On December 30, 2014, CMS announced that it has awarded a new Recovery Audit Contractor (RAC) contract to Connolly LLC to identify improper Medicare payments nationwide made to suppliers of durable medical equipment, prosthetics and orthotics (DMEPOS) and to home health and hospice (HH/H) providers. On the same day, CMS also published on its website an updated list of Recovery Auditor program improvements.  These improvements will be effective with the new DMEPOS and HH/H RAC contract and will be put into place with each new RAC contract awarded after December 30, 2014.  According to the CMS website, “[t]his award marks the beginning of the new Recovery Audit contracts and is the start date of the implementation of many improvements to reduce provider burden and increase transparency in the program.”

CMS’s decision to implement these program improvements only in new contracts awarded after December 30, 2014 raises the question as to whether CMS plans to implement the improvements in the current round of the four fee-for-service RAC contracts pursuant to which RACs audit the claims of hospital providers.  The new round of fee-for-service RAC contracts, which were to be awarded in February 2014, are subject to a bid protest that is currently the subject of litigation.  For this reason, CMS entered into a contract modification in late December 2014 to extend the prior round fee-for-service contracts until December 31, 2015.  If CMS intends to implement the RAC audit program improvements in new contracts only, then these improvements would not be implemented in fee-for-service RAC contracts until after 2015.   

CMS stated that the changes to the RAC program are designed to enhance oversight, reduce provider burden and increase program transparency.  Among other changes, CMS will:

• Establish Additional Documentation Request (ADR) limits based on a provider’s compliance with Medicare rules;
• Diversify established ADR limits across all claim types of a facility (e.g., inpatient, outpatient). This ensures that a provider with multiple claim types is not disproportionately impacted by RAC review in one claim type (e.g., all of a provider’s inpatient rehabilitation claims reviewed or all inpatient claims reviewed);
• Instruct RACs to incrementally apply ADR limits to new providers under review to ensure that new providers are able to respond to the request timely and with current staffing levels;
• In response to concerns that RACs focus their resources on inpatient hospital claims, new contracts will require RACs to broaden review topics to include all claim and provider types and require RACs to review certain topics based on referrals, such as an OIG report;
• Limit the RAC look-back period to 6 months from the date of service for patient status reviews if the hospital submits the claim within 3 months of the date of service;
• Provide RACs with 30 days to complete complex reviews and notify providers of their findings;
• Require RACs to have a Contractor Medical Director and encourage RACs to have a panel of specialists available for consultation; 
• Require RACs to wait 30 days before sending a claim to a Medicare Administrative Contractor (MAC) for adjustment to allow for a discussion request;
• Establish that RACs will only receive a contingency fee after the second level of appeal is exhausted;
• Require RACs to maintain an overturn rate of less than 10% at the first level of appeal, excluding claims that were denied due to no or insufficient documentation or claims that were corrected during the appeal process; and

• Require RACs to maintain an accuracy rate of at least 95%, as determined by validation contractors, to avoid a progressive reduction in ADR limits.

The DMEPOS and HH/H RAC announcement is available here. The complete list of RAC program changes for new contracts is available here. The RAC contract modification announcement is available here.

Reporter, Lauren S. Gennett, Atlanta, + 1 404 572 3592, lgennett@kslaw.com.