Category Archives: Medicare

AHCA Recommends New Medicaid Payment System to Legislature

UPDATE: The Agency for Health Care Administration (AHCA) held their final public meeting on November 20, 2015, to wrap-up their discussion and submit recommendations to the Legislature for the development of an Outpatient Prospective Payment System (OPPS) to replace the current “cost-based per visit” rate methodology for Florida’s Medicaid program. AHCA’s recommendation will be to adopt a modified Enhanced Ambulatory Patient Grouping system (EAPG), which involves bundling procedures and medical visits that share similar characteristics and pays one base rate to the provider to cover all of the bundled services. The new system is expected to be implemented on July 1, 2016.

Tom Wallace, Bureau Chief of AHCA’s Medicaid Program Finance, along with members of Navigant Healthcare, the private consulting company contracted to develop the new payment system were looking at two primary model options for the OPPS: 1) the EAPG, which requires proprietary software (most likely from Navigant) that will need to be purchased by providers; and 2) the Ambulatory Payment Classification (APC) model, which is linked to Medicare’s OPPS system. By the last meeting in October, it was clear that AHCA and Navigant preferred the EAPG system to the APC model. The recommendation presented at the final meeting confirmed the agency’s preference for the EAPG model.

Significantly, the consulting company provided a simulation of how the EAPG system would pay claims to hospitals based on data collected by AHCA in accordance with the current payment system. Navigant provided charts of the top 20 hospitals and ambulatory surgical centers (ASCs) that would see the biggest payment increases and decreases. (See pages 23-26 of attached workshop presentation.) According to the simulation compiled by Navigant using previous years data, the greatest increases in payments will be seen by Ocala Regional Medical Center, Bethesda Hospital East, St. Vincent’s Medical Center and Bayfront Health – St. Petersburg. The greatest decreases will be seen by Jackson Memorial Hospital, Florida Hospital, Homestead Hospital and Sacred Heart Hospital. (Full simulation results are attached here and here as Exel spreadsheets.) Approximately 18 hospitals were excluded from the simulation (including University Behavioral Hospital, Windmoor Healthcare, Emerald Coast Behavioral, UF Health Shands, UF Health Jacksonville, and others) because approximately 33-percent or more of their prior claims data were missing procedure codes. (See page 18 of attached workshop presentation for complete list.) It was suggested at the meeting that the committee reach out to the hospitals to get their procedure codes so that they can be included in the simulation.

Additional recommendations that will be provided to the Legislature include the following:

  1. No outlier payments from Medicare OPPS (payments above or beyond scope of EAPG system);
  2. No service line adjusters and only one provider-specific adjuster for hospitals with high Medicaid outpatient utilization (Nemours Children’s Hospital, Nicklaus Children’s Hospital and All Children’s Hospital);
  3. No “charge cap” with the EAPG payment methodology to allow payment of the lessor of submitted charges or Medicaid-allowed amount;
  4. Allow a 5-percent adjustment to the EAPG base rate to account for anticipated documentation and coding improvement (consistent with the value used in the first year of APR-DRG implementation); and
  5. Applicable claims paid between July 1, 2016, and the date of implementation will be adjusted to apply EAPG pricing (retroactive to July 1, 2016).

AHCA will submit its recommendations to the Florida Legislature by November 30, 2015. Legislation regarding a new payment system is expected to be passed during the 2016 Session, with the new program to be effective on or about July 1, 2016.

For more information about AHCA’s development of the OPPS, please contact an attorney at Smith & Associates.

Outpatient Prospective Payment Systems

The Agency for Health Care Administration (AHCA) hosted a public meeting on September 17, 2015, to discuss the development of an Outpatient Prospective Payment System (OPPS) to replace the current “cost-based per visit” rate methodology. The stated goal of this payment method conversion is to help control healthcare spending increases while continuing to maintain access to services for Florida’s Medicaid populations.

To assist with this development, AHCA contracted with private consulting company Navigant Healthcare which has offered options between two popular OPPS models that have been adopted by other states. Once a preliminary decision is made on a model, Navigant and AHCA will send its recommendations to the Legislature before the next session.

Currently, Navigant and AHCA are leaning towards adopting an Enhanced Ambulatory Patient Grouping System (EAPG), which involves bundling procedures and medical visits that share similar characteristics and pays one base rate to the provider to cover all of the bundled services. The rates, which have yet to be formulated, will be based on a review of average historical data measured from diagnosis codes and claims paid to outpatient providers from fiscal year 2013-14.

