CMS Announces Recovery Audit Program Prepayment Review Demonstration

CMS is conducting a three-year demonstration to expand prepayment review of Medicare claims. The Recovery Audit Program Prepayment Review demonstration will allow Medicare Recovery Auditors to conduct prepayment claim reviews.

Medicare Administrative Contractors (MACs) currently perform a small amount of prepayment review. Under this demonstration, CMS will expand RAC prepay review by choosing specific claim types for review. Then, Recovery Auditor Contractors (RAC) will review selected claims and if an improper claim is identified, it will be denied before the payment is made.

The Obama administration in 2010 had announced goals for cutting improper payments by 2012. They included reducing overall payment errors by $50 billion, cutting the original Medicare error rate in half, and recovering $2 billion in improper payments to recipients of federal dollars.

The demonstration builds on the existing infrastructure to review claims to expand prepayment review by Recovery Auditors. Using multiple data sources to develop prepayment review targets, the demonstration will initially focus on inpatient hospital claims, especially short stays, as this type of claim has been shown to have a high improper payment rate. Details about the expansion to other provider types, such as home health and hospice have not been revealed at this time. Although RACs have not received approval from CMS to target home health and hospice claims in their work, this could change under this demonstration project.

Contingency fees for the Recovery Auditors and administrative costs will be paid out of funds that CMS saves by denying improperly billed claims. This approach allows for more reviews without increased funding. Normal provider appeal rights apply. This demonstration will be conducted for 3 years, from January 1, 2012 through December 31, 2014.  It will be implemented in 11 states.  Seven of those states were chosen based on their high level of fraudulent claims and providers (FL, CA, MI, TX, NY, LA, IL) and four states were selected based on having high claims volumes for short inpatient hospital says (PA, OH, NC, MO).

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