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David McGill Blogger

The RAC Annual Report: Behind the Headlines

Posted by David McGill | February 07, 2013

Medicare has released its annual report regarding RAC audits for Fiscal Year 2011. Most articles you'll read about this will restate basic facts culled largely from the Executive Summary of this 18-page document. We'll assume that you can all read those headlines on your own, and instead will focus on the three most interesting points pulled from  the data supporting the report.

Interesting Point #1: Northeast & Midwest, You Ain't Seen Nothin' Yet

The RACs for Region A & B collected $127.8M and $160.3M in overpayments, respectively. Regions C & D, on the other hand, collected $191.3M and $318.0M. Put simply, nearly 2/3rds (roughly 64%) of the total overpayments came from the South and West, suggesting that the Northeast and Midwest are in for stormier times ahead. 

You might counter by asking whether looking at dollars is the best metric. What if Regions A and B had lower overpayment amounts because providers and suppliers in those regions submitted cleaner claims than their counterparts in Regions C and D? Good question, but the data doesn't really bear it out.

Regions A and B had roughly the same number of claims as each other resulting in the aforementioned overpayments: 97,929 and 86,215, respectively. But Regions C and D looked at significantly more claims: 259,124 and 383,462. So 78% of the claims reviewed by RACs occurred in Regions C and D.

Interesting Point #2: No One Appeals, But You Should

The Report breaks claims into 3 general buckets: Medicare Part A claims; Medicare Part B claims; and "DME" claims. The report isn't specific as to whether "DME" includes O&P, but there is a general reference in the report to the fact that Part B claims typically involve physicians and DME claims typically involve suppliers, so for the purposes of this section, we're going to assume that "DME" does include O&P in the context of this Report.

In 2011, the RAC's identified 295,425 DME claims that it classified as overpayments. Suppliers appealed 8,770 of those decisions, a mere 3%. Stated inversely, suppliers accepted the RACs' findings 97% of the time without even appealing!

More depressing, only 50 (!) claims were appealed to the ALJ level. For those of you who like dealing with really, really small numbers, that's a .02% appeal rate. 

The real tragedy in this pathological decision not to appeal is that suppliers who do appeal often win. The national provider appeal win rate was 43.6% in 2011, though there was large variations by Region. (Region B had a 2% DME win rate while Region C had a 58.9% win rate.)

Interesting Point #3: Some RACs Focused on DME More Than Others

Looking again at the 3 buckets – Part A, Part B, and DME – there's pretty significant variation between what the RACs looked at regionally. In Regions A and B, DME claims constituted roughly 10% and 14%, respectively, of the total number of claims resulting in RAC clawbacks. But in Regions C and D, those numbers spiked to roughly 47% and 40%.

So what does this mean for you?

First, for those people in the Northeast and Midwest thinking that audits have reached a fever pitch and that it can't get worse, these numbers are sobering. Assuming that the RACs in Regions A and B ramp up to the same number of claims reviewed as in Regions C and D, you're staring down the barrel of an audit explosion in 2013. How much of that will focus on O&P versus other claim types remains to be seen.

Second, you have to appeal RAC decisions! If we told you that your chances of winning an appeal – particularly for higher cost items like prosthetics and custom orthotics – were greater than 40%, wouldn't you take those odds?  Despite what the data shows, a stupefyingly low number of suppliers appeal RAC decisions. 

In light of that fact, we shouldn't be shocked then, that all of Medicare's messaging regarding RAC audits trumpets how few claims get overturned. When suppliers decide not to appeal 97% of the time, Medicare concludes that they're implicitly acknowledging that the RACs are right!

Finally, depending on where you are in the United States, your RAC may have focused more or less intensely on DME, which, again, we're assuming – perhaps incorrectly, but based on the limited data that's available to us in this  Report – includes O&P. If Regions A and B start scrutinizing DME claims in ratios more like Regions C and D, things could get even hairier in the Northeast and Midwest this year.

The best way to deal with all of these negative data points? Avail yourself of the resources available to you. Össur has a wide range of educational materials and events specifically designed to address the reality of running an O&P business in 2013. Use them. Attend them. Whatever you do, don't keep on doing the same thing you did 3 years ago – it won't be good enough now.

Note: All data in this post is based upon analysis of the Exhibits included in the RAC FY 2011 Report.

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