On May 13, 2016, the Government Accountability Office (GAO) publicly released a report on the comparative effectiveness of the various audit programs used by the Centers for Medicare and Medicaid Services (CMS) and its various contractors. This report was requested by Senator Orrin Hatch, the Chairman of the Senate Finance Committee, who had asked the GAO to examine: (1) the differences between prepayment and postpayment reviews and the extent to which CMS contractors utilize each, (2) the extent to which contractors focus their reviews on particular types of claims, and (3) CMS’ cost per review, and the amount of improper payments identified by contractors for each dollar they are paid.

To briefly summarize the GAO’s findings:

• The Recovery Audit Contractors (RACs) generally limited themselves to conducting postpayment reviews. The GAO attributed this to the fact that the RACs were paid contingency fees based on recovered overpayments, i.e., because prepayment reviews result in a claim never being paid in the first place, there is no “overpayment” to be recovered, and, therefore, no contingency fees to be paid. The GAO did note that from 2012 to 2014, CMS conducted a demonstration project in which the RACs conducted prepayment reviews (and were paid contingency fees based on the dollar amount of denied claims), which CMS considered to be a success.
• The Medicare Administrative Contractors (MACs) generally limited themselves to conducting prepayment reviews.
• Each contractor also tended to specialize in certain types of claims. For example, the GAO noted that during 2013 and 2014, the RACs tended to focus primarily on inpatient hospital claims. The GAO found that the MACs tended to focus on physician and durable medical equipment claims. Note: the GAO included claims for ambulance services within the larger category of “physician” claims.
• The RACs identified a total of $4.5 billion in improper payments during 2013 and 2014. For their work, the RACs were paid contingency fees totaling $312 million, a return of approximately $14 in improper payments for every dollar paid to the RACs.
• CMS lacked reliable data on the costs and effectiveness of its MACs program integrity reviews.

The GAO made two specific recommendations. First, it recommended that CMS seek legislation that would permit its RACs to conduct prepayment claims reviews. Second, it recommended that CMS develop written guidance on how its MACs should calculate the savings attributable to prepayment claims reviews. CMS disagreed with the first recommendation, believing it unnecessary in light of other programs intended to move CMS away from “pay and chase”, including prior authorization and enhanced provider enrollment screening. CMS agreed with the second recommendation.

Focus on the RACs

For the years 2013 – 2014, the GAO found that the RACs focused primarily on hospital inpatient claims. For example, the GAO found that 78% of the FY 2013 claims reviewed by the RACs were hospital inpatient claims. While this number declined to 47% in FY 2014, that decline was largely attributable to CMS, under its own authority and subsequent legislation, prohibiting the RACs from reviewing certain inpatient stays during the first part of FY 2014. If you look only at postpayment reviews, the numbers were even higher, 87% in FY 2013 and 64% in FY 2014.

So why were the RACs focused on hospital inpatient claims, largely to the exclusion of other types of claims? The GAO believes the answer lies in how the RACs are compensated for their work. Recall that the RACs are paid contingency fees (of between 9% – 17.5%) based on the amount of the recovered overpayments. Given this fee structure, the GAO believed it was logical for the RACs to focus on claims with higher average dollar amounts per claim. The following chart shows the average amount of the improper payment identified by the RACs on a per-claim basis:

As you can see, the average overpayment for an inpatient hospital claim was more than $3,000 in FY 2013, compared with slightly more than $300 for a physician (or ambulance) claim. Assuming a 10% contingency fee, this means the RAC could expect to receive $300 for each inpatient hospital claim it reviewed, compared with $30 for a physician claim. Given these financial incentives, the RACs decision to focus on inpatient hospital claims makes sense.

Focus on the MACs

In contrast to the RACs, the Medicare Administrative Contractors focused their program integrity activities almost exclusively on prepayment reviews. The following chart shows the breakdown of MAC reviews by provider type:

As you can see, the MAC largely focused on physician and DME claims, with physician claims (including ambulance claims) accounting for 49% of MAC reviews in FY 2013 and 55% of MAC reviews in FY 2014.

The efficacy of these reviews is unclear. This is largely due to the failure by CMS to collect consistent data on the savings from prepayment claims denials. At least 3 MACs failed to provide data on the specific funds they spent on prepayment and postpayment reviews. Instead, these MACs reported their costs as part of their broader claims processing activities. MAC also used different methods for calculating the savings from prepayment reviews. For example, 2 MACs used the billed amounts by providers to calculate total savings from denied claims, despite the Medicare allowables being significantly lower than the amounts normally billed by providers. 9 MACs used the total Medicare allowable, without differentiating between Medicare’s payment and the payments made by secondary insurers and/or patients. The remaining 5 MACs compared denied claims to similar claims that were paid to estimate what Medicare saved on claims denied as part of prepayment reviews.

Impact on Ambulance Providers and Suppliers

The key finding in this report is the GAO’s belief that prepayment reviews are generally more cost-effective in preventing improper Medicare payments. The GAO believes this is because prepayment reviews “limit the need to recover overpayments through the “pay and chase” process, which requires administrative resources and is not always successful.”

While the GAO and CMS are in agreement that Medicare should move away from postpayment reviews, they appear to disagree on how, exactly, to implement that transition. The GAO’s report makes clear its belief that CMS should devote greater resources to prepayment reviews, with the GAO specifically recommending that CMS seek legislative authority to empower its RACs to take a greater role in conducting prepayment reviews. By contrast, CMS appears to favor prior authorization programs.

Only time will tell which of these views gains prominence. In the meantime, ambulance providers and suppliers should expect to see the RACs take an increasing interest in our industry.

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