The other OPPS model being considered is the Ambulatory Payment Classification (APC) model. According to Navigant, the APC model provides less bundling for procedures and ancillary services (and, subsequently, more “a la carte” payments) than the EAPG model. The APC model excludes many services – including laboratory, pathology, physical therapy and DMEs – which must be paid under other fee schedules. EAPGs require proprietary grouper software (from Navigant?) and will be less familiar to providers compared to the APC model, which is linked to Medicare’s payment system.

Two more public meetings will be scheduled before AHCA submits recommendations for an OPPS to the Florida Legislature on November 30, 2015. Legislation regarding a new payment system is expected to be passed during the 2016 Session, and then implemented on July 1, 2016.

For more information about AHCA’s development of the OPPS, please contact an attorney at Smith & Associates.

Medicare Incentives for Doctors to Adopt, Implement or Upgrade Electronic Health Records

Under the Health Information Technology for Economic and Clinical Health Act (HITECH), federal incentive payments are available to doctors when they adopt electronic health records and demonstrate use in ways that can improve quality, safety and effectiveness of care. Doctors can receive as much as $44,000 over a five-year period through Medicare. There is no minimum amount of Medicare that the doctor must provide to be eligible for the federal incentive money and the amount of incentive is not dependent upon the cost expended in adopting, implementing or upgrading the electronic health records. Incentives can even be paid for upgrades that occurred prior to the adoption of the HITECH stimulus so long as the electronic health records are maintained with a properly certified compatible technology. However time is quickly running out to receive the maximum amount of incentive payments. February 29, 2012, is the last day for eligible professionals to register and attest to 2011 electronic health records.

WHO IS A MEDICARE ELIGIBLE PROFESSIONAL?

A Medicare eligible professional is a doctor of medicine or osteopathy, a doctor of dental surgery or dental medicine, a doctor of podiatric medicine, a doctor of optometry, or a chiropractor, who is legally authorized to practice under state law. Hospital-based doctors who furnish substantially all their services in a “hospital setting” (90% or more) are not eligible for incentive payments.

WHAT ARE THE PAYMENT TERMS?

In general, a qualifying eligible professional can receive an initial incentive payment as high as $18,000 if their first payment year is 2011 or 2012. Otherwise, the initial incentive payments go down on a sliding scale for every year that goes by before the eligible professional joins the program. The maximum amount of total incentive payments that an eligible provider can receive under the Medicare program is $44,000, unless the eligible professional predominantly furnishes services in a geographic health professional shortage area, in which case they are eligible for a 10 percent increase, totaling $48,400.

WHAT IS MEANINGFUL USE?

The eligible provider must demonstrate meaningful use to continue receiving incentives and those who do not successfully demonstrate meaningful use will be subject to payment adjustments beginning in 2015. Currently, the process for proving meaningful use is merely an attestation form. There are 25 criteria for meaningful use, 15 of the 25 are required criteria and 10 are elective criteria. Eligible providers must satisfy all 15 core criteria (unless they are inapplicable to the particular medical specialty, in which case they will be considered met) and 5 of the other ten criteria (again any inapplicable criteria count as being met). In the future, additional more qualitative criteria will be developed to determine meaningful use.

Revalidation Required for Continued Medicare Payments

All Medicare-enrolled providers should be on the look-out for a “revalidation letter” from their Medicare Administrative Contractor (MAC) between now and March 23, 2012. The notices are being sent in accordance with the Patient Protection and Affordable Care Act (PPACA), Section 6401(a), which requires CMS to reevaluate all providers and suppliers enrolled with Medicare prior to March 25, 2011, under new screening guidelines. Newly enrolled providers and suppliers that submitted their enrollment applications to CMS on or after March 25, 2011, are not impacted.

To ease the burden on providers, the revalidation process will be prompted by MACs. Under existing guidelines (42 CFR 424.515(d)) CMS is permitted to conduct off-cycle revalidations for certain program integrity purposes. Therefore, MACs will be sending revalidation letters and instructions to each provider in stages. Upon receipt of a revalidation letter, the provider (or supplier) will have 60 days from the date of the letter to submit enrollment information and the 2011 application fee of $505. (Physicians, non-physician practitioners, physician group practices and non-group practices are not required to pay the enrollment fee.)

