On November 1, 2016, the Centers for Medicare and Medicaid Services (“CMS”) announced that it had awarded three companies new contracts to serve as recovery audit contractors (“RACs”). These three companies – Performant Recovery, Inc., Cotiviti, LLC, and HMS Federal Solutions – had previously been awarded RAC contracts after the initial pilot program in 2008. Pursuant to the terms of these contracts, these incumbent companies will continue to identify and correct improper Medicare payments on CMS’s behalf. One other incumbent company, CGI Federal, Inc., opted out of the bidding process for this latest round of contract awards.

These new contracts specify the RAC Region for which each company will be responsible. Performant will cover Region 1 (western and southwestern U.S., several northern states, Alaska, Hawaii, New York, Maryland, and D.C.) and Region 5 (reviewing payments for durable medical equipment, prosthetics and orthotics (“DMEPOS”), as well as home health and hospice payments throughout the country). Cotiviti will cover Region 2 (parts of the Midwest and the South) and Region 3 (the Southeast). HMS will be responsible for Region 4 (several states in the Midwest, as well as New England).

Although CMS continues to tout the success of its Recovery Audit Program (stating on its website that the program has collected approximately $9.57 billion since Fiscal Year 2010), many healthcare providers and industry groups have remained critical of the program. Specifically, providers contend that because CMS pays RACs on a contingency-fee basis for each overpayment discovered, these contractors are incentivized to use aggressive tactics to uncover as many overpayments as possible. Since the Recovery Audit Program’s inception in 2010, the number of Medicare audits that healthcare providers face has increased substantially.

When a RAC discovers a Medicare overpayment, it not only notifies the provider, but also refers the matter to the provider’s local Medicare Administrative Contractor (“MAC”), the contractor responsible for sending a demand letter to the provider. These demand letters provide the amount of the overpayment (i.e., the amount that the MAC intends to recoup), as well as a short description of the provider’s appeal rights. Pertinently, the increase in the number of audits has led to a corresponding drastic increase in the number of Medicare appeals.

The Medicare administrative appeals process for providers undergoing a RAC audit consists of five distinct levels: (1) asking the MAC for a “redetermination” of its initial overpayment findings; (2) submitting a request for “reconsideration” by an independent third-party company known as a Qualified Independent Contractor (“QIC”); (3) requesting a hearing before an impartial administrative law judge (“ALJ”) to dispute the QIC’s findings; (4) appealing the ALJ’s decision to the Departmental Appeals Board (“DAB”) of the Medicare Appeals Council; and (5) seeking judicial review of the DAB’s decision in federal court.

However, as recently noted by the Chief ALJ at the Office of Medicare Hearings and Appeals (“OMHA”), the significant increase in the number of RAC audits since 2010 has created a logjam in the appeals process – specifically, at the ALJ level. As the Chief ALJ stated, from Fiscal Year 2011 through Fiscal Year 2013, OMHA saw a 545% growth in the number of Medicare appeals. Yet, despite numerous complaints from providers, as well as federal court challenges to CMS’s pre-ALJ hearing recoupment practices, providers must still wait significantly longer to obtain an ALJ hearing on overpayment matters than is intended by the Medicare statute.

In addition to their appeal rights, providers who undergo a RAC audit must also remain attentive to their obligations under the 60-Day Rule, which requires providers to report and return Medicare overpayments to the government no later than 60 days after identifying and quantifying such overpayments. Under the Rule, when a provider receives “credible information” of a potential overpayment, the provider must conduct a “reasonably diligent” investigation to determine if any similar overpayments were made within the previous six years. This diligence period (during which the provider must determine and quantify the amount of any overpayments) can last up to six months. Once identified and quantified, the provider then has 60 days to return the overpayments to the MAC.

Pertinently, CMS states in the final 60-Day Rule that notification by a Medicare auditor (such as a RAC) of a potential overpayment constitutes “credible information,” thereby triggering the provider’s obligations to report and return the overpayment within the timeframe specified by the Rule. Importantly, however, if the provider disagrees with the auditor’s findings and chooses to contest the alleged overpayment through the administrative appeals process, the provider’s obligations under the 60-Day Rule will be tolled pending the conclusion of the appeal.

For providers undergoing an audit by a RAC or any other Medicare contractor, the attorney-client privilege can protect the disclosure of provider’s internal investigations (as required by the 60-Day Rule) if an attorney both initiates and directs the investigative work (i.e., by delegating to non-attorney agents such as billing and coding experts).

The attorneys at Chilivis Grubman have vast experience representing healthcare providers of all types in connection with RAC audits, provider appeals, and compliance with the 60-Day Rule. For any questions, or if we can assist you in connection with a healthcare regulatory or compliance issue, please contact us at (404) 262-6505 or sgrubman@cglawfirm.com.