Hospitals Voice Frustration to Senators About Burdensome RAC Audits

On June 25, 2013, the Senate Committee on Finance heard testimony from hospital representatives and a recovery audit contractor (RAC) representative regarding burdensome audit procedures. RACs were created to identify improper payments made to Medicare Parts A and B providers and suppliers. However, hospitals are finding that the audits significantly increase hospital burdens without seeming to result in significant recoveries.

RAC Program

The RAC program began as a six state demonstration program authorized by the Tax Relief and Healthcare Act of 2006 (P.L. 109-432). Due to its success in identifying nearly $1 billion in improper payments over a three-year period, the program was expanded nationwide. Its purpose is to identify provider overpayments and underpayments in the Medicare program. Auditors are paid on a commission-only basis for overpayments and underpayments actually recovered. The HHS Office of Inspector General (OIG) recently reported that more than 60 percent of adverse decisions that providers and suppliers appealed to administrative law judges (ALJs) were partially or fully reversed.


In part based upon the OIG report, the Senate Finance Committee held a hearing seeking feedback from those directly involved in the audit process. It specifically heard testimony from Jennifer “JJ” Carmody, Director of Reimbursement Services for Billings Clinic (Billings) in Billings Montana, a physician group practice, hospital, and skilled nursing and assisted living facility; and Suzie Draper, Vice President of Business Ethics & Compliance for Intermountain Healthcare (Intermountain), a Salt Lake City-based healthcare system operating hospitals, clinics, and a health insurance plan in Utah and Idaho. It also heard from Robert Rolf, Vice President of CGI Federal, Inc. (CGI), which operates the RAC program in seven midwestern states.


Carmody and Draper agreed that the RAC auditing process overall was more burdensome than effective. Both organizations were required to expend significant resources to respond to the audits. Billings spends $740,000 per year on managing audits, appeals, and medical necessity reviews; Intermountain hired 22 full-time employees. Both organizations noted that they won the vast majority of appeals of alleged overpayments. Intermountain, in particular, won 90 percent of its appeals. Of $120 million in claims reviewed, the Medicare program recovered only $16,000, or roughly 1.3 percent of the total amount. Despite the limited findings of overpayments, the organizations are troubled by the fact that RAC audits seem to be expanding, rather than narrowing.

Suggestions for Improvement

The representatives had a number of suggestions for improvement, including suggestions regarding medical necessity reviews. RAC auditors are second-guessing physician decisions to admit beneficiaries as inpatients when they are ultimately discharged in less than two days. Both representatives urged RACs to use criteria available to physicians at the time the decisions are made in reviewing decisions. Carmody cited an example of an elderly woman who arrived at the emergency room post-open heart surgery and was diagnosed with a pulmonary embolism. Based on the high mortality rate for patients of her age and condition, she was admitted, but discharged after her condition improved with treatment. The RAC auditor denied the claim, suggesting she should have been treated as an outpatient. Carmody fears that some physicians are feeling pressured to place patients in observational status to avoid claim denials.

In addition, the representatives noted that RACs are not adhering to the same deadlines to which they are requiring providers and suppliers to adhere. Both representatives feel that resources expended on RAC audits would be better devoted to compliance education. They also note that RAC findings are inconsistent at the appellate level and are frequently overturned by ALJs.

Rolf, on the other hand, believes that the problem at the appellate level lies with too much flexibility given to ALJs. In fact, he noted that CMS monthly audits of RACs resulted in accuracy scores of greater than 90 percent—95.8 percent in CGI’s case.

Senators’ Proposals

Senators Max Baucus (D-MT) and Orrin Hatch (R-UT) both support reform of the RAC program. Baucus recommended incentivizing contractors to focus on at-risk services and providers, educating providers regarding billing and compliance issues, and making the appeals process more efficient. Hatch proposed reducing the look-back period to three years, limiting the number of medical records requested, and accepting electronic copies of documents.

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