On February 5, 2013, CMS issued its mandatory Recovery Audit Contractor (RAC or Recovery Auditor) program annual report, detailing overpayments, underpayments, RAC performance and savings to the Medicare program. According to the report, Recovery Auditors in FY 2011 collectively identified and corrected $797 million in overpayments and $142 million in underpayments, for a total of $939 million in improper payments being corrected. After taking into consideration all costs, underpayment determinations and appeal reversals, $488 million was returned to the Medicare trust funds in FY 2011. This represents a meteoric increase in RAC activity from FY 2010, during which RACs identified and corrected $92 million in combined overpayments and underpayments.

The report offers providers helpful insights into the RAC program, highlights of which follow below:

Appeals continue to be successful for providers that choose to appeal. Nearly 44 percent of appealed claims by Medicare providers were overturned in FY 2011. Percentages of favorable decisions varied by contractor and by issue; for example, RAC for Region A, Diversified Collection Services, had a staggering 88 percent overturn rate in favor of providers for part B claims appealed; CGI, RAC for Region B, had a 38 percent overturn rate in favor of providers for Part A claims appealed; RAC for Region C, Connolly, had a 28 percent overturn rate in favor of providers for Part A claims appealed; and HealthData Insights, RAC for Region D, had a 74 percent overturn rate in favor of providers for part B claims appealed. Reversed appeals totaled $37.9 million.

Encouragement of RAC involvement at ALJ appeals continues. CMS has been working with the Recovery Auditors to encourage further involvement in the appeals process, specifically at the Administrative Law Judge (ALJ) level of appeal. An effort to increase involvement is aligned with CMS's goal of reducing unfavorable appeal decisions. As noted in the December 6, 2012 issue of the Health Law Update, a report by the HHS Office of Inspector General found that ALJ decisions were less favorable to appellants when CMS participated in the appeal.

Short-stay reviews represent a large portion of collections. FY 2011 marked the first year that Recovery Auditors "actively" reviewed short-stay inpatient hospital admission issues. While CMS did not specifically break down the collection numbers for short-stay overpayments, it did note that short-stay inpatient hospital services, which should have been provided in the outpatient setting, "represent a significant portion of Medicare's FFS error rate and also represent a large portion of the FY 2011 overpayment collections."

Program expansion efforts continue. A legislative proposal by CMS to retain a portion of RAC recoveries to implement actions that prevent fraud and abuse was included in the President's FY 2013 Budget. Additionally, the agency has requested approval for an 11-state demonstration project that would allow RAC prepayment reviews beginning with short-stay inpatient claims.

Statistical highlights:

• HealthData Insights was the most prolific collector of overpayments of all the RACs, individually collecting $318 million in overpayments. Connolly returned the most money to providers -- $70 million -- in the form of underpayments.
• RAC collections were highest in the following states: California ($143 million), New York ($45 million), Illinois ($43 million), Michigan ($39 million), Florida ($32 million) and Missouri ($31 million).
• Overpayments collected overwhelmingly consisted of Part A claims. Part A claims represented $726 million of overpayments over 174,284 claims; Part B claims represented $37 million in overpayments over 356,456 claims; and DME claims represented $34 million over 295,990 claims.