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Medicare Cuts Back Auditors Program Probing Hospital Overcharging

At a time of rampant health care fraud, Medicare has decided to slash the workload of auditors whose job is to scour hospital claims for reimbursement, looking for instances of fraud or overpayments. The news comes courtesy of a Medicare “technical direction letter” reviewed last week by the Wall Street Journal.

The auditors, known as recovery audit contractors, or RAC’s, review potentially inappropriate Medicare payments after the agency has already paid providers. Four companies—Performant Recovery, CGI Federal, Connolly, and HealthDataInsights—are contracted as Medicare RAC’s.

In 2013, RAC’s recouped $3.7 billion in Medicare overpayments. This was before the federal agency took steps to scale back other hospital audit activities and even temporarily suspended the audit program for a few months. The result: a year later in 2014, auditors were only able to recoup $2.4 billion in improper payments from hospitals overcharging Medicare.

Now here’s the rub: the funds returned only represent a small fraction of the total amount Medicare estimates it pays for improper bills on an annual basis. In 2014, Medicare paid out roughly $58 billion in improper payments to health care providers and health plans, according to, a government website tracking the waste in federal agencies.

Beginning in January, RAC’s will only be able to review about 0.5 percent of the claims that Medicare pays out to hospitals or providers every 45 days, according to a Medicare release. That amounts to roughly a quarter of the prior threshold, and a meager 2 percent of all claims.

The move will undoubtedly make it more difficult for the auditors to return stolen funds to the government health care program. Medicare and Congress have already curbed the auditors’ abilities to go after certain commonly scrutinized payment claims involving short hospital stays, among others.

This is probably the time many of you are saying to yourself, ‘why is the government scaling back this program instead of doubling or tripling the efforts to return stolen taxpayer funds?’ A good question…

A couple of things:

  • Medicare has what you might call an alphabet soup of auditors: along with the RAC’s, you have the Medicare administrative contractors (MAC’s), comprehensive error rate testing (CERT’s), and zone program integrity contractor (ZPIC’s). MAC’s are the intermediaries that actually process and payout Medicare claims to health care providers. ZPIC’s and CERT’s investigate any Medicare payments that could be fraudulent and conduct other payment reviews.
  • In 2014, the Government Accountability Office (GAO) issued a report that said Medicare contract auditors may overlap duties and cause hospitals to have to deal with redundant reviews for payment claims.
  • The American Hospital Association (AHA) unsurprisingly cheered the GAO report. The AHA has long had it in for auditors—specifically RAC’s—because, according to the Association, they saddle hospitals with higher administrative costs and specifically go after high-priced inpatient claims.

That last bit is important for a couple of reasons:

  1. If RAC’s can only go after a small percentage of improper Medicare waste, it stands to reason that they should go after the most egregious of those improper payments.
  2. RAC’s are paid between 9 percent and 12.5 percent of identified overpayments and underpayments for all general claims. They receive between 14 percent and 17.5 percent for claims involving durable medical equipment.

These complaints by the AHA are unfortunate but predictable. Applauding the newly imposed restrictions on Medicare overpayment auditors sounds a bit like the town burglars applauding manpower cuts on the police force. But it is clear that the GAO report gave the AHA a serious talking point to bring up with friends in Congress.

Is the Medicare Auditors Program Effective?

Some might wonder whether the program is good for taxpayers. A common question: does the program cost taxpayers more to run than the program obtains in returned overpayments?


Medicare only pays the auditors if they produce results—they get a percentage of the fraudulent funds recovered something akin to how the government pays whistleblowers for bringing fraud to the attention of the Justice Department.

In other words, the Medicare auditing program pays for itself and then some.

According to the Council for Medicare Integrity, RAC’s produce results. Since the RAC program’s inception in 2005, more than $8.9 billion in fraudulent payments have been returned to the Medicare Trust Fund—in other words, it’s a vital program that helps ensure the solvency of a hugely important government program. Furthermore, recovery auditors have demonstrated an accuracy rate of more than 95 percent since the program began.

Recovery auditors are also the most highly regulated Medicare contractor. According to the GAO, recovery auditors are “subject to more rules and regulations than any other post-payment audit contractor.” An example: RAC’s are not permitted to act outside of the scope of work assigned by Centers for Medicare and Medicaid Services.

Let’s not forget that Congress mandated the creation of the RAC program because of rampant waste in the Medicare program…surely no one believes that the waste and abuse problem with Medicare has disappeared.

How Did We Get Here? 

The simple answer is that the hospital lobby has for years spent millions and millions of dollars to lobby Congress in an effort to restrict the abilities of recovery auditors to do their jobs. In 2014 alone, the hospital industry spent a reported $20 million in lobbying efforts.

And the lobbying is clearly working. Both Democrats and Republicans alike have proposed and backed legislation aimed at limiting the ability of auditors to sniff out waste and abuse.

Congressman Sam Graves (R-MO) introduced legislation that would block audits of Medicare providers unless the estimated error rate exceeds 40 percent of total billing. Think about that—almost one-half of all bills to Medicare would have fraudulent before auditors could even begin to do their job.

What Can You Do?

If you see instances of Medicare overpayment in your hospital, consider becoming a whistleblower. If the government is going to cave to hospital industry lobbying efforts and not allow auditors to do their jobs—returning stolen funds back to taxpayers—the next best weapon at combating fraud is from whistleblowers.

By becoming a health care fraud whistleblower, you are helping to preserve the integrity of Medicare and saving people’s hard-earned tax dollars. That includes yours. It could also mean a reward for you. A whistleblower is typically eligible to receive a whistleblower reward of between 15 and 25 percent of any monies recovered by the government in a health care fraud case.

Medicare is a $600 billion per year program…can we really afford to see a significant portion of that total end up in the pockets of criminals?

Have first-hand knowledge of fraud in your hospital? Contact an experienced whistleblower law firm today to discuss your options.


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