CAGW: Taxpayer Coalition to House Ways and Means Committee: Send RACs Back to Work

October 31, 2016

Committee on Ways and Means
United States House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Representative,

On behalf of the millions of taxpayers that the undersigned organizations represent, we write to once again bring to your attention adverse developments related to one of the most successful improper payment recovery initiatives ever enacted into law, the Recovery Audit Contractor (RAC) program.  Now, after improper payments skyrocketed to $137 billion in 2015, driven in substantial part by wasteful spending in Medicare and Medicaid, taxpayers are looking to Congress to help preserve this program, which is under assault by self-interested parties that benefit from lax oversight.

Since its nationwide implementation in January, 2010, the RAC program has been efficient and effective, returning billions of dollars to the Medicare Trust Fund.  Until the program was hamstrung and certain audits were suspended by the Centers for Medicare and Medicaid Services (CMS) in October 2013, RACs were recovering about $1 billion per quarter.  During the period in which the RAC program was allowed to operate as the law intended, it was a key reason why Medicare’s improper payment rate dropped from 10.8 percent in fiscal year (FY) 2009 to 8.5 percent in FY 2012.  Now, Medicare’s improper payment rate is 12.7 percent and rising.

A few large healthcare providers opposed the establishment of the RAC program from the outset and have responded to the increased oversight by systematically flooding the Medicare appeals pipeline.  In 2012, these providers jammed the appeals process with hundreds of thousands of claims that had already been denied under CMS’s medical necessity rules and rejected at two lower levels of adjudication.  Providers pursued this “appeal everything” strategy to successfully bring the process to a virtual halt at the administrative law judge (ALJ) level.  Providers, predominantly large hospital chains, have repeatedly disseminated misinformation about the accuracy of the RAC program and the source of the ALJ claims backlog, alleging that recovery auditors have wrongly denied claims on a consistent basis.

But, according to CMS, only 9.3 percent of RAC claim denials appealed to the ALJ level were overturned in FY 2013.  CMS has also documented that the RACs have a better than 90 percent accuracy rating year after year.  Furthermore, a November, 2012 Department of Health and Human Services Office of Inspector General report noted that “[m]any ALJ staff raised concerns about the frequent filers.  Several staff noted that some of these appellants appeal every payment denial.  A few staff said that these appellants have an incentive to appeal because the cost is minimal and a favorable decision is likely.”

We are very concerned about CMS’s proposed solution to this manufactured appeals backlog at the Office of Medicare Hearings and Appeals (OMHA).  In October, 2013, CMS officials announced details of a “hospital settlement” opportunity, ostensibly aimed at reducing the backlog of claims pending in the appeals process.  The settlement permitted providers whose claims have been denied twice at lower levels to receive partial payment of 68 percent of the net allowable amount of claims currently under adjudication, in exchange for dropping their appeals.  More than 2,000 hospitals received payouts.

More alarmingly, even though CMS stated at the outset of this ill-targeted settlement process that it was a one-time offer with an October 31, 2014 deadline, hospitals have been permitted to submit denied claims for reimbursement well beyond that deadline.  In fact, CMS announced another deal on September 28, 2016.

To date, CMS has drawn down $1.47 billion from the Medicare Trust Fund to compensate providers who have submitted faulty claims, and this round of payments will drive that number even higher.

Beyond the sheer wastefulness of this procedure, there has been a lack of transparency and accountability.  Although the settlement process had been ongoing since 2013, it was not until August 23, 2016, after CMS responded to a Kaiser Health News reporter’s Freedom of Information Act request, that taxpayers got to see the complete list of hospitals who had received the payoffs, as well as the amounts they received.

CMS’s hospital settlement agreement sets an expensive precedent, inviting others with high improper payments rates to follow this “appeal everything” model.  Durable medical equipment providers, for example, currently have a 53 percent improper payment rate and are subject to RAC post-payment reviews.  Furthermore, this settlement rewards “frequent filers” who have abused the process by appealing virtually all of their claim denials in order to reach the more subjective ALJ level.

It is not a coincidence that the escalation in Medicare improper payments has coincided with the systematic shredding of the RAC program.  While it has been clear for many years that Medicare’s “pay and chase” program integrity model is outmoded and inefficient, CMS officials have yet to implement a viable alternative pre-payment auditing regime.

RACs work for Medicare beneficiaries, the Medicare Trust Fund, and taxpayers.  They must be allowed to continue to recover the tens of billions being stripped from the Medicare Trust Fund by sloppy and/or unscrupulous providers.

We urge the committee to demand a full breakdown from OMHA of the number of claims under appeal at the ALJ level, the identity of the “frequent filers” who are clogging the appeals system, a list of the total cost of the settlements posted on OMHA’s website in real time, and a detailed delineation of which of CMS’s post-payment auditors denied the claims.  We also ask that hearings be held on the hospital settlement process so that taxpayers can get a full reckoning of its costs and legal authority.  Most importantly, we urge members of Congress to take an active part in supporting, strengthening, and expanding the RAC program.

In their 2016 report, Medicare’s trustees warned that the Medicare Trust Fund is now expected to tip into the red two years earlier than predicted last year.  This is not the time to tolerate an escalation of improper payments, nor is it a time to shift funds away from Medicare to reward providers who are unable or unwilling to adhere to CMS’s medical necessity rules and regulations.

We hope you will put the taxpayers’ interests ahead of the special interests, and send the RACs back to work to recover billions for the Medicare Trust Fund.


Tom Schatz, President, Council for Citizens Against Government Waste

Grover Norquist, President, Americans for Tax Reform

Pete Sepp, President, National Taxpayers Union



Read the original letter here.

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