The federal government Tuesday announced a couple of small tweaks to the Recovery Audit Contractor program that's been the source of stress for hospital leaders. Opponents applauded the revision, but said they're far from the sweeping changes that are needed.

CMS will "pause" additional documentation requests by current RAC operators until new contracts are finalized. RAC is a controversial federal program that uses private contractors to audit hospital billings, looking for Medicare reimbursements paid in error. Over the last two years, four RAC companies have collected more than $2 billion from hospitals, we reported.

In a press call last month, officials from the American Hospital Association said the idea of rooting out fraud and improper payments in Medicare is sound in principle but not in practice. RAC auditors have behaved like "bounty hunters," casting a wide net without concern of getting claims denials right the first time. One survey found that hospitals have appealed 40 percent of denials, proving successful about 72 percent of the time since 2010.

Well, CMS has listened to some of the negative feedback and announced five changes that will take effect in the next RAC contract:

  • Recovery auditors must wait 30 days to allow for a discussion before sending the claim for adjustment. Providers won't have to choose between initiating a discussion or an appeal.
  • Recovery auditors must confirm receipt of a discussion request within three days.
  • Auditors must wait until the second level of appeal is exhausted before they receive their contingency fee.
  • CMS is establishing revised additional documentation request limits that will be diversified across different claim types.
  • CMS will require auditors to adjust the documentation request limits in accordance with a provider's denial rate.

Melissa Jackson, senior associate director of policy at the AHA, says that the changes are a good first step, but further reform is needed. Some hospitals wait close to three years before they know whether a claim denial will be overturned, and the changes don't address that lengthy appeals process. Plus, there's nothing in the reforms to discourage recovery auditors from making inappropriate denials.

"We're happy that CMS has listened and responded to hospital concerns," Jackson says. "We have a monthly call with CMS staff and so many of the changes that they announced yesterday are responsive to concerns that the AHA has voiced about operations of the RAC program. But they are small steps. They are definitely not the significant reform that we think is necessary to the program to try to stop some of those inappropriate RAC denials."

The AHA supports the Medicare Audit Improvement Act, which would establish a limit on medical record requests, penalize RACs that fail to comply with the program, make performance evaluations of auditors public, and allow denied inpatient claims to be billed as outpatient claims in some cases.

Jackson says the bipartisan bill currently has some 180 sponsors. She encouraged hospitals to reach out to their elected representatives to explain the burdens placed on them by the RAC program. In its press call last month, a leader at Hartford HealthCare said the five-hospital system has been subjected to some 4,000 claims denials the past few years, with about $40 million at stake.

"It poses a huge administrative and financial burden on hospitals. We know that hospitals are having to create departments and hire staff to manage the RAC program, which are funds that could otherwise be spent on patient care," Jackson says.