States selected to pilot the Centers for Medicare & Medicaid Services Recovery Audit Contract (RAC) Initiative were California, Florida, and New York. The pilot started In May of 2005 and continued for 3 years resulting in identified and corrected $371.5 million in improper Medicare payments during FY 2007 at a cost of $77.7 million (the commission earned by contractors for up to 20% of Medicare revenue recoveries), and returned $247.4 million to Medicare Trust Fund. It was reported that improper payments identified during FY 2007 indicated only 4% ($14.3 million) were underpayments repaid to providers.

Of the overpayment amounts, 85% were from inpatient hospitals. The improper payments were the result of coding that did not comply with Medicare’s coding or medical necessity policies and rules.

What isn’t reported is the cost to our hospitals, healthcare facilities and practitioners. One family physician in solo practice stated that a RAC audit left her practice financially drained.

The Tax Relief and Health Care Act of 2006 gives the Department of Health and Human Services permission to make the RAC program permanent for all states no later than January 1, 2010.

You may want to keep this topic on your radar.