Tag: Recovery Audit Contractor (RAC)

Talking Medicare: Low Volume Settlement Option

Written by Brian Werfel on February 1, 2018. Posted in Medicare, Reimbursement, Talking Medicare.

Low Volume Settlement Option – A Viable Solution to the ALJ Backlog?

The Centers for Medicare and Medicaid Services (CMS) recently announced a new initiative to help relieve some of the appeals backlog at the ALJ level. Titled the “Low Volume Settlement Option,” this new initiative appears, on its face, to offer ambulance providers and suppliers a viable alternative to the multi-year wait for an ALJ hearing.

First some background. In January 2017, CMS announced that there has been a 1,222% increase in the number of appeals submitted to the Office of Medicare Hearings and Appeals, which operates the ALJ hearing system. The dramatic increase in the number of appeals was the result of several program integrity initiatives implemented by CMS in prior years, most notably, the creation of the Recovery Audit Contractor Program (RACs). As a result, there were more than 650,000 appeals pending at the ALJ-level as of September 30, 2016. CMS simultaneously disclosed that it currently processed approximately 92,000 appeals per year.

Doing the math, this meant that CMS could clear the existing ALJ backlog in a little over 7 years at its current pace. Of course, that made no allowance for new appeals that would be filed during that 7-year period. Moreover, appeals are not treated equally at the ALJ level. Appeals filed by beneficiaries are given priority, with the intent of issuing a decision within 60-90 days of filing. This necessarily means that appeals filed by providers and suppliers are moved to the end of the queue. A good metaphor would be airport security, with beneficiaries being given TSA Pre√®, and providers and suppliers being stuck in the normal lane of traffic.

Enter the American Hospital Association. On behalf of its members, who were disproportionately targeted by the RACs, the AHA filed suit seeking a writ of mandamus that would require CMS to adjudicate ALJ-level appeals within the 60-day time limit prescribed in the regulations. This case bounced back and forth between the circuit and appeals courts for several years, until December 2016, when a district court judge ordered CMS to eliminate the ALJ backlog by 2020.

CMS appealed that decision, arguing that it would be impossible for the agency to comply with the judge’s order without either (1) a massive increase in its funding level or (2) offering mass settlements to entire classes of appellants. CMS argued that only Congress could appropriate additional funds. CMS simultaneously argued that existing law prohibited it from offering mass settlements. Essentially, CMS was arguing that it lacked the authority to take the only step (i.e., mass settlements) that could reasonably be expected to alleviate the ALJ backlog. In August 2017, the U.S. Court of Appeals for the D.C. Circuit sided with CMS, and remanded the case back to the district court to determine whether CMS could legally comply with the order to reduce the backlog.

That brings us to the Low Volume Settlement Option (LVSO). Despite CMS’ previous argument that it lacked the authority to offer mass settlements, that is precisely what the LVSO does. Providers and suppliers will be given the option to settle eligible claims at 62% of the net allowed amount, regardless of the merits of the appealed claims.

How will it work? Providers and suppliers will submit an Expression of Interest (EoI) through a CMS web portal, indicating that they would like to explore the option of settlement. Depending on the provider’s or supplier’s NPI, they will need to submit their EoI during one of two 30-day periods, with the first (for NPIs ending in an even number) starting on February 5, 2017. CMS will determine the provider’s or supplier’s eligibility, and then provide a list of the claims it believes are eligible to be settled. The provider or supplier will have the ability to suggest additions or removals from that list. Once the list is finalized, the provider or supplier will have to make a decision on whether to settle all of the claims on that list. In other words, CMS’ offer is an all-or-nothing proposition.

There are some additional criteria for eligibility. Perhaps the most important one is the requirement that the provider or supplier have fewer than 500 total Medicare appeals across all of its associated NPIs. Once the provider or supplier is determined to be eligible, there are also restrictions on the types of claims that can be settled. To be eligible for settlement, the claims must have been appealed on or before November 3, 2017, and must still be pending. The total billed charges for all claims in a particular appeal must total less than $9,000. The claims must also be fully denied, i.e., they must not be denied in part or downgraded. Finally, this settlement option only applies to Fee-For-Service Medicare claims, i.e., it does not apply to Medicare Advantage claims.

Providers and suppliers that elect to accept the settlement offer can expect to receive payment within 180 days.

Brian, that is all fine and good, but will this actually help my organization?

Ultimately, that is a determination that every provider or supplier will need to make for itself. If you have already been given an ALJ hearing date and are 100% convinced you will win your appeal, there is little benefit in settling the appeal. If you are convinced you will loss the appeal, the offer to settle at 62% probably looks like a windfall. However, it is unlikely that your appeal falls close to one of those two extremes. The main difficulty in valuing CMS’ offer is not knowing how long you might wait to get an ALJ hearing. A year is one thing, a 10-year wait is something else entirely.

That being said, there is little harm in submitting an Expression of Interest, and seeing which claims CMS would be willing to settle. For that reason, my recommendation is for every A.A.A. member to enroll in the program, and to wait for CMS to provide the spreadsheet of the claims it would be willing to settle before making any decision.

If you are interested in learning more about the Low Volume Settlement Offer, the AAA hosted a recent webinar on the initiative. Order the webinar on demand.

Have an issue you would like to see discussed in a future Talking Medicare blog? Please write to me at bwerfel@aol.com

Understanding the GAO’s Recent Report on Medicare Prepayment and Postpayment Reviews

Written by Brian Werfel on June 1, 2016. Posted in Reimbursement, Talking Medicare.

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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