AMA Suggests Penalties for Overzealous RACs

Posted by Kendell Gracey on Jan 7, 2015 6:00:00 AM

On December 3, 2014, Dr. James L. Madara, MD, Executive Vice President and CEO of the American Medical Association (AMA), sent a five page letter to Marilyn Tavenner, Administrator of the Centers for Medicare and Medicaid Services (CMS) regarding the controversial Recovery Audit Contractors (RAC) program that was put into place in 2011 and is slated for continued expansion in 2015.

The full letter is available for free download from the AMA.  

In this case, the issue being addressed is a huge backlog of hundreds of thousands of Medicare and Medicaid claim appeals that represent potentially millions of dollars in legitimate coverage that were originally denied by what the letter describes as “overzealous RACs” using “bounty hunter tactics.”

The statistics cited in the letter are eye-opening:

  • In the years prior to the institution of RACs, the Office of Medicare Hearings and Appeals (OMHA) averaged just over 35,000 claim appeals received annually, and just over 34,000 were decided within the year.  

  • Beginning in 2011, the number of claims received annually increased dramatically: 59,600 in 2011, 117,068 in 2012, 384,151 in 2013, and an estimate over 395,000 for 2014.  An increase of over 1000%!  Meanwhile, the OMHA's decisions during that time have only risen 250% to compensate, with an estimated 87,000 being decided in 2014.

  • An incredible 60.2% of appeals heard by the OMHA in 2013 resulted in the RAC's claim denial being overturned due to errors made by the RAC.  

The AMA also cited other issues involving the physical cost of appeals on top of the ongoing cost of maintaining regulatory compliance, and how these costs place an unacceptable burden on the average physician.  But the main issues causing the problem are these:

  • RACs receive valuable incentives for denying claims (anywhere from 9.0 to 12.5% of the claim's value.)

  • Yet, there is no penalty whatsoever if their initial findings are wrong.  They have to return their commission, but they lose nothing.

  • With the current appeals backlog, that means that an RAC wishing to earn high commissions could easily “discover” thousands of inaccuracies and claims overpayments, deny them, and potentially keep and use those commissions for years before an eventual appeal might cause them to pay the commissions back.  

The AMA would like to see the RACs receive financial penalties for submitting inaccurate claim denials in order to balance the scales and encourage claims to be reviewed accurately across the board.

It's a compelling case, and it will be interesting to see how the CMS reacts.

But this issue is not just of interest to doctors.  In all likelihood, in 2015, the RAC program will be applied to reporting and recovery of conditional payments made to Medicare beneficiaries in circumstances where Medicare is the second payer.  

As it is, these conditional payments represent the single most dangerous source of exposure P&C insurance carriers face in their efforts to remain compliant with Medicare regulations while running a financially responsible organization.  With the addition of RACs - potentially with the same “overzealous” and “bounty hunter” tactics in use - the situation could become even more risky.

We're keeping our eyes on the RAC situation, and we're prepared to help P&C insurers meet the challenges of working within the program while still maintaining 100% compliance.  Contact us with any questions you have about RACs and Medicare compliance.

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