Defeat the plague of improper claims
For recovery auditing professionals everywhere, performance-based payments are a financial best practice and the industry standard. The client wins when no upfront expenses occur and payments are made only when actual dollars are returned.
Recovery Audit Contractors, which identify erroneous post-payment Medicare claims for the U.S. government, are also compensated in this way. Recovery Auditors are paid a percentage of what they recover – usually between 9% and 12% – and review no more than 2% of any provider's claims, keeping the administrative burden low for “auditees” – in this case, doctors and hospitals who treat Medicare patients. And because RACs are paid directly from the recoveries of improperly billed Medicare claims, the program doesn't require additional funding.
Not that these facts prevent Medicare providers from bemoaning the RAC contingency pay structure. They insinuate that pay-for-performance leads to overly aggressive auditing, a baseless argument that distracts from the real problem. If providers really want Recovery Auditors to make less money, they need focus on billing Medicare correctly. Unfortunately, this is something that doctors and hospitals routinely fail to do, misappropriating billions of taxpayer dollars –$46 billion in 2014 alone.
Instead of committing to a nationwide effort to reduce the amount of improper payments in Medicare, the hospital industry and their representatives in Washington are fighting to keep those funds, while proposing changes to undermine Medicare oversight.
Here's why that approach is wrong for taxpayers, the government and providers themselves:
Built-in checks and balances
The reason pay-for-performance works so well is that it self-regulates. Auditors don't waste time reviewing claim types or providers with low error rates; they focus instead on areas with historically high levels of improper billing, such as inpatient hospitals claims, which historically account for 94% of overbillings to Medicare. This allows RACs to tailor their scope of work to the needs of the Centers for Medicare & Medicaid Services.
With this pay model, CMS leverages the infrastructure and expertise of its Recovery Auditors, which make very expensive investments in their work – absorbing professional and medical staff, technology and overhead costs – in order to benefit the integrity of the Medicare Trust Fund.
Additionally, contingency fee contracts generate high levels of accuracy. A RAC is paid only if claim reviews are correct and upheld through an extensive appeals process. If a claim is overturned on appeal, the RAC must return the fee for the work completed and eat the labor and out-of-pocket costs associated with the review. Therefore, it's in the RAC's interest to get determinations right – and it works. Independent reviewers hired by CMS have shown that RACs consistently have an average 96 percent rate of accuracy.
Contingency fee contracts are not new to the federal government. In addition to the Department of Health and Human Services, the Department of Education, the Defense Logistics Agency and the Department of Treasury have all successfully used contingency fee-structured contracts. In FY2013, the federal government was able to keep $0.91 of every $1.00 recovered by contractors using contingency fee-based contracts.
Recent MedPAC recommendations
Recently, the Medicare Payment Advisory Commission voted to recommend CMS tie RAC contingency fees to the rate at which their findings are overturned on appeal – a rather odd suggestion. Historically, inconsistent decision-making at the Administrative Law Judge level of appeals make those outcomes a moving target, out of line with other appeal levels that must rule strictly according to Medicare policy. It's exactly this inconsistency that has incentivized many providers to appeal every RAC finding in an attempt to game the log jammed ALJ process. Pay-for-performance contracts work best when a reliable and unbiased standard is used to determine success.
That isn't to say the appeals process is perfect. The current system is counterproductive for auditors and providers alike, neither of whom have a reliable forum for adjudicating disputed claims. The Council for Medicare Integrity, which represents Recovery Auditors, recently proposed an alternative: CMS could use independently-determined RAC accuracy scores as the basis for pay for performance. In this proposal, if a contractor falls short of a 95% accuracy rate, they could face new limitations on the number of records they are allowed to audit, thereby decreasing the burden on providers. If a contractor maintains an accuracy rate above 95%, CMS may decide to increase their document review limits. This approach would constitute a fair and reliable measure of performance to benefit all stakeholders.
Recovery Auditors seek only to excel at their chosen profession. They want fair pay and fair assessment of their work. Don't providers want the same thing? If so, they should stop trying to dismantle financial oversight of Medicare and, instead, commit to more effective stewardship of taxpayer dollars.