Hospitals get $1.5 billion despite improper Medicare billing claims

by Leslie K. Paige - 10/04/16 12:45 PM ET

Improper payments in the federal government totaled a record $137 billion in 2015. These payments fall into several categories, including incorrect amounts paid to eligible recipients, money sent to ineligible recipients, duplicate payments and payments for goods or services that were not provided. The two largest drivers of improper payments are Medicare and Medicaid, which accounted for a combined 66 percent of the total across the government. Medicare alone hemorrhaged $46 billion in improper payments in 2014.

{mosads}While improper payments are a prime example of gross mismanagement in the federal government, this type of wasteful spending is assiduously avoided to the greatest extent possible in the private sector. Companies establish processes and procedures to help prevent overpayments from occurring, and when a wrongful payment is made, immediate and forceful action is taken to recover the money.

In 2011, Congress adopted one of the private sector’s best practices by establishing the recovery audit contracting (RAC) program within Medicare. The program uses private-sector auditors to identify and recover improper overpayments, and auditors are only paid on a contingency basis after they successfully identify improper payments. RACs are the only post-payment auditing program permitted by law to claw back improper payments on behalf of Medicare. They are strictly monitored by Centers for Medicare and Medicaid Services (CMS) officials to ensure that the contractors properly enforce agency reimbursement rules when reviewing claims.

The RAC program was recouping $1 billion per quarter to replenish the financially troubled Medicare Trust Fund until Medicare Part A providers, mostly for-profit hospitals, chose to attack the auditors. In 2012, large hospital chains began a campaign of systematically appealing as many rejected claims as possible, which led to an appeals backlog that grew to 24 months at the administrative law level. CMS decided to suspend key elements of the RAC program, and Congress did nothing to overturn that decision.

Suspending the RAC program was only the beginning. In documents dated Oct. 1, 2013, CMS announced that it would pay off the hospitals to drop their appeals. To date, CMS has simply handed over $1.47 billion to more than 2,000 hospitals, or 68 cents for every dollar in claims submitted (and denied as improper). Had the backlog been addressed under CMS’s standard appeals process, the number of successful overturned appeals would likely have been close to CMS’s own data, which shows that only 18 percent of similar appeals are overturned in favor of the hospitals. Indeed, the 346,000 claims that were settled had already been denied by two sets of CMS auditors. And even though CMS stated at the outset that the settlement would be a one-time offer with a deadline of Oct. 31, 2014, CMS has gone through two rounds of settlements, and a third round was announced on Sept. 28, 2016.

Hospitals have repeatedly claimed that the denials of their appeals were solely related to faulty RAC audits. However, CMS has never released a detailed breakdown of the source of the denials clogging up the system, and in describing the scope of the hospital settlement, CMS officials made it clear that “it doesn’t matter if the claim denial was issued by the Recovery Auditor, by a Medicare Administrative Contractor or a Zone Program Integrity Contractor, we just want to make sure that everyone understands that this is a broad program.” The settlement, therefore, absolves hospitals of any scrutiny for faulty claims denied by all of Medicare’s post-payment auditors.

CMS at first refused to provide any information about the payments, but was forced to release the list of settlement beneficiaries after Kaiser Health News reporter Phil Galewitz obtained it via a Freedom of Information Act request. Payments were made to some of the most profitable and politically well-connected hospital chains in the country, like the 165-member Hospital Corporation of America, which received $90 million. One Chattanooga, Tennessee hospital was paid $10.9 million for nearly 3,000 claims which the government had already repeatedly deemed improper, according to Managed Care, a trade journal.

There are several lessons here. One is that the government will ante up in the face of a manufactured crisis, and the most aggressive actors may receive the largest rewards, especially when the money can be drawn from taxpayers’ pockets. Providers with slack billing practices and those who would prefer not to comply with CMS’s rules have found a lucrative off-ramp: Appeal everything and get a payoff.

The other, perhaps more disturbing, lessons are that even though Congress created a demonstrably successful waste-fighting tool, a veritable “black swan” in this sea of red ink, fraud and government mismanagement, many members of Congress have stood quietly by as the program has been gutted from the inside out. Furthermore, providers with a documented history of careless, perhaps even conniving, billing practices have learned that they will be financially rewarded for their wasteful practices.

Taxpayers should be wary when the government’s waste-fighting talk doesn’t correlate with the government’s waste-cutting walk. A revival of the RAC program is long overdue for the sake of taxpayers and the integrity of the Medicare program.