Medicare audit overreach? Doctors think so, but audits aren't going away

Physicians decry the heavy-handed methods of Medicare's "bounty hunters," but Congress and the White House are expanding the program nationwide.

By — Posted July 7, 2008

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Aggressive tactics, vague charges, interrupted patient care, drained staff resources and administrative headaches. These are some of the problems doctors say they encountered during their experiences with Medicare's newest breed of auditor.

The Centers for Medicare & Medicaid Services this spring wrapped up a three-year pilot program in which "recovery audit contractors," or RACs, scoured physician and hospital claims in three states to find overpayments and to recoup those dollars for Medicare. Thrilled by the project's financial success, lawmakers ordered CMS to expand the program to all 50 states by 2010. The agency plans to choose four national contractors to administer the program this summer. A new round of audits could start right away.

But if Congress doesn't delay the RAC program and make some serious changes, physicians with negative experiences worry that there will be many more stories like theirs.

Jeffrey E. Kaufman, MD, a urologist in Santa Ana, Calif., was one of the first physicians whose Medicare claims were reviewed by a recovery audit contractor.

Last summer, Dr. Kaufman's practice received what he describes as a vague, "Kafka-esque" letter from Atlanta-based auditor PRG Schultz, the RAC for California. It insinuated that he had received roughly $3,000 too much for luteinizing hormone-releasing hormone agonists he administered to patients more than four years earlier. The letter demanded patient medical records to help determine if the charges were accurate.

Dr. Kaufman provided the records he thought would show he was in the clear. During the time in question, the state's Medicare carrier had not yet tightened up its "least costly alternative" policy on those drugs, so the carrier had approved larger payments than written guidelines dictated.

But following the written policy alone, PRG Schultz ruled that the physician had been overpaid. The contractor instructed the carrier to recoup the money from Dr. Kaufman or to dock his Medicare checks going forward.

When the contractor failed to return his calls, Dr. Kaufman took his case to medical associations, physician advisory boards and CMS. As the deadline approached for him to make the final payment, the carrier came back with the surprising news that it had overturned the RAC and was rescinding all of the demands for overpayments on the urology drugs.

Although Dr. Kaufman didn't end up paying a nickel, his fight took countless hours of unpaid work. "This was controlling my life for about three to four months."

Dr. Kaufman's story is not unique. Physicians in California and Florida have had similar run-ins. The RAC in New York reviewed only hospital claims during the three-year pilot. Complaints often come from doctors whose specialties require them to administer drugs covered by Medicare Part B. Doctors feel the auditors have targeted these medications in search of overpayments because the drugs are expensive.

Initially, contractors were paid contingency fees based on how many Medicare overpayments they dug up. After sharp criticism from the medical community, in spring 2006 CMS also began to base RAC fees on underpayments they discovered. The program has been cost effective for the government. On average, Medicare spends about 20 cents to recover each dollar in overpayments.

So far, the program has focused largely on inpatient hospitals, where a single incorrect code or duplicate charge can amount to thousands if not tens of thousands of dollars.

Over the three-year pilot, the RACs collected less than $13 million from physicians out of the $980 million in total overpayments they found, with the average overpayment per physician being about $100 to $200. The contractors found only a small fraction of underpayments, which physicians said are more difficult for auditors to discover through claims review.

But for physicians who come under the gaze of the contractors, the costs to the practice can be far more than the Medicare money at stake.

Marilou Terpenning, MD, a hematologist-oncologist in Santa Monica, Calif., had to respond to several rounds of medical record requests from PRG Schultz for claims involving alleged overpayment for chemotherapy. Some of the cited overpayments were as little as $13 or so per claim, but the cost to the practice of retrieving the corresponding record and forwarding the information could be 10 times that amount, she said.

Tactics under fire

Whenever the RAC made overpayment determinations, the physicians were forced to pay the amount in question or risk accrued interest, garnished Medicare checks or possible loss of Medicare billing privileges. Because the contractors were paid in part based on how many overpayments they found, they were soon referred to as "bounty hunters," a moniker that still persists.

Physicians in California and Florida complained that the contractors used questionable tactics. They say the RACs made medical necessity determinations based on written Medicare coverage guidelines without the input of a single physician. Contractors reviewed claims that Medicare carriers already had adjudicated, misinterpreted coding statutes and went on fishing expeditions by demanding scores of records at a time. For the most part, CMS officials were powerless to review the RACs' work unless a doctor lodged an official appeal.

"There was no one auditing the auditors," Dr. Terpenning said.

She has appealed all of the thousands of dollars in overpayment charges she received and expects to win all of them with the exception of about $250 in billing errors that she determined her office made. CMS reports that, as of March, one-third of such appeals had resulted in the overpayment determination being overturned. Many are pending.

But many doctors don't bother appealing, said Michael C. Schweitz, MD, a rheumatologist in West Palm Beach, Fla. When Las Vegas-based HealthDataInsights, the RAC for Florida, sent demand letters for alleged overpayments as low as $40, he paid rather than mount an appeal, which can take six months or longer. "When you're talking about small dollar amounts, it becomes a business decision," he said.

Ellen Evans, MD, the HealthDataInsights medical director, said in a written response that the firm followed all applicable Medicare statutes during the three-year demonstration and adhered to industry best practices that have been in place for decades. Contrary to claims that the RAC placed an undue burden on physician practices, she noted that it requested only 150 medical records to back up the more than 300 million physician claims it reviewed in Florida.

