Introduction

In the Medicare Modernization Act (MMA) of 2003, Congress authorized the Centers for Medicare and Medicaid Services (CMS) to conduct a demonstration project to determine whether Medicare could recoup improper payments.¹ In October 2008, CMS reported that the demonstration had recovered over $900 million in overpayments, and returned nearly $38 million in underpayments to health care providers.² Approximately 96% of the improper payments were overpayments, while 4% were underpayments.

What are RACs and ZPICs?

As a result, Congress empowered CMS to become more aggressive in maintaining the "fiscal integrity" of the Medicare Trust Fund. Medicare has hired Zone Program Integrity Contractors (ZPICs) and Recovery Audit Contractors (RACs) to detect and recover claims overpayments due to fraud, abuse, and mistakes. The ZPICs are responsible for investigating Medicare fraud involving all healthcare providers in a geographic region, while RACs are responsible for identifying and recovering Medicare overpayments. To date, RACs have been much more active than ZPICs.

What is the RAC Program?

The Medicare RAC program identifies improper Medicare payments (both overpayments and underpayments) in all 50 states. RACs receive a percentage of the improper overpayments and underpayments they collect from providers. With the passage of the Patient Protection and Affordable Care Act (PPACA) in 2010, states are now required to establish Medicaid RAC programs as well.³

What are the Roles of ZPICs?

CMS has tasked ZPICs with ensuring the integrity of all Medicare-related claims for the providers in their assigned zones.³ CMS expects to complete implementation of the ZPICs in 2011.

How do RACs and ZPICs Identify Overpayments and Fraud?

RACs

RACs may investigate the types of services your practice provides. The RACs use proprietary software programs to identify potential payment errors, such as duplicate payments, medical necessity, and coding. RACs also conduct medical record reviews.

RACs are permitted to review the last three years of your claims to identify improper payments resulting from error, non-covered services (including services denied as not medically necessary), incorrectly-coded services, and duplicate services.⁴

RACs are prohibited from selecting claims at random to review.¹ Instead, RACs must use a process known as "targeted review" to select claims for review.

RACs engage in two types of claim reviews to identify improper payments: "automated review" and "complex review." Automated reviews will identify payment errors through the review of claims data. A complex review involves medical record review.

In conducting reviews, RACs must comply with national coverage determinations (NCDs), national coverage and coding articles, local coverage determinations (LCDs), and local coverage and coding articles in their respective jurisdictions. The RACs also are authorized to develop internal guidelines to assist their reviewers to conduct claims reviews consistently with NCDs and LCDs.

ZPICs

To identify and challenge perceived fraud and abuse issues, ZPIC base their audits on a combination of claims data from multiple contractor sources (e.g., Part A, Part B, regional home health intermediary, durable medical equipment). By combining data that originates from a full range of CMS contractors, the Medicare ZPIC contractor creates a complete profile of the beneficiary's claim history regardless of where the claim was processed.

ZPICs refer all identified overpayments to the Medicare-affiliated contractor (typically a MAC), who would subsequently send you a demand letter for recoupment of the perceived overpayment. In any case involving an overpayment, the MAC will typically request recovery of the overpayment from your practice.

How to Prepare for RAC and ZPIC Audits

Establishing processes and policies is one way you can prepare and reduce the likelihood for an audit. The following suggestions are to help your practice prepare for an audit:

• Develop an internal compliance committee. Review existing practices and policies to determine corrective actions to ensure compliance with Medicare's requirements, identify potential overpayments, develop a corrective action plan to reduce the risk of future over payments, and track and correct denied claims.

• Conduct an internal RAC risk-assessment. Identify error-prone claims issues that are listed in CMS, RAC, and ZPIC publications identified in the Additional Resources section below.

• Document services, drugs, and supplies appropriately. Ensure that documentation in medical records appropriately document the services provided and billed.

• Understand Medicare claims rules. Conduct reviews to verify that claims meet all Medicare coverage rules like LCDs and NCDs. Most overpayments occur for services that do not meet medical-necessity criteria, or for services that are incorrectly coded.⁵

• Request CMS FFS payment reports. CMS publishes national samples of Medicare claims to identify the most common types of billing errors made by hospitals and other providers. The most recent data can be found on the CMS website at https://www.cms.gov/apps/er_report/index.asp.

• Review the RACs' and CMS websites for additional guidance and past errors. A report evaluating the RAC demonstration program lists overpayments collected by error type, audit areas and top errors by provider type, and top services with overpayments by provider type.²

• Implement processes and procedures to promptly respond to RAC requests for medical records, and to file appeals.

• Seek counsel if needed. In some cases, engaging legal counsel can help you develop review audit-prevention and -preparation processes, respond to audit requests, and assist with filing appeals.

Additional Resources

• CMS. Overview of Recovery Audit Contractor,
  http://www.cms.gov/RAC/01_Overview.asp#TopOfPage

• CMS. RAC Demonstration Evaluation Report
  http://www.cms.gov/Recovery-Audit-Program/Downloads/RACEvaluationReport.pdf

• CMS. Medicare Program Integrity Manual, Chapter 4,
  http://www.cms.hhs.gov/manuals/downloads/pim83c04.pdf.

• CMS: State Medicaid RACs At-A-Glance
  http://www.cms.gov/medicaidracs/home.aspx

• Medicare Quarterly Provider Compliance Newsletter Archive
  http://www.cms.gov/MLNProducts/downloads/MedQtrlyCompNL_Archive.pdf

• Wisconsin Hospital Association. Preparing for RAC Audits in Wisconsin,
  http://www.wha.org/financeAndData/pdf/RACwhitepaper7-08.pdf.

• Journal of AHIMA. RAC Ready: How to Prepare for the Recovery Audit Contractor Program,
  http://library.ahima.org/xpedio/groups/public/documents/ahima/bok1_042634.hcsp?dDocName=bok1_042634.

• Healthcare Financial Management Association. Medicare Compliance, RAC,OIG
  http://www.hfma.org/Templates/KnowledgeCenter.aspx?kc=115.