The battle over the fairness of the Medicare Recovery Audit Contractor program is heating up, as 111 bipartisan members of Congress have sent a letter to Health and Human Services Secretary Kathleen Sebelius.

In recent months, the American Hospital Association and American Medical Association have ramped up their grievances about the program, and even RAC contractors are fighting Medicare over its enforcement delay of the two-midnight payment rule and the suspension of appeals to clear a huge backlog. And now, Congress is strongly suggesting that changes be made in the RAC program.

Among other issues, the 111 congressional members contend that aspects of the RAC program are unfair and violate the way that the Medicare program was intended to operate by raising out-of-pocket costs for beneficiaries. Here is the text of the February 10 letter to Sebelius:

“Providing Medicare beneficiaries with the services they deserve is of paramount importance to the Congress. It is in light of this obligation that we write to express our concerns regarding the Recovery Audit Contractor program and the problems facing both Medicare beneficiaries and providers of Medicare inpatient services, hospitals and health systems.

“As you know, Recovery Audit Contractors are tasked with evaluating the accuracy of Medicare payments to providers. Although the intent of the program is laudable, operational problems within the program have persisted without corrective action by the Centers for Medicare and Medicaid Services. RACs are able to audit medical records and claims three years after services have been provided. They are paid a commission on the amount of claims they deny, which ranges between 9 and 12.5 percent. Due to this payment structure, RACs are incentivized to deny claims, even when the claims are correct. In fact, according to a November 2012 OIG report, 72 percent of hospital Medicare Part A appeals that have reached the third level of the Medicare appeals process are overturned in favor of the hospital. Without more oversight measures in place, RACs have imposed a huge administrative burden on hospitals, which must spend valuable time and resources to appeal denied claims in order to be reimbursed for Medicare services provided.

“Furthermore, Medicare beneficiaries suffer when their inpatient stay is inaccurately denied by a RAC. They pay higher out-of-pocket expenses under Medicare Part B and are sometimes held financially responsible for the post-acute care services they require. This is not the way the Medicare program was intended to operate.

“The need for reform of the RAC program has been further illuminated by a recent announcement from the Department of Health and Human Services Office of Medicare Hearings and Appeals that it has suspended assignment of claim appeals to an Administrative Law Judge for at least the next two years. It states that this temporary halt was ‘necessitated by a dramatic increase in the number of decisions being appealed to OMHA.’ In its notice, OMHA further reveals that from 2010 to 2013, its claim and entitlement workload has grown by 184 percent and that it has accumulated a backlog of 460,000 claims for services and entitlement in just under two years. Even more alarming, OMHA operates with 65 Administrative Law Judges, who already have 375,000 claims currently before them.

“In closing, we strongly recommend that CMS consider dedicating additional resources to help resolve OMHS’s backlog issue in order for the claims appeal process to resume as normal. Furthermore, we strongly urge CMS to immediately reform the RAC process. We believe CMS should implement reforms to ensure that auditors are charged with identifying real claim coding and medical documentation errors, as well as provide a more transparent mechanism through which providers can be informed of errors so as to avoid them in the future. An alternative payment arrangement with auditors should be considered by the Congress and CMS in order to ensure RACs are not improperly incentivized to deny claims for profit and to ensure they focus on prevention of errors. This can be accomplished by paying RACs a retainer, as many other government contractors are paid. We also urge CMS to adopt the commonsense reforms supported by 184 bipartisan Members of Congress that are contained in the Medicare Audit Improvement Act of 2013 (H.R. 1250).

“Medicare beneficiaries and those who provide them with care have an important stake in ensuring the RAC auditing process is fair and effective. We urge you to take immediate action before we see further problems with the RAC auditing program.”

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