Recovery audit contractor's focus on low-hanging fruit may turn to specialties

March 1, 2009

Federal regulators have judged the first phase of the Medicare Recovery Audit Contractor (RAC) program a success, but the controversial plan promises potential headaches for physicians as it goes forward. In response to the initial success, the Centers for Medicare & Medicaid Services announced in October its plan to expand the program to a dozen new states in the first quarter of 2009. By January 2010, all 50 states will be in RAC's crosshairs.

Key Points

Federal regulators have judged the first phase of the Medicare Recovery Audit Contractor (RAC) program a success, but the controversial plan promises potential headaches for physicians as it goes forward.

Since the program's inception in three states in 2005, RAC contractors have collected nearly $1 billion. In response to the initial success, the Centers for Medicare & Medicaid Services (CMS) announced in October its plan to expand the program to a dozen new states in the first quarter of 2009. By January 2010, all 50 states will be in RAC's crosshairs.

On its Web site, CMS said RAC will resume when the matter is settled.

The four private firms hired by CMS are charged with identifying overpayments and underpayments of the more than 1.2 billion Medicare claims submitted each year by U.S. health-care providers, including hospitals, physicians, skilled nursing centers, labs, and ambulance companies.

According to CMS, $828 million, or about 85% of the $980 million total collected by RAC from 2005 to 2007, came from inpatient hospitals. In contrast, about $20 million (2%) was collected from physicians-almost all of them specialists such as urologists, neurologists, and rheumatologists. RAC audited 50,054 physicians in its first 3 years.

The obvious incentive for CMS is to recoup overpayments to providers, but the fact that contractors earn a percentage of the money collected has contributed to the program's unsavory reputation in the medical community.

Moreover, the news that RAC is here to stay has sparked concern in health-care circles that it is only a matter of time before its focus turns sharper to specialty practices.

"It's a bounty hunter program," said Elizabeth McNeil, vice president of federal government relations for the California Medical Association.

RAC generated so many protests by health-care providers in California that nearly half of the state's congressional delegation wrote to CMS in May 2007, expressing concern that the demonstration model lacked sufficient oversight.

"[RACs] have cost California physicians resources, time, and hassles for the modest amount of money they have collected," McNeil said.

Jeffrey Kaufman, MD, a urologist in Santa Ana, CA, unwittingly became the point person for many urologists who became entangled in RAC.

Dr. Kaufman, former president of the California Urological Association, said that auditors targeted large groups of California physicians under Medicare who specialize in costly health-care procedures such as the treatment of prostate cancer. Such expensive Medicare claims resulted in higher contingency fees for PRG-Shultz, he added.

The Atlanta company, in turn, argues that it boasted the highest performance scores among the three original contractors during the pilot phase, based on CMS standards.

Dr. Kaufman said that during the pilot program, physicians all over the state spent a great deal of time, effort, and money either repaying CMS for claims previously adjudicated, pulling old records for review, or filing appeals.

"It turned out there was a lot of heat and light directed toward this program," he said, explaining that it was only after CMS and some state legislators worked with him and other California physicians that many provider complaints were resolved.

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