Recovery Audit
Contractors (RACs) &
Other CMS Initiatives
June 19, 2008
Examples of Current Government Audit Requests
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Medicare CERT
Medicare Focused Medical Review (pre and
post payment)
Medicaid Fraud & Inspector General Units
Payment Error Rate Measurement Program
(PERM)
Integrated Healthcare Auditing and Services Inc.
(IHAS)
QIO Reviews
OIG and USDOJ Government Investigations
New Government Initiatives
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Medicare Recovery Audit Contractors (“RACs”)
Medicaid Integrity Programs (“MIP”)
State Inspector General Investigations (“FCA”)
CMS “Data Mining” projects for identifying trends
and patterns in coding and billing
CMS Implementation of Medically Unlikely Edits
(“MUEs”)
HHS-Secretary
Federal Regulation & Enforcement
State Regulation & Enforcement
CMS
HHS OIG
Single State
Agency:
Program
Integrity Unit
State Pay and Chase
Program (if separate
from Single State
Agency):
State Auditor,
Comptroller or IG
Medicaid Integrity Group (MIG)
AG Medicaid
Fraud Control
Units: funded by
OIG
Federal
Investigators/auditors/c
ontractors
Run by states
Investigate and
audit
NEW:
+$25 Million to
enforce and audit
Medicaid
CMS-OFM
Medicaid Integrity
Program (MIP)
NEW:
PERM Auditors-23
month CycleIdentify overpaymentsstate MUST collect them
NEW:
MIP AuditorsHIGH ROI-Project
Based for MIP
Division
Sets State/Program Error
Rate
Medicaid & Medicare Providers
State MPI & AG PLUS NEW DRA/CMS:PERM/MIP/ZPIC and RACS
Here is the Providers’ Future
Medicare
ZPICS & RACS
The “RACs”- Background

The Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (MMA) directed the
Department of Health and Human Resources (DHHS) to
conduct a three-year demonstration program using
Recovery Audit Contractors (RACs) to detect and correct
improper payments in the Medicare FFS program.

CMS estimates that 3.9% of the Medicare dollars paid
did not comply with one or more Medicare coverage,
coding, billing or payment rules.

This equates to $10.8 billion in Medicare payments
RAC States & Associated Contractors
(Period of 3/28/05-3/27/08)
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Florida - Health Data Insights
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New York - Connolly Consulting
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California - PRG Schultz
The anticipated roll-out date for the Maryland RAC is
all 2008 – winter 2009.
RAC RECOUPMENTS THUS FAR

CMS announced that for 2007, $371.5 million in
“improper” Medicare payments has been
collected from or repaid to health care providers
and suppliers as part of the demonstration
program. Nearly $440 million has been collected
since the program began in 2005.

The majority of overpayments have been
inpatient hospital related.
THE BREAKOUT OF RAC RECOUPMENTS
Outpatient
Hosp/IRF/SNF 14%
Incorrectly Coded
35%
Other
17%
DME 1%
Physician/
Ambulance/
Lab/Other 1.5%
No/Insufficient
Documentation 8%
Inpatient
Hospital 84%
Medically Unnecessary
40%
SOURCE: RAC Data Warehouse, CMS presentation on 5/13/08
8
RAC RECOUPMENTS DETAIL
Overpayments Collected By Provider Type and Jurisdiction - FY07
Inpatient
Hospital
and SNF
Out-patient
Hospital
Physician
Ambulance
Lab, Other
Durable
Medical
Equipment
Total Overpayments
Collected
New York
$ 99.2 m
$ 8.4 m
$ 1.6 m
$ 0.0 m
$ 3.3 m
$112.5 m
Florida
$115.1 m
$ 3.4 m
$ 5.1 m
$ 1.0 m
$ 0.0 m
$124.6 m
California
$ 98.5 m
$ 10.8 m
$ 5.5 m
$ 3.1 m
$ 2.2 m
$120.1 m
Total
$312.8 m
$22.6 m
$12.2 m
$ 4.1 m
$ 5.5 m
$357.2 m
NET RAC RECOUPMENT (FY 2007)
Overpayments
Collected
Total
$357.2 m
Underpayments
Collected
-
$ 14.3 m
Amount
Overturned
on Appeal
(Cumulativ
e through
9/30/07)
-
$ 17.8 m
Costs to
Operate
RAC
Demo
-
$ 77.7 m
Back To
The Trust
Fund (Net
Savings)
=
$247.4 m
RAC Statement of Work
The RAC may attempt to identify improper payments that result from:

