Recovery audit contractors might be better at reviewing Medicare claims than critics allege, but the Centers for Medicare & Medicaid Services could improve RAC performance evaluations, according to a new government report.

RACs are charged with reviewing Medicare claims to identify improper payments and refer possible fraud cases to CMS. In fiscal years 2010 and 2011, the auditors reviewed about 2.6 million claims, finding improper payments for about half of them, according to Tuesday’s report from the Department of Health and Human Services Office of Inspector General. In those two years, about $770 million was taken from providers and about $135 million was returned to them. Providers appealed only about 6% of claims flagged for overpayment but won nearly half those cases.

The low number of appeals may bolster the RAC program in the face of criticism from long-term care stakeholders, the American Hospital Association and other provider groups, which have blasted auditors for being too aggressive. Hospitals appeal about 40% of all denials and are successful 70% of the time, according to AHA figures. Out of the recovered or returned improper payments, 88% involve inpatient hospitals, according to the report. 

However, the OIG report also pointed out problems in how CMS evaluates the auditors and uses the program to combat fraud.

Out of eight RAC performance evaluations that OIG reviewed, four “did not describe RACs’ ability, accuracy or effectiveness in identifying improper payments,” the report states. The other four did not directly link RACs’ ability to identify improper payments to performance evaluation metrics. CMS should put appropriate evaluation metrics in place, such as accuracy targets for improper payment identification, the report recommends.

In a response letter, CMS Administrator Marilyn Tavenner concurred with most of the OIG recommendations and described some steps under consideration, such as an evaluation metric related to how many overpayment determinations are overturned at the first level of appeal. Also under discussion is whether RACs should have an evaluation metric related to reporting fraud to CMS.

The report also notes reasons for improper payments, such as incorrect codes on Medicare claims. Additionally, some providers bill Medicare for deceased beneficiaries: CMS recovered $3 million in improper payments from around 27,000 claims billing for services for dead beneficiaries, the report notes.

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