How to complete the revalidation process

When you receive notification from your MAC to revalidate, you have two options: 1) update your enrollment via the Internet-based PECOS; or 2) complete and submit the appropriate CMS 855 paper application for 2011.

PECOS allows you to review information currently on file, update and submit your revalidation via the Internet. First go to https://pecos.cms.hhs.gov on the CMS website. Once you have submitted your revalidation, you must then print, sign, date, and mail the certification statement (along with all required supporting documentation) to your MAC.

To revalidate by paper, download the appropriate and current CMS-855 Medicare Enrollment application from the CMS website at www.cms.hhs.gov/cmsforms. Mail your completed application, along with all required supporting documentation, to the MAC address on your revalidation letter.

Second, all institutional providers and suppliers must submit an enrollment fee via the Pay.Gov online service. To pay your application fee, go to http://www.pay.gov and type “CMS” in the search box under Find Public Forms, and click the GO button. Click on the CMS Medicare “Application Fee” link. Complete the form and submit payment as directed. You may submit your fee by electronic check, debit, or credit card. A confirmation screen will display indicating that payment was successfully made. This confirmation screen is your receipt and you should print it for your records. CMS strongly recommends that you mail a copy of this receipt to the Medicare contractor along with the Certification Statement for the enrollment application. CMS will notify the Medicare contractor that the application fee has been paid. Revalidations are processed only when fees have cleared. If needed, providers can request a waiver of the application fee if hardship can be verified.

What happens if a provider fails to revalidate?

Medicare providers and suppliers have 60 calendar days from the postmark date of the revalidation letter to submit the completed enrollment forms and pay the fee. Failure to comply as requested may result in the deactivation of your Medicare billing privileges. As stated in 42 CFR § 424, if an application is not received within 60 calendar days from the date of the request, CMS must revoke the provider’s billing privileges and impose a 1-year re-enrollment bar. It is important to note that a revocation, in this situation, will be effective 30 days after the notification of such action is mailed. The notice of revocation will also include your right to appeal. All appeals must be submitted in a timely manner to allow a re-examination of the revocation.

CMS is urging providers and suppliers to refrain from submitting a revalidation until your MAC notifies you to do so.  Proactively submitting a revalidation will significantly impact the ability to process applications in a timely fashion as well as the ability to take advantage of innovative technologies and streamlined enrollment processes currently under development by the CMS. If you would like to check to see if a revalidation letter has been sent, you can check online at: https://www.highmarkmedicareservices.com/enrollment/status.html. The provider’s CCN is needed to perform a search. For each CCN entered, a message will display advising whether or not a revalidation letter has been issued. If a revalidation letter has been issued, the date of the HMS request and revalidation application due date will be provided.

If you have questions about the revalidation process, or have received a notice of deactivation of Medicare billing privileges, please feel free to contact one of the attorneys at Smith & Associates for assistance.

ACOs Allow Providers to Share Medicare Savings With Federal Government

The massive 2010 federal health care reform – the Patient Protection and Affordable Care Act (PPACA) – contains seven pages of amendments to Title XVIII of the Social Security Act by creating the Medicare Shared Savings Program. The purpose of the program is to cut spending in the health care system by contracting with accountable care organizations (ACOs) to make them accountable for the costs and outcomes of patient care. The upside for the participating ACOs is the sharing of any Medicare dollars saved by the ACO for providing health care more efficiently and meeting certain quality performance standards.

Because of the financial incentives offered under the new law, ACOs will likely play a tremendous role in the future of health care. However, the devil is in the details, and details are sparse at this point. The Secretary of the Department of Health and Human Services is charged with promulgating regulations by January 1, 2012. At the present time, we know very little about the specific requirements for ACOs because the precise structural and functional requirements of ACOs have yet to be determined. This memo addresses some of the key points of ACOs that are provided in the PPACA, namely, what they are and how they can participate in the Shared Savings Program.

What is an ACO?
An ACO is a group of health care providers and facilities (doctors, hospitals, clinics, etc.) that contract together for the purpose of assuming responsibility for providing health care to certain patients. Specifically, the PPACA provides that, under the Medicaid Shared Savings Program, “…groups of providers of services and suppliers meeting criteria specified by the Secretary (Health and Human Services) may work together to manage and coordinate care for Medicare fee-for-service beneficiaries through an accountable care organization… .” In turn, ACOs that meet certain quality performance standards (which have not yet been established) are eligible to receive payments for shared savings.

