Trendspotter: RACs Are Now Encouraged to Search For Fraud

February 24, 2010
Ken Terry

There’s good reason for physicians to be worried about Medicare’s new Recovery Audit Contractors, better known as “the RACs.” Like auditors for Medicare carriers, the RACs seek to recover money for the government by finding evidence of overpayments to hospitals and physicians. What makes these four private companies different from traditional auditors is that they’re being paid a percentage-9 to 12 percent-of whatever they recover from providers.

There’s good reason for physicians to be worried about Medicare’s new Recovery Audit Contractors, better known as “the RACs.” Like auditors for Medicare carriers, the RACs seek to recover money for the government by finding evidence of overpayments to hospitals and physicians. What makes these four private companies different from traditional auditors is that they’re being paid a percentage-9 to 12 percent-of whatever they recover from providers. (See “Medicare’s New Bounty Hunters” in the current issue of Physicians Practice.)

While the January 1 launch of the permanent, nationwide RAC program was a wake-up call for providers, there hasn’t been much concern that the RACs would actively seek out fraud. They are supposed to forward fraud cases to CMS, but they have no financial motivation to ferret it out, says Jessica Gustafson, a Southfield, Mich.-based attorney who specializes in Medicare audits. “The financial incentive is for them to do the audit,” she points out, because that’s how they make money.

But something in that equation changed recently. CMS has decided to provide formal training to the RACs on how to identify fraud and where to refer fraud cases. It is also developing a database to track fraud referrals. Needless to say, this will give the contractors’ personnel an extra incentive-although not yet a financial one-to look for fraud wherever it may lurk.

CMS chose this course after the Office of the Inspector General (OIG) in the Department of Health and Human Services examined what the RACs were doing about fraud-which was not much. During the three-year pilot that preceded the current program, an OIG report says, the RACs turned over evidence of fraud to CMS in only two cases. CMS wasn’t aware of these cases, according to the report, but has now forwarded them to OIG for further development.

OIG’s interest reflects the Obama Administration’s crackdown on fraud and abuse in the Medicare and Medicaid programs. “The government thinks they can whack close to 10 percent of their healthcare spending by nailing people for fraud,” says David Glaser, a healthcare attorney in Minneapolis who defends physicians against Medicare audits. “So concern is warranted, because they’re coming after you and it’s a way of reducing healthcare costs that doesn’t offend anyone except physicians.”

When does a pattern of improper coding become fraud? “The majority of audits involve a pattern of medically unnecessary services,” says attorney Abby Pendleton, one of Gustafson’s colleagues. “That’s a common reason for denial of claims. When does it rise to the level of fraud and abuse? It’s got to be pretty extreme.”

The government’s definition of fraud is vague, says Glaser. If a single claim error is viewed as an honest mistake, but a series of errors is regarded as fraud, he notes, that definition ignores the likelihood that someone who makes one mistake is likely to repeat it. “Say a lab had one code wrong a couple hundred times. Should the false claims law apply?” He has also seen an overpayment of $150,000 to one doctor regarded as evidence of fraud, while another physician who got a $3 million overpayment merely had to refund it.

In any case, the RACs are still less likely to turn up fraud than a Medicare auditor would be. The OIG report notes, “We recognize that RACs are not responsible for identifying potential fraud; however, we believe that there may be a disincentive for RACs to refer cases of potential fraud because they do not receive their contingency fees for cases determined to be fraud.” Let’s hope that it remains that way: the RACs should not have a financial incentive to find fraud and turn in physicians who may have made honest mistakes.

Meanwhile, the government needs to develop a better definition of fraud and a more reliable method of identifying it. Certainly, some providers are cheating the government, and they should be caught and punished. But especially when private contractors are enlisted in this effort, there is a danger that physicians may be wrongly accused unless CMS carefully supervises the anti-fraud effort.