Incorrect payment amounts (exception: in cases where CMS
issues instructions directing contractors to not pursue certain
incorrect payments made)
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Non-covered services (including services that are not reasonable
and necessary under section 1862(a)(1)(A) of the Social Security
Act),
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Incorrectly coded services (including DRG miscoding)
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Duplicate services
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Medicare claims through the complex post payment review
process where it is probable that a duplicate primary payment was
made. Medicare claims through the complex post payment review
process where it is probable that a Medicare Secondary Payer
situation has occurred.
RAC Statement of Work
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The RAC may NOT attempt to identify improper
payments arising from any of the following:
Services provided under a program other than
Medicare Fee-For-Service
Cost report settlement process
Claims more than 3 years past the date of the
initial determination
Claims where the beneficiary is liable for the
overpayment because the provider is without fault
with respect to the overpayment
RAC Areas of Hospital Focus
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One Day Stays
Surgical Procedures in the Wrong Setting
Excisional Debridement (DRG)
Heart Failure and Shock (DRG)
O/P Colonoscopy
O/P Infusion
O/P Speech Language Pathology Services
RAC Target Areas
Coding Targets:
 Correct coding for debridement (excisional or not)
 DRG 263/MSDRG 573 and DRG 217/MS-DRGs 463, 464
and 465
 DRGs designated as complicated or having comorbidity with only
one secondary diagnosis
 DRGs 079, 416, 468, 475, 477 and 483
 Correct coding of discharge status for PAC transfer
 Unit Coding
 grams vs. milligram,
 number or procedures per day (e.g., appendectomy)
Medical Necessity Targets:
 Inpatient admissions for procedures that are eligible for outpatient
surgery (eg. laparoscopy, cholecystectomy)
 One-day stays
 Chest pain
 Back Pain: DRG 243/MS-DRG 551
 Three-day stays to qualify for SNF care
 Inpatient rehabilitation (joint replacement patients)
CLAIM SELECTION
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The RAC shall identify Medicare improper payments
using the post payment claims review process.
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The RAC shall not use random review in order to identify
cases for which it will order medical records from the
provider.
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Instead, the RAC shall utilize data analysis techniques in
order to identify those claims most likely to contain
overpayments. This process is called “targeted review”
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The RAC may not target a claim solely because it is a
high dollar claim but may target a claim because it is
high dollar AND contains other information that leads the
RAC to believe it is likely to contain an overpayment.
RAC SCOPE OF REVIEWCOMPLEX VS. AUTOMATED REVIEWS
Automated
(without medical record)
Complex Review
(with medical record)
Coverage/Coding Determinations
Written Medicare
policy/article or
Medicare-sanctioned
coding guidelines
exists
No written
Medicare
policy/article
or Medicaresanctioned
coding
guidelines
exists
Written Medicare
policy/article or
Medicare-sanctioned
coding guidelines
exists
Certainty
exists
NO
Certainty
exists
No written Medicare
policy/article or
Medicare-sanctioned
coding guidelines exists
Certainty
exists
Other
Determinations
(duplicates, pricing
mistakes, etc)
Certainty
exists
NO
Certainty
exists
Allowed
Not
allowed
NO
Certainty
exists
Allowed
Allowed
Allowed
(often called
“Individual Claim
Determinations”)
Allowed
Not
allowed
with prior
CMS approval
(often called
“clinically
unbelievable”
situations)
Not
allowed
The RAC Review Process
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RACs performed "automated review" through data mining to search
for claims with excessive units of service and coding discrepancies
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"Complex Reviews" were performed by requesting and reviewing
medical records to check for medical necessity and medical records
coding.
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Under RAC pilot in California a hospital reported an additional 1,952
medical record requests over a 16 month period. (Current
experience for JHH is 660 total Medicare/Medicaid regulatory
requests by Compliance during this same time period).
DUPLICATE CLAIM REVIEWS
The RACS are required to maintain a “master table” to prevent
duplicate review of claim already reviewed by the following
contractors:
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The carrier or MAC medical review unit for the state for Part B
physician or supplier claims.
The intermediary or MAC medical review unit for the state for Part A
claims (other than inpatient PPS hospital claims and long term care
hospital claims).
The Quality Improvement Organization (QIO) or MAC for the state
for Part A inpatient PPS hospital claims and long term hospital
claims.
The DME PSC medical review unit for that state for Durable Medical
Equipment, Prosthetics, Orthotics and Supplies.
CMS for the Comprehensive Error Rate Testing (CERT) Program
KEY ISSUES
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No contingency fee when denial is overturned at any
level of appeal
There is a three-year look-back period for review,
however no claims with a payment date prior to October
1, 2007 will be reviewed, regardless of the actual start
date for the RAC in a state.
RAC 3-Year Review Window
10/1/06
10/1/07
10/1/08
10/1/09
10/1/10
APPEALS
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Hospitals can appeal using the standard
Medicare appeals process- this can take as long
as 1 year.
Timing is critical for both filing the appeal and its
ultimate success.
The goal is an interdisciplinary team approach to
managing denials including individual
department level involvement.
Department assistance will be critical with
outpatient coding related denials.
If appeal within 40
days – NO
Recoupment
JHH/JHM Preparation
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PFS, UM, HIM & Compliance have been following the
