As we mentioned last week, CMS awarded the long delayed Recovery Audit Contracts on Monday Oct. 31, 2016. The recovery auditors are responsible for reviewing Medicare Part A and B fee-for-service claims for proper documentation and for medical necessity. Payment by Medicare for claims found to be improper are reversed.
The contracts were awarded as follows:
Region 1: PFMT
Region 2: COTV
Region 3: COTV
Region 4: HMSY
Region 5: PFMT
Regions 1 through 4 are comprised of four geographical regions that are generally equal in their Medicare claims. The map below shows the division of the Medicare RAC regions.
Region 5 is a single nationwide jurisdiction for the audit of home health, hospice and DMEPOS claims. It was created for this procurement. Previously, HHA, Hospice and DMEPOS claims were audited by the RACs by geographical region.
As we have mentioned in a previous note, the RAC program that is returning will be more constrained than the one that operated from 2010 to 2014. The lack of oversight in the program during the earlier period allowed RACs to target inpatient hospitals in general and short stay inpatient claims in particular. These claims, of course, offered the highest margin for most RACs. The way in which the RACs focused their efforts on one type of provider and one type of claim led to a significant political response from Congress. In the end, to avoid legislative micro-managing, CMS elected to implement some changes with the new contracts, resulting in more oversight and certain limitations designed to assure providers that RAC scrutiny would be more fairly applied. One of those changes was in the payment terms to the RACs. Under the old contract RACs were paid within roughly 45 to 60 days of making a payment determination. Under the new contracts, RACs will not be paid for an improper payment determinations until the it survives the second level of appeal. This change extends the time to payment by CMS to the RACs to as much as 180 days, by some calculations. In many cases, it will be shorter.
We had thought that the change in the payment terms would have led prospective contractors in this recent procurement to increase the contingency fees they would be paid on recoveries. We were only partially correct. The change in payment terms notwithstanding most RACs bid contingency fees lower than the current prevailing 9-12 percent. HMSY was the exception. They offered a contingency fee rate of 17.5 percent on all recoveries, almost double the other contractors' rates. Of course, at such a high rate, HMSY was only selected to audit a single region - the one in which they currently operate. We must acknowledge though that HMSY properly assessed the universe of potential bidders and the cost of being a contractor especially in light of the new, longer payment terms. For that they are due some credit. The table below lists the contingency fees for the new contracts and total improper payment recoveries in recent years to provide context.
Table 1: Recovery Auditor Contingency Fees 2016- 2021 Contract Period with Recent Recoveries
As always, give use a call if you have questions.
Emily Evans
Managing Director
Health Policy
@HedgeyeEEvans
