Congress increases scrutiny of Medicare Recovery Audit Contractors

Last year, Medicare providers and members of Congress began expressing their concerns over the Recovery Audit Contractor Demonstration Program overseen by the Centers for Medicare and Medicaid Services.

In November, troubled that the Recovery Audit Contractor program was adversely affecting the quality of patient care, these members introduced legislation in the House of Representatives to impose a one-year moratorium on the program.

Anthony H. Choe

Although it remains to be seen whether the CMS can propose appropriate adjustments to the Recovery Audit Contractor program in time to forestall legislative action, changes to the program are on the horizon.

Traditionally, Medicare fiscal intermediaries and carriers evaluate a small percentage of claims (less than 5%) to determine whether improper payments were made to providers under Parts A and B of the Medicare program. However, based on concerns that these administrative reviews are insufficient to protect the integrity of the Medicare program, Congress enacted Section 306 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

Section 306 requires the CMS to conduct a three-year demonstration project to evaluate whether contractors could provide a cost-effective means of identifying and reconciling improper payments. Reimbursed on a contingency fee basis, the program contractors would keep a percentage of recovered overpayments and have a strong financial incentive to ferret out improper payments.

This demonstration is the first time that the CMS has reimbursed a contractor on a contingency basis for claim review and overpayment collection work.

In early 2005, the CMS announced that three recovery audit contractors would evaluate claims in three states as part of the demonstration: PRG Schultz International (California), HealthData Insights (Florida) and Connolly Consulting (New York). Once the demonstration ends this March, the CMS plans to implement the program nationwide by 2010.

Backlash in California

On May 29, 2007, more than half of California’s Congressional delegation sent a letter to the CMS expressing concern that the demonstration lacked sufficient oversight. According to the letter, PRG Schultz was denying nearly all claims for the admission of patients with joint replacement procedures to inpatient rehabilitation facilities. As a result, these facilities were being forced to divert resources away from patient care to appeal these determinations. The delegation urged the CMS to examine PRG Schultz and require it to refund any contingency fees received for cases that are overturned on appeal.

In September, the California delegation became aware of a CMS decision to “pause” PRG Schultz’s evaluation of claims. Although the delegation was pleased that the CMS had suspended the California contractors, it was incensed at the CMS’s failure to respond to its requests for additional information on the nature of the pause. On Nov. 1, the delegation sent another letter to the CMS, warning of possible legislation and asking for a written explanation by Nov. 7.

A legislative moratorium

On Nov. 8, one day after the delegation’s deadline lapsed without a response from the CMS, Reps. Lois Capps and Devin Nunes of California promptly introduced HR 4105, the Medicare Recovery Audit Contractor Program Moratorium Act of 2007. In addition to placing a one-year moratorium on the contractor program, the legislation would require the CMS and the Government Accountability Office to evaluate the program and report their findings to Congress.

On Dec. 7, CMS Acting Administrator Kerry Weems finally responded to Capps and Nunes, stating that the CMS had instituted the pause to give its contractor, AdvanceMed, time to perform an independent review of claims denied by PRG Schultz. Based on this review, AdvanceMed had disagreed with PRG Schultz’s conclusion in 40% of cases. In response to these findings, Weems acknowledged that all the parties involved did not consistently apply the Medicare coverage and payment policies for inpatient services and proposed to take three steps: provide education training for all the involved parties; require PRG Schultz to review all inpatient claims that were determined to have an overpayment; and suspend reviews on IRF claims that have not already been reviewed so that these reviews will reflect the information provided in the training sessions.

The CMS also indicated that it would implement several changes to the national contractor program. For example, unlike the demonstration, the national program would require contractors to have a medical director. Also, if a determination is overturned, the CMS would require the contractor to refund any associated contingency fees.

‘A day late and a dollar short’

On Dec. 10, the American Hospital Association, the California Hospital Association and the Healthcare Association of New York State responded to Weems’ letter. Although they applauded the CMS for taking corrective measures, they expressed their ongoing concerns of program deficiencies, which Weems did not address in his letter.

Similarly, Capps remarked that Weems’ response was “a day late and a dollar short,” reasoning that the letter did “not address how [the CMS] will rectify many of the problems that have arisen since the beginning of the demonstration program, nor [did] it adequately elaborate on how [the CMS] will prevent many of these problems in the future.” Describing the program as “deeply flawed,” Capps suggested that the demonstration was “already harming health care providers and threatening patient care in California, New York and Florida.”

Various groups, including the American Hospital Association, continue to pressure Congress to impose legislative changes on the program, including the elimination of the contingency fee reimbursement system and improvements to the program’s transparency. Because the CMS’s proposals to change the program have not been enough to placate the critics, it is likely that additional changes — whether administrative or legislative — are on the horizon.

Anthony H. Choe is an Associate in the Health Care Group at Arent Fox LLP. He can be reached at Arent Fox LLP, 1050 Connecticut Ave. NW, Washington, DC 20036; 202-775-5751; e-mail: choe.anthony@arentfox.com.