Which ACOs are Allowed to Participate in the Shared Savings Program?
The PPACA provides that only certain groups of providers and suppliers which have established a mechanism for shared governance are eligible to participate as ACOs under the program. Those specific groups include:

• ACO professionals in group practice arrangements. “ACO professional” is defined as a “physician” under Section 1861(r)(l) and a “practitioner” described in Section 1842(b)(18)(C)(i) of the PPACA.

• Networks of individual practices of ACO professionals.

• Partnerships or joint venture arrangements between hospitals and ACO professionals.

• Hospitals employing ACO professionals.

• Such other groups of providers of services and suppliers as the Secretary determines appropriate.

Subject to the Secretary’s forthcoming regulations, the current eligibility requirement is rather broad. However, once an ACO is formed through a contractual agreement between the eligible parties, there are certain mandatory conditions that ACOs are required to meet before they may participate in the Shared Savings Program. These conditions include the following, which will be supported and expanded by rules established by the Secretary before January 1, 2012:

• The ACO shall be willing to become accountable for the quality, cost, and overall care of the Medicare fee-for-service beneficiaries assigned to it.

• The ACO shall enter into an agreement with the Secretary to participate in the program for not less than a 3-year period (referred to in this section as the “agreement period”).

• The ACO shall have a formal legal structure that would allow the organization to receive and distribute payments for shared savings to participating providers of services and suppliers which complies with the “Payments for Shared Savings” subsection (addressed below).

• The ACO shall include primary care ACO professionals that are sufficient for the number of Medicare fee-for-service beneficiaries assigned to the ACO. At a minimum, the ACO shall have at least 5,000 such beneficiaries assigned to it (method to be determined by the Secretary) in order to be eligible to participate in the ACO program.

• The ACO shall provide the Secretary with such information regarding ACO professionals participating in the ACO as the Secretary determines necessary to support the assignment of Medicare fee-for-service beneficiaries to an ACO, the implementation of quality and other reporting requirements, and the determination of payments for shared savings.

• The ACO shall have in place a leadership and management structure that includes clinical and administrative systems.

• The ACO shall define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies.

• The ACO shall demonstrate to the Secretary that it meets “patient-centeredness criteria” specified by the Secretary, such as the use of patient and caregiver assessments or the use of individualized care plans.

How will ACOs Be Paid?
Under the program, providers and suppliers will continue to be paid under the original Medicare fee-for-service program (under parts A and B) in the same manner as they would otherwise be made. An ACO participating in the Shared Savings Program will receive an additional bonus payment if 1) the ACO meets quality performance standards established by the Secretary, and 2) the average per capita Medicare expenditures during the agreement period meets certain benchmarks established by the Secretary. The benchmark will be adjusted for patient characteristics. Thereafter, a percent of the difference between the estimated average per capita of Medicare expenditures in a year will be paid to the ACO, and the remainder will be retained by the program. The Secretary will establish limits on the total amount of shared savings that may be paid to an ACO under the program. Even if an ACO is not able to save money through its coordination of care, it will still receive the standard Medicare fees for services rendered to its patients.

Who can ACOs Treat under the Program?

ACOs must treat Medicare fee-for-service beneficiaries in order to participate in the Shared Savings Program. The term “Medicare fee-for-service beneficiary” means an individual who is enrolled in the original Medicare fee-for-service program under parts A and B and is not enrolled in a MA plan under part C, an eligible organization under section 1876 or a PACE program under section 1894.

Sanctions will be imposed if the Secretary determines that an ACO has taken steps to avoid “patients at risk” in order to reduce the likelihood of increasing costs to the ACO. Additionally, the Secretary may terminate an ACO from the program if it does not meet the quality performance standards to be established by January 2012.

Regulatory Concerns for ACOs

Hospitals and physicians looking to develop an ACO must ensure that their agreement does not violate federal or state anti-kickback statutes (criminal), the Stark Law (civil), tax-exemption laws (for not-for-profit hospitals) and/or anti-trust regulations.

