improper payments such as inpatient hospital claims, giving them the “highest return” relative to expenses associated with reviewing claims and medical records.


CMS also said that during the demonstration, RACs were prohibited from reviewing certain types of claims like physician visits. Other claims excluded for the review process were those previously reviewed by other Medicare contractors and claims under review for potential fraud. Hospice and home health services claims were also excluded.


Selecting Claims for Review

CMS said it did not instruct RACs as to which claims should be reviewed, reporting instead that claims selection methodology was left up to individual RACs. CMS did say that RACs used reports from the OIG and GAO that highlighted Medicare services that were vulnerable to improper payments.


Weak Areas

Incorrect Coding: CMS reported that almost 50 percent of the improper payments were the result of incorrect coding such as a provider submitting a claim for a procedure but the medical record indicated that a different procedure was actually performed.


Medical Necessity: Approximately one-third of improper payments were related to medical necessity. CMS said payments were made for services that were not medically necessary or did not meet Medicare’s medical necessity criteria for the setting where the service took place; for example, a claim from a hospital for three colonoscopies for the same beneficiary on the same date of service when only one colonoscopy per day is medically necessary.


Duplicate Claims: Other errors were identified as hospitals not having or not providing medical records as requested by RACs, billing separately for services already included in other payments, submitting duplicate claims, using outdated fee schedules or being paid twice because duplicate claims were submitted.


Leo D'Orazio is the Managing Director Healthcare for

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