HDI's close working relationship and open communication with the doctors it reviews already has helped eliminate inefficient billing practices and ensured that more Medicare claims are paid accurately, Dr. Evans said.

A PRG Schultz spokesman said the company could not comment because it is applying to be one of the national RACs when the program launches countrywide.

Physicians in California and Florida acknowledged that the RACs there stopped their more aggressive tactics after doctors complained to contractors and to CMS. In addition, some doctors who protested RAC actions actually were undergoing postpayment review from different contractors and were confused about who was investigating.

An unknown future

Responding to concerns about the pilot, CMS has pledged to make numerous changes when it transitions to the permanent program.

The number of medical records requested from each practice will be limited, and the firms will be required to use standardized demand letters to avoid confusing doctors. Contractors will be unable to look back more than three years for overpayments, and at the outset no earlier than October 2007. If a physician or hospital appeals and has the overpayment determination overturned at any level of the process, the RAC will be required to refund its contingency fee. Before conducting a medical necessity audit, the RACs will be required to receive CMS approval.

But for the American Medical Association, the American Hospital Assn. and other organizations, the proposed changes aren't enough. The groups are pushing lawmakers to delay rollout of the permanent program for one year so more comprehensive changes can be made.

"The program has been extremely burdensome on affected physicians and does nothing to educate them about common billing mistakes," said AMA Board of Trustees member William A. Dolan, MD.

The permanent program will focus more on schooling physicians about errors than on punishing them for it, said Timothy B. Hill, the CMS office of financial management's director. The agency, however, has revealed few details about the extent of the education.

If the program goes forward as planned, the AMA is calling for CMS to take medical necessity reviews and audits of evaluation and management services completely off the table, as well as raise the size of claims that can trigger an audit. Physicians are concerned that more doctors will be targets for review if E&M codes and claims for less than $25 are fair game.

The Association also wants to prevent RACs from reviewing claims that are less than a year old because they still might be under postpayment review by Medicare carriers.

Physicians who were reviewed by the RACs said they understand overpayments occur and audits can benefit the program. But giving unregulated auditors free rein to squeeze additional dollars out of practices that already are stretched to the financial limit under Medicare could force doctors into increasingly larger groups or out of the program, Dr. Terpenning said.

Dr. Kaufman echoed that sentiment. "This is just one more straw on the camel's back, and one day it's going to be the final straw."

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Coming soon

By 2010, Medicare is required to roll out the recovery audit contractor program to all states on a permanent basis. Four yet-to-be-chosen regional contractors will administer the program and its expansion. Here is a tentative schedule:

Region A

Summer 2008: Maine, Massachusetts, New Hampshire, New York, Rhode Island, Vermont

January 2009 or later: Connecticut, Delaware, Maryland, New Jersey, Pennsylvania, Washington, D.C.

Region B

Summer 2008: Indiana, Michigan, Minnesota

January 2009 or later: Illinois, Kentucky, Ohio, Wisconsin

Region C

Summer 2008: Colorado, Florida, New Mexico, South Carolina

Fall 2008: Oklahoma, Texas

January 2009 or later: Alabama, Arkansas, Georgia, Louisiana, Mississippi, North Carolina, Puerto Rico, Tennessee, Virginia, West Virginia

Region D

Summer 2008: Arizona, Montana, North Dakota, South Dakota, Utah, Wyoming

Fall 2008: California, Hawaii, Nevada

January 2009 or later: Alaska, Idaho, Iowa, Kansas, Missouri, Nebraska, Oregon, Washington

Source: Centers for Medicare & Medicaid Services, June

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Where the money came from

Of the $980 million that Medicare recovery audit contractors collected between March 2005 and March 2008, only a small percentage came from physicians. The RACs collected more overpayments for services they deemed medically unnecessary than for incorrectly coded claims.

Health care organization/professionalPercentage of collections
Inpatient hospital84.0%
Outpatient hospital/inpatient rehabilitation facility/skilled nursing facility14.0%
Durable medical equipment1.0%
Overpayment classification
Medically unnecessary service40.0%
Incorrectly coded claim35.0%
None/insufficient documentation8.0%

Note: Numbers may not add up to 100% due to rounding.

Source: Centers for Medicare & Medicaid Services

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How to be prepared

As Medicare begins to expand the recovery audit contractor program nationwide, physician practices can take steps to ensure that they are better prepared if a RAC comes knocking, said R. Brent Rawlings, an attorney with McGuire Woods LLP in Richmond, Va.

One of the best ways for a doctor not to get audited is to give auditors little reason to look into his or her Medicare claims. By closely following available Medicare guidance and paying particular attention to known overpayment problem areas, a practice can greatly reduce the chance that it will come under the gaze of the RACs. Coding correctly and compiling the needed documentation is key.

"Think of it as a dose of preventive medicine," Rawlings said. "The best way to do that is for physician practices themselves to pick the low-hanging fruit before the RAC has a chance to do it."

When audits do occur, physicians will be in better shape if they already have an internal process in place to respond quickly and accurately. This includes differentiating a RAC review from other audits, processing demand letters and medical records requests efficiently, and filing prompt appeals when necessary, he said.

Finally, Rawlings said, physicians should keep their perspective and not panic. In many ways, the audits will be business as usual for Medicare. "RACs are really not all that different from other Medicare contractors already in place. Physicians are already dealing every day with inquiries from carriers and program safeguard contractors," he said. "The difference here is that the rules that these RACs are to play by have not been that clear."

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