Generally, Stark law prohibits referrals for certain health care services by doctors and other providers to entities in which they have a financial interest. Of course, there are certain exceptions, such as the "bona fide" employment of physicians. This exception allows entities to employ doctors and pay them as employees while accepting their referrals. Other exceptions include the “personal services” arrangement and the “fair market value” exceptions. While the Stark law does not have a specific exception regarding ACOs, it is possible to structure ACO relationships to meet other existing exceptions under the law.

Yet to be addressed under the new Shared Savings Program is whether federal and state anti-trust laws may apply to ACO arrangements. Since 1996, providers have been allowed to contract together as part of clinical integration arrangements. However, questions remain about whether or not they should be considered “collusive” under anti-trust laws.

In the coming months, the Centers for Medicare and Medicaid Services (CMS) will be releasing regulations outlining the specifics of ACOs under the new law. There is also news that the Federal Trade Commission will be attempting to clarify anti-trust guidelines for ACOs soon. In the meantime, it would be prudent to consider the current prohibitions and other regulatory issues when drafting contractual agreements to establish an ACO.

As always, please refer specific questions regarding ACOs, and their role under the new federal health care reform, to any of our attorneys at Smith & Associates.

Laboratory Battle Brewing Over Proposed Anti-Kickback Rule Amendment

Changes to the Medicare Audit Procedures

Battle lines are being drawn over a proposed rule amendment by the Agency for Health Care Administration (AHCA) with respect to licensure requirements for clinical laboratories.  The big issue:  whether the state anti-kickback or patient brokering law (Section 483.245(1), Florida Statutes) should prohibit the placement of laboratory staff such as phlebotomists in a physician’s office for purpose of collecting lab samples.

In a Declaratory Statement and Final Order entered on July 8, 2008, AHCA had specifically ruled that Florida’s clinical lab rules and anti-kickback law prevent the placement of free laboratory personnel in physicians’ offices to collect urine samples.  The current clinical lab Rule 59A-7.020(15), Florida Administrative Code, provides the following definition of “kickback”:

(15) Kickback — a remuneration, payment back, or other inducement, direct or indirect, in cash or in kind, pursuant to an investment interest, compensation arrangement, or otherwise, made by any person as defined in Section 483.041(7), F.S., including any clinical laboratory as defined in Section 483.041(2), F.S., to any physician, surgeon, organization, agency, or person as an incentive or inducement to refer any individual or specimen to a laboratory licensed under Chapter 483, Part I, F.S., such as the following:

(g) Provision of personnel or assistance of any kind to perform any duties for the collection or processing of specimens. Such personnel or assistance is authorized to be provided on a temporary basis for the collection of specimens at a patient’s residence. These collections must meet the requirements of Chapter 59A-7, F.A.C.

Based on this Rule provision, and the underlying anti-kickback statute, AHCA ruled that placing free specimen collection personnel in a physician’s office violates the current rule.  AHCA also ruled that supplying free specimen collection cups to the physician’s offices may also violate anti-kickback prohibitions, if the intent was to induce referral of lab specimens to a specific laboratory.  See In re Declaratory Statement of Dominion Diagnostics, LLC, FRAES No. 100808228 (AHCA July 8, 2008).

After issuing its Declaratory Statement and Final Order, AHCA has been provided with some information that this ruling and interpretation could limit the ability of nursing home residents to access laboratory services, as many of these residents do not have the ability to travel to a laboratory collection site.  Many nursing homes rely upon laboratory collection staff provided to the nursing home by a clinical lab for blood or urine sample collection.

Based on concerns over possible limits to access for nursing home residents, AHCA has recently proposed an amendment to its clinical lab rule that defines what is a “kickback.”  The proposed rule language includes the following changes to 59A-7.020(15), Florida Administrative Code:

(g) Provision of personnel or assistance of any kind to perform any duties at less than fair market value for the collection or processing of specimens. Such personnel or assistance is authorized to be provided on a temporary basis for the collection of specimens at a patient’s residence. These collections must meet the requirements of Chapter 59A-7, F.A.C.

The proposed rule change has found little support among operators of clinical laboratories.  While most operators clearly oppose the draft rule language, there are two divergent camps emerging: 1) those laboratory operators who believe the practice of supplying free collection personnel to physician offices should continue to be prohibited: 2) those laboratory operators who believe that supplying free collection personnel should not be prohibited, and is entirely consistent with interpretations under Federal anti-kickback laws.

