Conventional wisdom supports the theory that when the government steps in to try and solve one problem, it usually ends up creating new ones. A perfect example of this “rule of unintended consequences” is what happened when the Federal Government introduced Recovery Audit Contractors (RACs) to better regulate payments to hospitals for medical services rendered to Medicare patients.

The stated mission of the RAC program was to“identify and correct” improper Medicare payments. This means that they were required to utilize “efficient detection” methods to determine whether claims for health care services provided to Medicare beneficiaries were overpaid or underpaid. If the claims were overpaid, the government would recoup the payment from the hospital and if the hospitals were underpaid, the government would pay the hospital. (For more information, visit http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Recovery-Audit-Program/). Sounds simple enough.

From the government’s point-of-view, the program worked brilliantly with nearly $2.4 billion recouped from hospitals during the first nine months of 2013 alone. The problem for hospitals, of course, is that many of these recoupments were neither justified nor supportable. So hospitals and other healthcare providers are now in the unenviable position of having to work to either recover payments that were taken back by challenging the validity of the RAC audit results or trying to stop the take-backs before they happen. In short, the RAC process has resulted in a series of additional hurdles hospitals must now overcome to ensure they are properly compensated for the medically necessary services they provide to Medicare patients.

Hospitals are now faced with battling a burdensome and time-consuming appeals process to either stop the Medicare payment ‘claw-back’ from happening or to appeal for a reinstatement of the ‘claw-back’ that has already occurred. The process includes a two level written appeals process and a hearing before an Administrative Law Judge (ALJ). These ALJ hearings offer the best opportunity for providers to prevail on their previously denied RAC appeals because it is the first time in the appeals process that the claims are evaluated by an impartial person. But as late as May 2014, there was a backlog of nearly 480,000 RAC appeals cases waiting for adjudication before an ALJ. As of this writing, it can take up to six months to get a hearing scheduled on a Judge’s calendar. This long wait leaves billions of dollars in provider revenue within the administrative system rather than with the providers of the medical services.

As lengthy as the six month wait may be, it is going to get even longer since the Centers for Medicare & Medicaid Services (CMS) has said that it will suspend RAC’s ability to request documents related to claims review as well as halt all ALJ appeals until CMS obtains new RAC contracts. As soon as this moratorium is lifted, the waiting line for an ALJ could easily stretch to as long as three years.

But there may a light at the end of the tunnel for hospitals and other healthcare providers. The American Hospital Association (AHA) has sued the U.S. Department of Health and Human Services on the grounds the lengthy RAC appeals process is prejudicial to providers. The AHA hopes the court will mandate statutory deadlines for timely review of Medicare claims denials. In the meantime, we have news that this light may be brightening. CMS recently announced a “Hospital Appeals Settlement” for fee for service denials based on patient status reviews for admissions prior to October 1, 2013. CMS is offering an administrative agreement to any provider willing to withdraw its pending appeals in exchange for timely partial payment (68% of the net allowable amount).

SAC is currently assisting its clients in evaluating the propriety of accepting this offer as opposed to continuing to trudge through the appeals process..