actions of the RACs and preparing for months.
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Creation of individual entity committee & RAC Czar to
review and respond to issues/requests, track and gather
denial data.
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Creation of JHM RAC Committee to be able to report
system-wide impact and share entity strategies.
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Creation of master database to track RAC requests,
submissions and appeals.
JHH/JHM Preparation Cont.
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Where possible, we have created an internal focus on key issues in
preparation (i.e., one-day stays vs. observation and Compliance
Work Plan items).
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JHHS representatives will request an entrance conference prior to
the commencement of RAC activities.
Review/address past repayments
Identify contacts and resources
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JHHS is active with MHA and its efforts to provide RAC education on
Maryland payment system (HSCRC) and establish parameters,
where possible, on scope of activities.
AHA RACTrac
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Web-based survey that will collect RAC experience data from
hospitals
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•
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Collect both quarterly snapshot and cumulative information on
RAC experience to date
Unit of analysis is the hospital
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Financial impact (underpayments and overpayments)
Appeals information
Trends in types of services being reviewed and broad reasons
for denial
Administrative burden
General Medical/Surgical Hospitals
LTCH
Psych
Rehab
Quarterly data collection to begin after the permanent program
rolls out
More CMS Medicare Reform Initiatives
 Reshaping
 THE
the MACS and the PSCs
BIG SHIFT– Starting May 2008ZPICS!
CMS Medicare Reform Initiative
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Medicare has integrated the Part A/B
contractors. seven zones have been created
based on the newly established Medicare
Administrative Contractor (MAC) jurisdictions.
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Home health and hospice workloads have been
consolidated into four of the A/B MAC contracts
The home health and hospice workload has
been split into four jurisdictions that match
those for the MACs that will be serving the
Durable Medical Equipment suppliers.
CMS Medicare Reform Initiative
As a result of the seven zones, new entities
entitled Zone Program Integrity Contractors
(ZPICs) have been created to perform
program integrity for Medicare Parts A, B, C,
D, Durable Medical Equipment (DME) and
Regional Home Health Intermediaries
(RHHI).
CMS Medicare Reform Initiative - ZPICs
Report on Medicare Compliance (10/1/07)
“In a major shift in its war on fraud, CMS is replacing
program safeguard contractors (PSCs) with seven “zone
program integrity contractors” (ZPICs). They will tackle all
benefit-integrity activities across the country and form “rapid
response teams” with a more aggressive fraud fighting
mandate, said Kim Brandt, director of the CMS Program
Integrity Group…
Fundamental activities of the Zone Program Integrity
Contractor (ZPIC) that will help ensure payments are
appropriate and consistent with Medicare coverage, coding,
and audit policy, and will also identify, prevent, or correct
potential fraud, waste and/or abuse.
CMS Statement of Work for ZPICs
General
The ZPIC shall review and analyze a variety of data in order to
focus its program integrity efforts by identifying vulnerabilities
and/or specific providers for review and investigation within its
zone, referral of potential fraud and abuse cases to law
enforcement, and pursuance of administrative actions, which
include but are not limited to payment suspension, provider
revocation and the implementation of claims processing edits that
limit or stop payment to suspect providers. Further, the ZPIC shall
be proactive and aggressive in pursuing many different sources
and techniques for analyzing data in order to reduce any of its
risks within this SOW.
CMS Statement of Work for ZPICs
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Perform Benefit Integrity (“BI”) investigations
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Refer cases to law enforcement
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Make coverage and coding determinations
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Review audit, settlement, and reimbursement of cost
reports
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Review bids for participation in the prescription drug
program
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Assist CMS in developing a list of entities that may
require future monitoring based upon past history
CMS Statement of Work for ZPICs
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Conduct preliminary investigations into entities
conducting fraudulent enrollment, eligibility
determination and benefit distribution
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Match and analyze claims data
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Coordinating potential fraud, waste and abuse activities
with the appropriate MMEs
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Complaint screening (Medicare Parts C and D only)
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Conduct specified audits
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Conduct specified complaint investigations (part C and
part D only)
CMS Statement of Work for ZPICs Cont.
Medical Review
ZPICs are authorized to conduct medical and utilization reviews (in
accordance with 42 U.S.C. 1395ddd(b)(1)). These reviews, by necessity,
have always included reopening the claim and obtaining and reviewing
providers’ medical records. (Comp. Gen. Dec. No. B-282777 at 2
(September 2, 1999)).
The ZPIC shall perform:
A. Prepay medical review (MR)
B. Postpay MR
C. Medical review in support of Benefit Integrity
D. Provider Notification and Feedback
E. Coordination with POE staff at the AC or MAC on education referrals
F. Program Integrity Management Reporting (PIMR)
The Medicaid Integrity Program
(“MIP”)
The Medicaid Integrity Program (“MIP”)