Supporters of a continued ban on allowing free collection personnel to be supplied to physician offices make the following arguments:

  • Florida is a progressive state similar to other large states like New York and California in prohibiting laboratories from using free collection staff as an inducement to obtain referrals.
  • It is virtually impossible to control what functions the “collection personnel” will provide in a physician’s office, and inevitably they will simply be used as “free labor” to assist with the day-to-day office management of the physician’s practice (e.g. answering phones, making copies, etc.).
  • The supplying of free labor is an obvious inducement to make referrals to the lab supplying the collection staff.
  • Trying to create a “fair market value” exception is fraught with difficulty, as it is highly debatable whether FMV includes “wages, salaries and benefits” of the worker, or only a “collection fee” for the sample that is drawn.
  • In an event, a bright line rule that prohibits the supplying of free labor, even for collection of samples, simplifies enforcement and creates a level playing field for all laboratory operators.
  • AHCA visited this issue less than two years ago, and there have been no changes in statute or overall policy that would warrant changing the existing prohibition.
  • If AHCA is concerned about access for nursing home patients, then it should carefully craft an exception that applies only to the limited use of specimen collection personnel at by nursing homes.

Opponents of the continued ban on supplying free specimen collection staff argue:

  • Florida law should be interpreted consistently with Federal law.
  • A 1994 Office of Inspector General (OIG) Fraud Alert specifically finds that supplying free specimen collection personnel such as phlebotomists to a physician office does not necessarily violate federal anti-kickback provisions provided that the staff only engages in activities for specimen collection and not in other clerical or medical functions of the physician’s office.
  • The Clinical Laboratories Improvement Act (CLIA) as well as Florida regulation of laboratories imposes a duty on laboratories to oversee the proper collection of lab samples.
  • Physicians receive no reimbursement for laboratory collection and therefore have no incentive to over-utilize such services, and are receiving no “kick-back” for having qualified collection staff from the laboratory taking samples in the physician office.
  • Federal law pre-empts Florida’s efforts to regulate, similar to a Florida Supreme Court’s finding that federal anti-kickback provisions and safe harbors pre-empted any differing interpretation of Florida Medicaid fraud statutes and regulations.  See State v. Harden, 938 So. 2d 480 (Fla. 2006).

After holding a lively Public Workshop on September 14, AHCA announced that it would continue to accept written comments and suggestions on the proposed Rule revision until September 29.  There are valid legal and factual arguments to be made on both sides of this debate.  Any provider with an interest in laboratory licensure and regulation should take the opportunity to participate in the rule development process.

Future proceedings may include additional workshops.  Ultimately, if AHCA elects to proceed with a proposed Rule, any provider that is affected by the Rule has specific rights under Florida’s Administrative Procedure Act to file a request for a public hearing and/or a formal challenge to the proposed rule.

For further information, please contact Geoff Smith at 850-297-2006 or Geoff@smithlawtlh.com.

Changes to the Medicare Audit Procedures

In response to concerns over improper Medicare billing and payments, Congress enacted Section 203 of the Tax Relief and Health Care Act of 2006.  Section 203 requires the Secretary of the Department of Health and Human Services to use Recovery Audit Contractors (RACs) under the Medicare Integrity Program.  The regulation mandates that the new Medicare auditing program be implemented nationwide by January 1, 2010.  Due to these substantial changes, Medicare providers and suppliers need to be aware of the new process and the steps that can be taken to ensure compliance.

The new Medicare auditing program is an extension of the RAC demonstration enacted under section 306 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA).  Under the MMA, Congress instructed the Department of Health and Human Services to conduct a three year demonstration program.  The program, which ran from 2005 to 2008, used Recovery Audit Contractors to identify improper Medicare payments through the detection and collection of overpayments and the identification of underpayments.  The demonstration started in the three states with the highest percentage of Medicare claims: California, Florida, and New York.  Later, the program expanded to include Massachusetts and South Carolina.

According to the Center for Medicare and Medicaid Services (CMS), the demonstration corrected over $1.03 billion of improper payments.  Of these improper payments, 96% were overpayments and 4% were underpayments.  Most of the overpayments were collected from inpatient hospital providers.

