February 7, 2014

U.S. House of Representatives

Washington, D.C.  20515

Dear Representative,

On Friday, January 31, 2014, the Centers for Medicare and Medicaid Services (CMS) issued its third sub-regulatory guidance suspending all recovery audit contractor (RAC) audits of short-stay inpatient claims. The first two notices covered October 1-December 31, 2013, and December 31-March 31, 2014.  As a result of the latest suspension, these audits will not be permitted for a period of one year.  

CMS is not just suspending audits on current claims, it is also barring RACS from reviewing past short-stay inpatient claims, even though existing law allows RACs to review improper claims going back five years.  The suspension also means that the Medicare Trust Fund will hemorrhage up to $4 billion in improper payments during the one-year oversight hiatus.

The Council for Citizens Against Government Waste (CCAGW) opposes this action by CMS and urges Congress to step in to reinstate RAC audits immediately.   

CMS appears to be engaged in a surreptitious campaign of regulatory nullification of the RAC program, which was authorized by Congress and has successfully recovered more than $7 billion in improper Medicare payments since 2009.  RACs have proven to be highly successful at locating systemic abuses, tracing erroneous claims, identifying billing system vulnerabilities, and flagging patterns that suggest more widespread fraud.  According to the Department of Health and Human Services (HHS) Office of the Inspector General, in fiscal years (FY) 2010 and 2011, “Over half (57 percent) of all recovered or returned improper payments resulted from medical services being delivered in inappropriate facilities (32 percent) or providers billing incorrect codes on Medicare claims (25 percent).  Improper payments also resulted from other sources, such as providers billing Medicare for services for deceased beneficiaries.”  

Medicare providers, particularly hospitals, have for years submitted and been paid billions for improper claims for Medicare services.  However, since the RAC program was first pilot-tested in 2005 and expanded nationwide in 2010, providers have had to return some of those overpayments.

The authority of CMS to unilaterally suspend any part of the RAC program is unclear.  CMS claims that its actions are necessary because hospitals need time to adjust to the yet-to-be isssued rules regarding these claims.  Yet, medical necessity audits, which include short stays, were the first group of claims flagged for review during the RAC demonstration program in 2005, and CMS specifically directed RACs to investigate this area, which has been prone to abuse.  In the nearly five months since CMS announced the first three-month suspension of short-stay inpatient claims, the agency has not issued any new guidance or launched an official regulatory review process to clarify or change the rules related to such claims.  The suspensions amount to a one-year “oversight holiday” for hospitals and will effectively gut the RAC program. 

While CAGW recognizes that CMS’ current Medicare oversight programs are fragmented and could be made less onerous for providers, such reforms can only be enacted by Congress and not by regulatory fiat.

Medicare is plagued with the highest reported amounts of improper payments of any federal program. A December 16, 2013 HHS FY 2013 Agency Financial Report documented that improper payments in Medicare rose by 12.7 percent, from $44.3 billion in FY 2012 to $49.9 billion in FY 2013.  Congress has passed three separate improper payments bills since 2001, and one of the only provisions of the Affordable Care Act that is guaranteed to save money expands RACs to Medicare Parts C and D as well as encouraging states to use RACs for Medicaid.

Therefore, Congress should not tolerate a narrowing of the scope or effectiveness of any part of the RAC program.  Instead, given the fact that the RAC program is far and away the most successful of all of Medicare’s program integrity efforts, CMS and Congress should be exploring ways to broaden its scope.

Given the specious nature of the arguments being used to justify the suspension of the audits and the billions of dollars at stake for nearly 51 million people who rely on Medicare services, I urge you to demand that these audits be reinstated immediately.  

Sincerely,

Tom Schatz

President, CCAGW