The Centers for Medicare & Medicaid Services recently announced new additional documentation request limits for Recovery Auditors that went into effect Jan. 1. The new policy states that to start the annual ADR limit will be 0.5% of a provider’s total number of paid Medicare claims from the previous year, but with a twist – that 0.5% is applied to type of claim. 

The added disturbing ramification of this new ADR methodology is that CMS says they will adjust each provider’s ADR limit higher or lower based on that provider’s compliance with Medicare billing rules. Providers shown to have low claim denial rates (a “good actor”) will have their ADR limit decreased but providers with high denial rates (a “bad actor”) will have their ADR limits increased.

Clearly, this new ADR limit policy is a nod to providers’ complaints about perceived audit burden, but will it ultimately end up causing more problems for them?

Under the new policy, a provider’s billing accuracy will determine their categorization as a Medicare “good actor” or “bad actor.” This classification will then determine the ADR limit that they will be subject to. The rule makes good sense in aggregate, but there are some instances where it may create problems that need to be addressed before operationalized.

Under the new ADR restriction, if recovery auditors can only look at 0.5% of a provider’s claims by claim type, some Medicare providers may not qualify to have even one claim reviewed per 45-day cycle. How will the claims of those providers be reviewed? This new ADR methodology will essentially eliminate a category of providers from being audited and may cause a “false positive,” positioning those providers as “good actors” when they may not be.

Another challenge to address is whether the new claim sample size is large enough to be statistically significant? In other words, can looking at just 0.5% of a provider’s claims by type tell you enough about their billing practices to determine if they’re an overall good or bad Medicare biller? Providers will be classified based on a small number of claims and may end up being classified incorrectly. If found to have high denial rates in those samples they will ultimately be subject to increased ADR limits.

Audit contractors certainly support the discipline of having more audits for those who have more billing errors and fewer audits for those providers who demonstrate accurate billing; however, there are a lot of practical questions about the impact this new rule will have when it’s in use. Limiting ADR requests to this extreme may very well prevent CMS’s well-intended “good actor/bad actor” policy from working as intended.

Let’s look at an example. Take a large hospital that bills $340 million to Medicare each year. Under the previous methodology, for a hospital this size, auditors reviewed 600 inpatient claims every 45-day cycle. This sample size can clearly look at enough claims, across enough claim types, to demonstrate an accurate billing error rate for that institution. However, under the new ADR methodology, auditors will only look at 26 claims every 45-day cycle for that same hospital. It’s unclear how this incredibly small number of claims will be enough to make accurate, big decisions about that institution.

At the other end of the spectrum, a small hospital that bills just $36 million to Medicare and files over 6,000 inpatient claims each year would receive a request for, at most, three inpatient claims every 45 days. Will using such a small sample size provide a fair and accurate determination of a provider’s compliance with Medicare policy?

In addition to making true determinations about provider billing accuracy difficult, the new ADR limits will also have a huge negative impact on the longevity of the Medicare program since auditors will look at even fewer claims and return much less back to the program.

Recovery Auditors are tasked by CMS to identify Medicare misbillings and return those taxpayer dollars back to the Medicare Trust Fund. Previously, auditors were able to request up to 2% of a provider’s total Medicare (parts A and B) claims for review, leaving 98% of Medicare billing free from audit. During this time, auditors were able to return $2 billion to $3 billion per year back to the Medicare Trust Fund. However, despite the recovery of so many improper payments, Medicare Trustees are still warning that at current spending rates, Medicare will be bankrupt by 2030.

CMS reports that in fiscal year 2014, the Medicare Fee For Service program lost $46 billion dollars to inappropriate billing. Looking at just 2% of a provider’s Medicare claims only made a small dent into what CMS says has been incorrectly paid out each year. But with new ADR limits now down to just 0.5 percent of claim type, it’s frightening to think about how much less will be returned to the Medicare Trust Fund to help extend the life of the program.

The new ADR limit policy will go into effect shortly. It will certainly be interesting to see, over time, how this new program change will impact both providers’ audit burden as well as the future solvency of the Medicare program overall.

Kristin Walter is a spokeswoman for the Council for Medicare Integrity.