Medicare officials want to make it harder for their recovery-audit companies to collect fees for auditing hospital and doctor bills. Earlier this week, the Government Accountability Office gave the CMS the go-ahead to make the change despite protests from the auditors.

Recovery auditing is a major point of controversy among Medicare providers. The four companies that are paid to look for overbilling in the Medicare program get to keep between 9% and 13% of the amount flagged as inappropriate. Critics say it’s unusual to give such financial incentives to auditors. The American Hospital Association frequently refers to the companies as “bounty hunters (PDF).”

Medicare officials are making tweaks to the 5-year-old recovery auditing program as they prepare to solicit bids and then award the second round of contracts.

The most controversial change, upheld this week following an analysis by the Government Accountability Office (PDF), says the four auditing contractors won’t be able to claim their percentage of Medicare recoveries until a judge at the second level of Medicare’s six-stage appeals process upholds the auditor’s findings.

During the first five years of the program, the auditing companies got paid if their decisions were upheld at the first stage of appeals.

“The changes to the RAC payment schedule will not yield tangible improvements to the Medicare oversight process,” said Becky Reeves, spokeswoman for the recovery auditors’ Washington interest group, the American Coalition for Healthcare Claims Integrity. “Delaying payment will not impact how RACs operate, the amount they recover, or temper their commitment to combating waste in Medicare.”

The change will mean that recovery auditors will have to wait longer for their payments. Typically the first stage of appeals takes about 120 days to clear, while the second stage takes more than a year on average, according to Nashville-based investment-information firm Obsidian Research Group.

“At this point, I do not think that the change will impact how much the RACs get paid, since appeals to the first and second levels are almost always decided in favor of the RAC/CMS,” said Obsidian partner and analyst Emily Evans.

Hospitals have in the past suggested that payments be withheld until the third stage of the appeals process, which is the administrative law judge level, she noted. Not surprising, given that data compiled by the AHA say hospitals win about 72% of the appeals that make it that stage of the process, far higher than their win-rate in first two stages.

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