End Abusive RAC Audits:

Because our current healthcare system lacks a simple, clean, and efficient way to screen healthcare billing patterns across multiple payers (see Secondary Reform #2) Washington developed a cumbersome, expensive, invasive, and abusive system of audits to take its place. RAC audits may now surpass the threat of a frivolous lawsuit as the primary fear of the average, self-employed physician.

Bureaucrats often quote fraud and abuse as a major driver of healthcare costs. However, the public should know that, while true fraud does exist (such as the New York dentist who billed for 900 patients on a single day and was paid by Medicaid) and must be addressed, much of what Washington deems “fraud” is simply the average physician’s inability to live within the Washington’s myriad, vague, and ever changing regulations while actually caring for patients.

A comment in a question / answer session held at the Capitol following a healthcare presentation was revealing. Following the presentation, a Washington bureaucrat stood up and stated, “Given the level of fraud and abuse taking place, we need a bigger stick to beat physicians with.”

Recovery Audit Contractor  (RAC) Audits

Given this mindset, Washington created a bureaucracy to review individual patient charts on a massive scale. They employ Recovery Audit Contractors (hence the term RAC audit) to review individual Medicare patient records. This will soon be expanded to Medicaid. These private contractors look for any inconsistency in documentation to allege “inappropriate Medicare billing.”

The percentage of inconsistencies is then extrapolated to the entire amount of Medicare work the physician did for the time period being investigated. If the private recovery audit contractor found discrepancies in 20% of the charts reviewed, the physician is assumed to have billed inappropriately Medicare 20% of the time. The physician is then charged for the alleged infraction. These charges range fro hundreds of thousands to millions of dollars.

On its face, this appears to be a very detailed and thorough approach to investigate for fraud—the investigator actually looks at individual patient charts. However, as is often the case in Washington, all is not as it appears.

Who Audits the Auditors?

There are three (possibly four) major problems with this system.

1)  The private contractors receive a percentage of the money collected. They are not neutral, third party, experts hired to perform impartial reviews of charts. The are bounty hunters with a clear financial incentive to “find” as many infractions as possible.

2)  To make matters worse, Congress prohibits physicians from filing a countersuit for a fraudulent investigation. This absolves the RAC auditor of any adverse outcome if they file frivolous charges against the physician in order to maximize their collections. There are reports where auditors did not even review the charts in question before submitting their report. Yet the physicians were unable to countersue the independent auditor for such a fraudulent report.

3) While there is a limited opportunity to appeal the RAC audit findings, physicians must do so at their own expense. Even more, on occasion, physicians are force to pay for the alleged infraction before they have had opportunity to defend themselves. There is no presumption of innocence. Physicians are presumed guilty and only given a limited window to defend themselves.

4)  Evidence is growing that some prominent politicians have friends and family with financial interest in the private RAC audit companies. When coupled with the fact that Congress protects these contractors from a countersuit for a fraudulent investigation, the RAC system not only violates the rule of law, it takes on a nature reminiscent of Stalinist Russia.

What this Means for Hospitals, Physicians, and Patients

The Center for Medicare & Medicaid Services boasts $900 million in overpayments were collected between 2005 and 2008. Yet, what does this really look like behind the Washington spin?

Hospitals

I interviewed a small to mid-sized hospital. On average the RAC audits reveal approximately $50,000 of mistaken “over-bills” per year. (Of note: the private auditors do not aggressively look for mistaken “under-billing” to offset these “over-billing errors.”) Yet, it costs the hospital approximately $500,000 to comply with the program. Rather than making the healthcare system more efficient, RAC audits compound the inefficiency at least ten-fold if not more.

Physicians

A second case report gives a sense of how these investigations impact physicians. A local physician group experienced an AdvanceMed audit, an earlier version of the RAC. For a year Medicare auditors made their practice a living hell, making them question if it was worth participating in Medicare at all.

An independent reviewer reviewed 86 patient records and “found” the physicians had “inappropriately billed” Medicare for $351,820. The cardiology group fought the allegations for a year. Eventually all charges were dropped. The physician group was vindicated but only after spending almost $100,000 in legal fees. The independent reviewers were clearly after money, not justice. One example makes this clear.

The auditor alleged the group had “fraudulently” billed for was a man undergoing a chemical stress test. The allegation was the patient should have undergone a less expensive traditional treadmill stress test. The difficulty with this accusation was the man was a double amputee—he had no legs. This made a traditional treadmill test impossible.

The auditors were not trained health care professionals and were clearly not qualified to perform such an audit—they were bounty hunters. (It is worth remembering the cardiology group could not sue the investigators for conducting this “fraudulent investigation.”)

Patients

How this story ends holds a lesson for America. The cardiology group falsely accused of $351,820 worth of inappropriate Medicare billing went bankrupt shortly after clearing its name. Why? Ironically, because they cared for patients on Medicare. Specifically:

1) Medicare reimbursement often does not cover overhead.
2) Because Congress has not fixed the SGR (see Primary Reform #1), Medicare withheld physician payment on four separate occasions during 2010. This caused significant cash flow problems for private physicians.
3) The RAC auditors forced the group to take out a loan to cover the $351,820 while the group mounted a defense. In addition, the group spent $100,000 on its defense. These cash outlays combined with Medicare’s interruptions of payment were more that the group could sustain.

In the end, these cardiologists no longer can see patients as independent physicians. They are now hospital employees.