CMS found that the demonstration was cost-effective for both RACs as well as Medicare providers and determined that the work of the RACS had a minimum financial impact on Medicare providers.  Specifically, in Florida as well as New York, 90% of the hospitals that were audited during the demonstration had its 2007 Medicare revenue impacted by less than 2.5%.  The program also posed little financial burden on the contractors.  During the demonstration, it cost the RACs 20 cents for each dollar returned from overpayments.  Based on these findings, and the apparent financial and practical success of the demonstration, Congress decided to initiate the nationwide expansion.

Recovery Audit Contractors

Under the permanent program implemented by the Tax Relief and Health Care Act, four contractors were chosen through a competitive bidding process.  Each contractor will serve a particular region of the United States.  Connolly Consulting Associates, Inc. of Wilton, Connecticut will be the contractor for Florida and the rest of Region C, which is comprised of several southeast states.  Connolly Consulting will also subcontract some of its audits to Viant Payment Systems, Inc.

The RACs are independent contractors that do not work directly for the government. Accordingly, they are subject to strict rules when auditing claims and are bound by Medicare policies, regulations, national and local coverage determinations, and manual instructions.  The RACs will also receive a contingency fee between 9 and 12.5 percent of the amount of improper payments they discover, so they will actively search for overpayments.  However, RACs are prohibited from selecting claims at random to view and instead, must use proprietary data techniques to find claims that are likely to contain overpayments.  Moreover, if a RAC loses at any level of appeal, they must return the contingency fee.

The duties of the RAC are to identify underpayments or overpayments within past Medicare claims.  In order to assist in the process, each RAC will employ a full time medical director to help review the claims.  Additionally, RACs are required to employ nurses, therapists, certified coders, and full time physicians.

Who is Subject to Audits?

Based on the findings in the demonstration, certain groups will be subjected to Medicare audits under the new program.  These groups include physicians, inpatient and outpatient hospitals, nursing homes, ambulance and laboratory services, home health agencies, durable medical equipment suppliers, and other providers or suppliers that bill Medicare parts A and B.  The majority of audits are likely to come from inpatient hospitals, as they did in the demonstration.

RACs will generally look for the following types of improper payments within the claims to identify overpayments or underpayments:

  • Payments made for services that were medically unnecessary
  • Payments that did not meet Medicare medical necessity criteria
  • Payments made for services that are incorrectly coded
  • Provider’s failure to submit documentation to support services provided
  • Provider’s failure to submit enough documentation to support a claim
  • Payments made for duplicate services or services not covered

The Review Process

The two main activities of RACs will consist of performing data analysis to identify areas of investigation and requesting claims history information from carriers.  The RACs will review claims on a post payment basis and use the same Medicare policies as Carriers, FIs and MACs during the review process.  Generally, issues that are reviewed by RACs must be approved by CMS prior to widespread review.  The approved issue must also be posted to the RAC website.  For Florida, these issues will be posted at http://www.connollyhealthcare.com/RAC.  However, sometimes a provider may receive a medical records request for a new issue that is not identified on an RAC website.  If the RAC finds an overpayment, it will send a demand letter requesting recoupment.  If an underpayment exists, the RAC will reimburse the provider.

Medicare claims will be subject to one of two types of review:  automated review or complex review.  Automated review occurs when the RAC looks for claims that clearly contain errors which result in improper payments. This type of review is conducted through data mining using proprietary techniques.  Then, the RAC will contact the provider to collect the overpayment without reviewing any of medical records.

However, under complex review, the RAC looks at claims that likely contain errors resulting in improper payments.  In this review, the RAC requests medical records to further review the claim.  After reviewing the records, the RAC will then make a determination as to whether the payment was correct.  If a request for medical records is made, the provider must furnish the requested records within 45 days.  However, an extension may be requested.  Additionally, the RAC must complete the review within 60 days of requesting the medical records.  Then, if the RAC determines an overpayment exists after reviewing the claim, a demand letter will be sent to the provider in attempts to recoup the payment.  The letter will explain the nature of the overpayment and how much the provider owes.  The provider then has 30 days to pay the overpayment.

The Basic Timeline

15 Days

After receiving the demand letter, a provider has 15 days to rebut the RAC’s determination.  This is also called the discussion period.  During this time, the provider has the opportunity to rebut the proposed recoupment if the provider can furnish additional information to show it was incorrect.

