Improper Payments Burning Medicare While CMS and Congress Fiddle
The great umbrage against government waste, fraud, abuse, and mismanagement expressed by politicians during election cycles give taxpayers hope that something will be done when they get to the nation’s capital. And there is no shortage of targets once they arrive on Capitol Hill.
For example, in 2002, Congress passed the first of three improper payment laws, which mandate that agencies review and report improper payments. In his October 1, 2015 testimony before the Senate Finance Committee on the subject of improper payments, Comptroller General Gene R. Dodaro stated that improper payments had risen by $18.9 billion, or 18 percent, from $105.8 billion in fiscal (FY) 2013 to $124.7 billion in FY 2014. That means that since the enactment of the first improper payment law in 2003, federal agencies have accumulated $1 trillion in improper payments. In FY 2014, 75 percent of the increase was driven by three programs: Medicare, Medicaid, and the Earned Income Tax Credit. Medicare fee-for-service (Medicare Parts A & B), which pays claims to hospitals and doctors, hemorrhaged $46 billion in improperly paid claims, or 37 percent of the $124.7 billion total, the vast majority of which resulted from overpayments due to medical necessity errors related to short stays by inpatients at hospitals.
As he has many times in the past, Dodaro made a powerful case to the committee that Congress has a moral duty to exercise fiscal responsibility on behalf of taxpayers. Such a simple statement of ethical clarity seems inarguable and self-evident. However, officials at the Department of Health and Human Services and the Centers for Medicare and Medicaid Services (CMS) are failing in that duty, even though the agency has a highly-effective tool that has identified and eradicated billions in improper payments.
This tool has been field tested, it works, and it costs taxpayers nothing. The program is called the Recovery Audit Contracting Program (RAC) and since its implementation, it has clawed back $11.3 billion in improper payments on behalf of the Medicare Trust Fund and its 53.8 million beneficiaries. This money is particularly important to help ward off the insolvency of the nation’s most fiscally vulnerable automatic spending program: The Trust Fund is estimated to be depleted by 2030, according to Medicare actuaries.
The repayment of $11.3 billion is the result of reviewing only 2 percent of Medicare’s fee-for-service claims. Contractors are compensated only after they correctly identify and return erroneous overpayments to Medicare, and in each of the last five years, their average accuracy rating is 96 percent, as measured by CMS and outside, independent quality reviewers.
Despite the program’s success, it has been under fire since it was first tested in 2005 in six states, as hospitals went all-out to kill the new oversight baby in its crib. The program not only survived, it was rolled out across the country late in 2010.
The nationwide rollout galvanized the campaign to undermine and gut the program, which has been characterized by falsehoods and half-truths. For example, hospitals portray the RACs as a posse of renegade bounty hunters whose voracious demands for claims to review are onerous for hospitals and whose judgments are often mistaken. These allegations are false.
RACs are constrained to reviewing only claims in areas that CMS itself has designated as vulnerable to improper payments, and RACs must get a green light from CMS to review any new claims areas. RACs are subject to a more stringent CMS oversight regime than any of the other post-payment auditors the agency employs, all of which are paid whether they perform or not. RACs had an average 96 percent accuracy rating in FY 2014 (and have had such high accuracy ratings for every year in operation). Furthermore, according to CMS, in FY 2013 (the last year for which accurate data is available), RACs’ claims denials were overturned on appeal only 9.3 percent of the time.
The weakening of the RAC program began with sub-regulatory guidance issued on October 1, 2013, in which CMS suspended the RAC’s ability to review hospital claims for short inpatient stays. Ironically, according to CMS, these short stays were a major source of improper payments and thus constituted the majority of the RACs’ workload.
Yet, at this moment, as improper payments are rapidly increasing, the RAC program is for all intents and purposes, moribund. A combination of intense anti-RAC pressure from large, for-profit hospitals along with what can only be described as the passive-aggressive negligence of members of Congress under the hospitals’ sway, has resulted in a sidelining of the program for the last two years, even though the statute empowering RACs remains on the books and in force.
The prohibition has been extended several times by both CMS and Congress and remains in place. The pause has been described by CMS as an interregnum between contract negotiations, but, in fact, agency officials have been using the hiatus to chip away and weaken the program through administrative fiat.
For example, CMS officials have been contemplating further limitations on the number of documents RACs may request from providers, even though they are already limited to no more than 2 percent of claims from any one provider. However, hospitals routinely comply with unlimited requests from private insurance companies for exactly the same documents being reviewed by the RACs. The difference is that Congress doesn’t control what the insurance companies can and cannot request.
This is a key point, given that CMS admitted in its 2014 RAC Report to Congress, which was released on October 15, 2015, that the agency “manually reviews only 0.3 percent of submitted claims each year through auditing, including those reviewed by the Recovery Audit Program” (emphasis added). In addition, although the law gives RACs the authority to review claims going back five years and previous RAC contracts have allowed a three-year lookback, CMS is moving to limit RAC reviews of short inpatient stays to six months.
CMS has also taken steps to wall off most of the problematic short-stay inpatient claims from RAC review, transferring them to yet another post-payment auditor that has little experience with these claims. It is now questionable whether RACS will ever be permitted to review these error-ridden hospital claims in order to recover the billions that taxpayers have lost. Expect the next step to be an extension of the audit holiday for these short-stay inpatient claims until the new auditors – who are paid directly with taxpayer money rather than getting paid only out of the money that is recovered – can get up to speed and obtain larger budgets to deal with the complexities involved. What all this boils down to is that hospitals submitting inaccurate claims to Medicare for the short inpatient stays have been given a two-year RAC audit holiday and taxpayers and Medicare beneficiaries are losing billions more in improper payments that will never be recovered.
Make no mistake: what is happening with the RAC program is not simply the result of bureaucratic ineptitude or contractor non-performance. It is a systematic erosion of a program that, if anything, has worked too well. In fact, in a perfect bureaucratic example of cognitive dissonance, while one arm of the federal healthcare bureaucracy is dismantling the RAC program, the Affordable Care Act contained provisions directing states to implement the RAC program for Medicaid expansion and ordered CMS to begin using RACs for Medicare Parts C & D (Medicare Advantage and the drug benefit, respectively).
Members of Congress loudly and often proclaim themselves as stalwart defenders of the Medicare program and champions of its beneficiaries. It is well past time for taxpayers to demand that their elected officials put their prodigious power where their high-flown rhetoric has been and demand that CMS officials enforce the letter of the three improper payments laws that Congress has passed by putting the RACs back to work.
