AAOS Now

Published 2/1/2012
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Ashlen Anderson; Richard Martin, JD

What You Should Know About Medicare Audits

Orthopaedic surgeons who participate in Medicare may be subject to a claims audit. Sometimes, this results in an overpayment request, which requires that payment for a specific claim be refunded to Medicare.

To ensure that members of the American Association of Orthopaedic Surgeons (AAOS) have the information necessary to comply with Medicare policies and avoid overpayment requests or claims denials, this article provides background information on current audit programs.

Increased audit programs
In 2010, President Obama announced the following three goals for cutting improper Medicare payments by 2012:

  • reducing overall payment errors by $50 billion
  • cutting the Medicare fee-for-service error rate in half
  • recovering $2 billion in improper payments

To achieve these goals, the Centers for Medicare & Medicaid Services (CMS) has initiated a number of projects, focused on improper payments. Although all fraudulent claims are improper payments, not all improper payments are fraudulent claims; most are due to documentation errors.

RAC audits
The Recovery Audit Contractor (RAC) program was created through the Medicare Modernization Act of 2003. Designed to extract waste from the Medicare system by identifying and recovering improper payments paid to healthcare providers, the RAC program has been successful in reclaiming money through retrospective reviews of fee-for-service claims, a process known as “claw back.”

The RAC program divides the United States into four geographic regions and uses contractors to review, audit, and identify improper Medicare payments in each of those jurisdictions. Contractors are paid on a contingency fee basis, receiving a percentage of the improper payments they collect from providers. Although RAC audits previously focused on site of care and upcoding, they are increasingly addressing medical necessity. Generally, RAC auditors may review the last 3 years of provider claims and conduct medical record reviews.

An adverse opinion from a RAC audit may be appealed through the following five levels:

  • Request for Redetermination before the RAC
  • Request for Reconsideration with a Qualified Independent Contractor
  • Administrative Law Judge (ALJ) Review
  • Medicare Appeals Council Review
  • Judicial Review

Appeals must be filed within a specific timeline. The cost and success of the appeal process varies at each level.

Recovery Audit Prepayment Review Demonstration
On November 15, 2011, CMS announced three new 3-year demonstration projects. The Recovery Audit Prepayment Review Demonstration is designed to help curb improper Medicare and Medicaid payments. Although implementation was originally scheduled to begin on Jan. 1, 2012, CMS announced in late December that it would be delayed indefinitely. AAOS staff continue to monitor developments and anticipate that the program will be implemented in some form at a later date.

AAOS has been proactively engaged in fact-finding and advocacy activities related to this CMS initiative. Shortly after it was announced, AAOS staff met with lead CMS staff to discuss implications for orthopaedic surgeons and their patients.

As proposed, the demonstration would allow Medicare recovery auditors to review claims after services are provided but before the claims are paid to ensure that the provider complied with all Medicare payment rules. This would prevent improper payments before they are made. Seven states with high populations of fraud- and error-prone providers (Florida, California, Michigan, Texas, New York, Louisiana, Illinois) and four states with high claims volumes of short inpatient stays (Pennsylvania, Ohio, North Carolina, Missouri) would be the primary focus. As designed, this program would affect almost half of the Medicare population.

The program would authorize recovery auditors to review Part A hospital claims before they are paid. Initially, the focus will be on short stay inpatient hospital claims; no orthopaedic procedures are involved.

Claims for short inpatient hospital stays frequently have recurring problems, including incorrect coding, admitting patients who should have been placed in outpatient observation, and providing surgery to patients on an elective admission rather than on an outpatient basis. CMS acknowledged that RACs would be looking at medical necessity in these prepayment reviews. The demonstration project, however, would only review a limited number of claims under the selected diagnosis-related groups (DRGs). The appeals process for RAC audits would follow the same procedures as other appeals.

If the program is successful, it may be expanded to additional DRGs. The demonstration would not replace prepayment reviews by Medicare Administrative Contractors (MACs); MACs would coordinate review areas so that the same cases will not be reviewed by two different contractors.

Although CMS has outlined basic operational details, the documentation that would be required to justify claims has not been clarified.

MAC-Generated Prepayment Audits
MACs have always had the authority to audit claims to reduce their Comprehensive Error Rate Testing (CERT) error rates. In late 2011, at least two MAC jurisdictions (4 and 9) initiated audits that targeted specific orthopaedic procedures with high error rates.

The contractor for MAC jurisdiction 9, which includes Florida, Puerto Rico, and the Virgin Islands, developed a local coverage determination (LCD) on total joint replacements. The original draft LCD included a requirement that multiple 12-week nonsurgical interventions be documented prior to authorizing coverage of a total joint replacement. After receiving comments from the AAOS and the American Association of Hip and Knee Surgeons (AAHKS), the contractor revised the LCD, so that only one nonsurgical intervention is needed to fail to meet the requirements.

Weeks later, the MAC announced a new prepayment audit of 15 specific DRGs, 4 of which are orthopaedic codes, including those that cover total joint replacements.

Under this audit, which only applies in Florida, the MAC is auditing all related Part A hospital claims in 2012. The audit rate for claims related to DRG 470 (total joint replacement), however, has been reduced from 100 percent to 50 percent. The MAC cited improved documentation as a result of the orthopaedic community’s educational efforts as one of the reasons for the reduced rate.

If problems are found with the Part A claims, payment will be denied, and the MAC may then perform a post-payment audit of the Part B physician services claims related to the problematic claims focused on the medical necessity of the procedure. Physicians must pay close attention to LCDs relating to the procedures they perform and ensure that documentation of medical necessity in the hospital record complies with relevant LCDs.

Ashlen Anderson is the manager, state regulatory affairs, and Richard Martin is the manager, federal regulatory affairs, in the AAOS office of government relations.

Terms You Should Know

MAC—Medicare Administrative Contractor
The United States is divided into 10 Medicare claims administration regions. MACs are private companies that serve as contractors and handle claims administration for Medicare.

CERT—Comprehensive Error Rate Testing
The CERT audit program is designed to monitor the performance of MACs and to ensure that they are administering claims properly. CERT audits result in annual reports of the rate of improper payments made to hospitals. A high error rate for a particular procedure on the Part A hospital side may lead to increased scrutiny of Part B physician claims.

RAC—Recovery Audit Contractor
A RAC is an independent medical collection agency that works for Medicare to recover overpayments from providers. RACs can analyze claims with payment dates reaching as far back as October 1, 2007, or 3 years prior to any new RAC initiative.

LCD—Local Coverage Determination
Much like private insurers, Medicare makes local coverage determinations. For different procedures, MACs define LCDs, which explain what Medicare will cover in that jurisdiction. If a MAC covers multiple states, its LCDs will apply to all states, unless otherwise specified.

For example, LCDs define what constitutes medical necessity for a specific procedure, and a procedure that is not medically necessary will not be covered. Failure to follow the requirements of an LCD will result in an overpayment, which the physician would have to repay if identified in an audit.

CAC—Contractor Advisory Committee
A CAC serves as a formal mechanism for physicians in each state to be informed of and participate in the development of an LCD in an advisory capacity; it provides a mechanism for discussion and improvement of administrative policies that are within the MAC’s discretion; and it is a forum for information exchange between MACs and physicians. Every state has a CAC and each CAC is supposed to have an orthopaedic representative.