Tracking Medicare Over-Billing: Is the Cost Worth the Return?

Jun 19, 2014

Jessica Hibbard is the audit coordinator at Franklin Memorial Hospital in Farmington.
Credit Patty Wight

No one likes paying medical bills, much less being over-billed.  About five years ago, the federal government created a program to guard against overpayments in Medicare.  It's called the Recovery Audit Contractor - or RAC - program. So far, it's identified about $5 billion in overpayments.  But many hospitals say that's little return for the enormous administrative cost that's required to comply, and that the program does nothing to improve patient care.  Patty Wight reports on what the RAC program means for Maine hospitals.

What it means for Jessica Hibbard is a new job title, because dealing with RAC requests is a full-time gig. Hibbard is the audit coordinator at Franklin Memorial Hospital in Farmington.

"It wasn't my job at all to begin with. And then all of a sudden it began, and we realized that someone had to take that role over," she says.

The point of the RAC program is to make sure hospitals bill appropriately for the services they provide. Sometimes hospitals get money back if they under-billed.  More often, it's the U.S. government that gets money back from over-billing.

Here's how it works:  A RAC contractor, hired by the government, will ask a hospital for patient records. They'll check these out to see what was billed and why.  It's Hibbard's job to compile, review, and send the requests.  She's gotten as many as 100 at a time, and she keeps track of the mountains of records and charts in a gray filing cabinet that reaches as high as her shoulders.  

"These accounts in the bottom three drawers are - as you can see, they're even packed quite tight," Hibbard says.

Compiling and sending the paperwork is only the beginning.  As soon as a RAC request is made, it sets in motion a series of timeframes that Hibbard needs to keep track of.  She juggles multiples of these at once. Some days, she says, the sounds emanating from her office reveal just how tedious and maddening it all is.   

"Lots of the printer jam door  - me fixing printer jams. Lots of printing going on," she says. "Yeah - definite signs of distress."

"This is an example of what I call waste in the system," says Mike Koziol, the chief financial officer at Maine General Health.  He says over the past four years, the RAC program has evaluated $31 million of Maine General's Medicare charges.  Of that, it identified about $400,000 in over-billing.  

"So for all that that they've looked at, they get back very little," Koziol says. "But to defend that, we've probably spend millions, of getting documentation together, defending, and going through the process."

In a 2013 survey, the American Hospital Association found that hospitals appeal about 40 percent of RAC over-billing claims.  Those appeals are successful 70 percent of the time, and there's currently a two-year backlog of appeals.  

The situation highlights a flaw with the RAC program, says Amy Boutwell of Collaborative HealthCare Strategies in Massachusetts - which is that RAC contractors are paid on contingency for every overpayment they find. "That means that they have an incentive to put into question a high number of claims," Boutwell says.

So even when the federal government reports that the RAC program has found more than $5 billion in overpayments, Boutwell wonders how accurate those figure are. "Inside of that number, though, would be the claims that hospitals did not have the time or resources to appeal," she says.

A request for comment to the Centers for Medicare and Medicaid Services was not returned by airtime.  But the RAC program has gotten the attention of some U.S. lawmakers, who are recommending changes.   

Mike Koziol, the CFO at Maine General says he thinks the number of requests should be limited for hospitals like his that have proven, by and large, that they bill accurately.  

"These types of things of additional clerical, administrative, behind the scenes, documentation gathering is driving up the cost of health care," Koziol says, "and it provides no additional value to a patient."

As Congress and the federal government determine when and how to adjust the Medicare RAC program, an additional RAC program is underway.  It's been expanded into the Medicaid program as part of the Affordable Care Act .