30 Days

A provider has 30 days after receiving the demand letter to pay the overpayment or to apply for a repayment plan.  If a provider is unable to pay the amount of overpayment in full within the required 30 days, they can apply to gradually pay off the amount.  Additionally, if the provider was not approved for a repayment plan and fails to pay the amount of overpayment on time, interest will being to accrue.

40 Days

If no payment for recoupment has been paid within 40 days of receiving the demand letter, Medicare will begin to withhold payments.  These payments will apply to current and future claims.  Such payments will be withheld until the overpayment is fully paid along with any applicable interest or until an acceptable extended repayment request has been received.

Limitations on RACs

The new Medicare auditing process imposes some limitations on the RACs.  Most of the limitations were not present in the demonstration, but will be applied to the permanent program as a response to some concerns stemming from the demonstration.  First, RACs will only be permitted to review claims from the past three years under a limited look back period.  Additionally, the RACs are not permitted to look for improper payments on claims made before October 1, 2007.

Secondly, there are several limitations on the amount of claims that may be reviewed.  For inpatient hospitals, RACs cannot, within a 45 day period, request more than 10% of the hospital’s average monthly Medicare claims.  Also, the number of requests cannot exceed 200.  Similarly, for outpatient hospitals, RACs cannot request more than 1% of the average monthly Medicare service within a 45 day period.  Outpatient hospitals are also limited to no more than 200 requests.

Appeals Process

If a provider is unsatisfied with the determination made by the RAC, the provider has the option to appeal.  The appeal process is contained in 42 C.F.R. – 405.900.

Apart from the discussion period, a provider has an opportunity to appeal determinations at five different levels.  At the first level, called redetermination, a provider has 120 days to appeal from the date of the demand letter.  The redetermination could lead to a full reversal, partial reversal, or full affirmation of the previous determination.  If a provider is still unsatisfied with the result, it can file for the second level of appeal, reconsideration, within 180 days.  The possible results of full reversal, partial reversal, or full affirmation are the same under reconsideration.

The third level of appeal involves bringing the issue in front of an Administrative Law Judge (ALJ).  If at least $120 remains in controversy, a party may request an ALJ hearing within 60 days of receipt of reconsideration.  However, if the provider disagrees with the ALJ’s determination, it can appeal to the fourth level which includes review by the Medicare Appeals Council.  This appeal must be filed within 60 days of the receipt of the ALJ’s determination.  Lastly, the fifth level of appeal includes judicial review by a U.S. District Court.  A request for this level of review must be filed within 60 days of receipt of the Medicare Appeals Council’s decision.

What Providers Can Do to Prepare

There are many things Medicare providers can do to prepare for the upcoming increase of scrutiny within Medicare audits.  First, providers should analyze past RAC findings and identify where improper payments have been persistent.  Such information can be located on the RACs’ websites and in the three year demonstration’s results posted on the CMS website.  With this information, providers should identify certain patterns of claims to be prepared for the types of claims RACs generally audit.

Next, providers should create an RAC response team.  The team should consist of a group of individuals or department representatives that are capable of addressing the tasks associated with RAC reviews and audits.  The members of the response team should represent several areas including compliance, utilization review, coding, medical staff, patient financial services, care management, and health information management.  This team should perform an internal assessment to verify that submitted claims meet the Medicare standards and rules.  It should also establish systems to monitor claim denials and appeals and to make sure the provider can respond timely to RAC record requests.

Additionally, the provider should utilize American Hospital Association’s (AHA) RACTrac program.  This program was created to monitor the RACs and to assure they adhere to Medicare policy.  RACTrac also assesses the true impact of RACs on individual providers including financial impact of improper payments along with administrative burden.  The program is a survey that will track and monitor the impact of RAC activity on individual hospitals nationwide.  The AHA has also created a claim-level Excel tool to help hospitals internally track their RAC audits.  The program will be available on the AHA web site at no cost to AHA members and non-members.  Information under RACTrac will not be available until fall of 2009, but until then, providers should identify a mechanism to track all RAC correspondences.

Conclusion

The changes to the Medicare auditing process are substantial.  They will increase the amount of claims that are audited, which in turn will likely increase the amount of administrative burden on Medicare providers.  However, preparation can be taken to lessen the impact and ensure adequate compliance.  If you need assistance with a Medicare audit issue, please feel free to contact us.