Stretched by the 'RAC'

January 1, 2009

Federal regulators have judged the first phase of the Medicare Recovery Audit Contractor (RAC) program a success, but the controversial plan promises potential headaches for physicians as it moves into its second phase.

National Report-Federal regulators have judged the first phase of the Medicare Recovery Audit Contractor (RAC) program a success, but the controversial plan promises potential headaches for physicians as it moves into its second phase.

However, health care providers in the 20 states where RAC is in place were given a temporary reprieve in November 2008 when CMS announced that it was suspending the program in response to the complaints of two bidders who were shut out when CMS awarded permanent RAC contracts. One of the protesting companies, Atlanta-based PRG-Schultz International Inc., claims CMS denied it a permanent contract because of its high contingency fee bid.

On its web site, CMS says RAC will resume when the dispute is settled-likely February 2009, when the U.S. Government Accountability Office is expected to render a decision.

The four private firms hired by CMS are charged with identifying overpayments and underpayments of the more than 1.2 billion Medicare claims submitted annually by U.S. health care providers.

According to CMS, $828 million, or about 85% of the $980 million total collected by RAC from 2005 to 2007, came from inpatient hospitals. About $20 million (2%) was collected from physicians-almost all specialists. RAC audited 50,054 physicians in its first 3 years.

The obvious incentive for CMS is to recoup overpayments to providers (see, "What is an improper payment?" at http://www.urologytimes.com/improper). But the fact that contractors earn a percentage of the money collected has contributed to the program's unsavory reputation in the medical community. Moreover, the news that RAC is here to stay has sparked concern in health care circles that its focus eventually will turn to specialty practices.

"It's a bounty hunter program," said Elizabeth McNeil, vice president of federal government relations for the California Medical Association.

California was among the initial RAC states, chosen because of its high volume of Medicare claims. Its providers were the hardest hit by RAC auditors in that span, accounting for $318 million, nearly one-third of the total collected from six states in the program's first 3 years.

RAC generated so many protests by health care providers in California that nearly half of the state's congressional delegation wrote to CMS in May 2007, expressing concern that the demonstration model lacked sufficient oversight.

"[RACs] have cost California physicians resources, time, and hassles for the modest amount of money they have collected," McNeil said.