CMS has dramatically increased resources for auditing
and monitoring compliance under the Deficit Reduction
Act (“DRA”)
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MIP program assigned 100 FTEs
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$255 million budgeted over 5 years for creation of the
program
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An additional $125 million over a 5 year period for HHS
OIG fraud program
Medicaid- The New Medicare?
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Medicaid has already initiated a State Inspector General
(“IG”) Program to investigate False Claims Act
complaints. (This is in addition to the currently existing
MFCU)
In 2007, Medicaid began auditing under the started
Payment Error Rate Measurement Program (PERM).
Medicaid will be implementing a RAC Program as soon
as 2009.
Medicaid Integrity Contractors will be similar to ZPICS
CMS Medicare and Medicaid Reform Initiative 2008
MIP Program Requirements
MEDICAID INTEGRITY CONTRACTORS (MICS)

Review actions of individuals or entities furnishing items or
services under Medicaid in order to determine whether fraud,
waste, and abuse has occurred, is likely to occur, or whether
such actions have the potential for fraud,
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Audit claims,
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Identify overpayments and,
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Educate Medicaid providers, MCOs, beneficiaries and others
concerning payment integrity and quality-of-care.
Types of MICS
Review MICs
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Contracts awarded to 5 contractors.
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Using Medicaid claims data and working with Division of
Fraud Research & Detection, Review MICs will identify
potentially fraudulent claims and supply leads to audit
MICs of providers to be audited.
TYPES OF MICs Cont .

Review MICs shall use data-mining and analysis
techniques to develop models that combines
healthcare quality indicators, billing practices and
Medicaid specific business rules to predict aberrant
provider patterns to identify and rank by risk
providers to be audited.

Review MICs will develop reporting tools that show
ranked providers according to risk of
fraud/overpayment problems with sufficient detail for
auditors to begin their audits.
TYPES OF MICs Cont .
Audit MICs
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Audit MICs will conduct post-payment audits of individual
providers and institutional providers of Medicaid services
within the region
Will include fee-for service, cost reports and eventually
MCOs.
Audits will identify overpayments but Audit MICs will not
be involved in collection. State process will be used to
accomplish overpayment recoupment.
TYPES OF MICs Cont .
Audit MICs
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Audit MICs will concentrate on Region IV and Region III: Alabama, N&S
Carolina, Florida, Georgia, Kentucky, Mississippi, Tennessee, Delaware, DC,
Maryland, Pennsylvania, West Virginia, and Virginia.

“It is my expectation that by this time next year, our audit contractors will be
doing approximately a couple hundred provider audits a month…The reason
MIG is doing this two regions at a time …is we didn’t want to unleash the
MIPs all at once…”said MIG Director David Frank.
(MIG Director David Frank, HCCA, AIS Medicaid Compliance News, Vol. 2, Number 5, May 2008)
What You Can Do
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Appreciate the scope and magnitude of the
upcoming audits and associated appeals.

Respond timely to requests for information.

The exact roles and responsibilities for receiving
and responding to these various requests are
still being discussed. Please contact Compliance
should you receive any CERT, PERM, RAC or
ZPIC requests.
QUESTIONS?