RACFacts: Pay-For Performance Contracts Save Taxpayers Money

Pay-For Performance Contracts Save Taxpayers Money

Performance-based payments are a financial best practice and the standard in the recovery auditing industry. The client wins when no upfront expenses occur and payments are made only when actual dollars are returned. In the case of vital Medicare oversight programs, the client is the Federal government.

Recovery Auditors, who work to return Medicare payments to the Trust Fund, are compensated using this pay-for-performance model. They are paid a small percentage of what they recover. Because RACs are paid directly from the recoveries of improperly billed Medicare claims, the program is budget neutral.

Why is pay-for-performance the right choice for taxpayers, the government and providers themselves?

  • Built-in Checks And Balances. Pay-for-performance contracts self-regulate. Auditors focus only on areas with historically high levels of improper billing, such as on inpatient hospitals claims, which account for 94% of overbillings to Medicare. This allows CMS to best leverage the infrastructure and expertise of its RACs in order to benefit the integrity of the Medicare Trust Fund.
  • High levels of accuracy. A RAC is paid only if its claim reviews are correct and upheld through an extensive appeals process. If a claim is overturned on appeal, the RAC must return the fee for the work completed and eat the labor and out-of-pocket costs associated with the review. Independent reviewers hired by CMS have shown that RACs consistently have an average 96% rate of accuracy.
  • Proven efficiency. In addition to the Department of Health and Human Services, the Department of Education, Defense Logistics Agency and the Department of Treasury have used contingency fee-structured contracts. In FY2013, the federal government was able to keep $0.91 of every $1.00 recovered by contractors using contingency fee-based contracts.

Not that these facts prevent Medicare providers from bemoaning the RAC contingency pay structure. They insinuate that pay-for-performance leads to overly aggressive auditing, a convenient argument that distracts from the real problem. If providers really want Recovery Auditors to make less money, they need focus on billing Medicare claims correctly.

Unfortunately, this is something that doctors and hospitals routinely fail to do, costing taxpayers billions of dollars in improper payments each year – $46 billion in 2014 alone.

Fair Assessment, Fair Pay

Recently, MedPAC voted to recommend that CMS tie RAC contingency fees to the rate at which their findings are overturned on appeal. However, inconsistent decision-making at the Administrative Law Judge (ALJ) level of appeals, which does not rule according to Medicare policy, makes ALJ decisions a moving target. In fact, it’s this inconsistency that has inspired many providers to appeal every RAC finding, an attempt to game the system, causing a log jam in the appeals process.

The Council for Medicare Integrity, which represents Recovery Auditors, recently proposed an alternative:  CMS could use independently-determined RAC accuracy scores as the basis for pay-for-performance.

Like Medicare providers, Recovery Auditors seek only to have fair pay and a fair assessment of their work. This approach would constitute a fair and reliable measure of performance to benefit all stakeholders and maximize efforts to maintain the solvency of the Medicare Trust Fund.

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