CMS Publishes Annual Update On Recovery Audit Activity, Says Program Returned Nearly $490 Million to Medicare Trust Fund in 2011

by King & Spalding

On February 5, 2013, CMS sent Congress a report summarizing developments related to its Medicare recovery audit program for fiscal year (FY) 2011.  According to the report (titled Recovery Auditing in the Medicare and Medicaid Programs for Fiscal Year 2011), recovery auditors corrected $939.3 million in improper Medicare fee-for-service (FFS) payments in FY 2011.  This total includes both overpayments and underpayments, and represents a significant increase over CMS’s reported total for FY 2010, which was $92.3 million.  The report also notes, however, that after accounting for underpayments, appeals, costs and other adjustments, recovery auditors returned $488.2 million to the Medicare Trust Fund.  (CMS’s report for FY 2010 did not contain a similar statistic.)  This is CMS’s second such report, which the agency is required to prepare and present pursuant to the Affordable Care Act and other federal law.

CMS tasks its recovery auditors—four private contractors each operating within a defined region of the country—to conduct post-payment reviews to ensure Medicare claims are paid correctly.  Recovery auditors therefore identify and recover improper Medicare FFS payments, such as payments for non-medically necessary items or services, payments for incorrectly coded items, and payments for services lacking adequate supporting documentation.  Among other things, CMS’s report provides an overview of the structure of the FFS Recovery Audit Program following its national rollout in 2010 and provides data tracking program expenditures and recoveries.  CMS notes, for instance, that it spent $124.4 million to run the program in FY 2011.   Of that amount, CMS paid $81.9 million in contingency fees to recovery auditors, which, for each contractor, are typically calculated as a set percentage of recovered improper payments.

Notably, the report also states that FY 2011 was the first year that recovery auditors “actively” reviewed short-stay inpatient hospital admissions.  The report adds that improper short-stay admissions represent a substantial portion of the reported Medicare FFS error rate and overpayment collections for the year.  While CMS does not provide detailed short-stay data, its aggregate claim-type correction statistics would appear to bear out the recovery auditors’ efforts in this regard:  of the $797.4 million in total collected overpayments, $677.2 million (or about 85 percent) represented inpatient hospitalization claims. 

Other FY 2011 highlights of CMS’s report include:

  • Medicare providers appealed 6.7 percent of all claims deemed to be an overpayment (totaling 60,717 appealed claims).  Of the appealed claims, 43.6 percent (26,469 claims) were overturned.  CMS suggests, however, that a successful appeal does not always mean that the RAC’s initial determination was incorrect.
  • CMS intends to conduct a demonstration program limited to eleven states in which recovery auditors would conduct a prepayment review of, among other things, short-stay inpatient claims.
  • Following an analysis of comments received from a December 2010 Request for Information published in the Federal Register, CMS plans to award its Medicare Part C Recovery Audit Contractor program contract in the summer of 2013.
  • CMS launched its Electronic Submission of Medical Documentation (or esMD) system, which allows health care providers to send requesting contractors documentation electronically.  CMS also introduced “semi-automated” reviews which allow providers to view initial claim determinations and submit supporting documentation.

A copy of CMS’s report is available by clicking here.

Reporter, Greg Sicilian, Atlanta, +1 404 572 2810,

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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