GAO Report Slams RAC Operations

GAO Report Ignores RAC Statistical Methodology Problems 

In a new report “Changes Needed to Improve CMS’s Recovery Audit Program Operations and Contractor Oversight,” the U.S. Government Accountability Office (GAO) has found that as of May 2015, CMS collected “less than $10 million in improper payments, and had not approved new audit work since March 2014.”

Although CMS wrote  a “statement of objectives” for how RACs should identify improper payments, the RACs are lagging behind their targets.  And, CMS is also behind schedule in making regular performance evaluations of RACs.   In addition, CMS has not yet set up clear performance metrics that can be used to measure RAC activities.

RAC Methodology Lacking

One of the key problems is that there still is no clear accepted methodology for RACs to determine improper payments.   In fact, it does not appear that the methods currently used are consistent, or even completely understood by the government.

Statistical Methodology is Absent

A glaring omission in the Report is a lack of discussion of the statistical methodologies used for doing sampling of claims and making extrapolation of over payment amounts.

Even though the term “methodology” appears nine times in the report, it never is mentioned in connection with statistical methodology.

Barraclough on RACs and Stats

Our experience has shown that much improvement is needed in how contractors go about their statistical work.   In almost every case we have examined, the work would almost never pass the equivalent of a Daubert (rule of evidence regarding the admissibility of expert witnesses’ testimony during United States federal legal proceedings) test for scientific quality.


It’s hard to know if the assumption that “CMS collected “less than $10 million in improper payments” is correct since the methodology usually doesn’t support the initial RAC claim amounts. The amount of “improper payments” probably is much lower.

In Barraclough’s review of statistical work, our team has seen everything from use of the wrong formulas, to outright fabrication of data on the part of the RAC contractors.

These practices need to stop, but for the time being at least, it appears that the GAO is unaware of the problem.

Please contact Barraclough Health (email to for the best statistical methodology in order  to reverse Medicare and Medicaid audits.

Corporate Integrity Agreements are on the Rise

Corporate Integrity Agreements

A Corporate Integrity Agreements (CIA) is a document that outlines the obligations a health care provider agrees to as part of a civil settlement.

The provider agrees to the CIA obligations in exchange for the Office of Inspector General (OIG) agreement that it won’t seek to exclude the provider from participation in Medicare, Medicaid or other Federal health care programs. The OIG is part of the Department of Health & Human Services.

CIAs are put in place at the discretion of the OIG, and are designed to get a provider back on the path of compliance.

As shown in the figure below, the number of CIAs has increased steadily.  In a 5 year period (2009 to 2014), the number of CIAs has increased more than 10 times.

Why Does a CIA Happen?

In a typical scenario, a provider has been audited and found to be afoul of various OIG regulations. The provider has then been forced to make a repayment of faulty claims and also possibly suffer a Civil Money Penalty (CMP).  CMPs can be a fine of up to $10,000 per claim.

What Relief Does a CIA Offer?

In many cases, adopting an integrity agreement has been the only way to stay in business.  The alternative is a suspension of the right to do business with the Federal Government.

If this happens, the provider is cut off of Medicare and also Medicaid.  Their name is placed on a “do not do business with” list, and for all practical purposes, this means the end of their medical business.

CIAs and the Health Care Provider Obligation

CIAs place a heavy burden on the health care provider, and failure to comply with the terms brings heavy penalties.

Among the more popular components of a CIA are:

  1. Mandatory hiring of a permanent compliance officer;
  2. Written standard operating procedures for all activities;
  3. Extensive training and education activities for all employees;
  4. Hiring an Independent Review Organization (IRO) to double-check filed claims;
  5. Detailed retention of records (liable to inspection);
  6. Systematic claims review and validation;
  7. Numerous mandatory disclosures that includes tracking of excluded service providers; and
  8. A number of annual reports and certifications.

What Barraclough Interviews Reveal about a CIA

Our interviews indicate that providers which need to set up a CIA face a number of hurdles.

  • The most significant complaint is the cost and complexity of putting everything into place and the inherent difficulty of designing the mandatory procedures that must be completely documented.
  • This is done with a combination of legal expertise, feedback from the IRO, and use of consultants. None are particularly cheap, but the provider has no choice.

There is no standard CIA.  Each one is customized to fit the particular circumstances of the provider.

Although there are a number of predictable complaints as the CIA is being put in place, our interviews reveal that after a time, the health care provider comes to appreciate its protection against further audits.

Please contact Barraclough Health (email to  for further information on CIAs.

Number of CIA Agreements

RACs and The Two-Midnight Rule Enforcement

The Two-Midnight Rule Enforcement

Elizabeth Weeks Leonard, Professor of Law at the University of Georgia Law School in Athens, Georgia,   has written a clear and concise article on the issues surrounding the Two-Midnight Rule: “CMS’ Proposed Changes To The Two-Midnight Rule: Partial Restoration Of Medical Judgment” in the Health Affairs Blog.

An expert on health care issues, Professor Leonard is widely published in the field and teaches courses on Health Care Financing and Regulation and Health Care Fraud and Abuse at the University of Georgia Law School.

Barraclough LLC recommends this article to our readers; it is available at this link.


The CMS Two-Midnight rile “clarifies the circumstances under which Medicare will consider a given hospital stay to be an inpatient service (and therefore reimbursable at a higher rate under Medicare Part A), versus an outpatient service (and therefore reimbursable at a lower rate under Part B).”

“The Two-Midnight Rule largely replaced medical judgment with regulatory benchmarks for inpatient versus outpatient admissions.”

Professor Leonard further explains:

  • The Two-Midnight Rule was precipitated by a number of factors. One was a trend of aggressive Recovery Audit Contractor (RAC) claims reviews, identifying a high error rate for medically unnecessary Part A inpatient services that should have been submitted by the provider as lower reimbursement Part B outpatient services.
  • The RAC Program is a component of the federal government’s crackdown on health care fraud. RACs are essentially private bounty hunters, authorized to ferret out improper payments. They are paid on a contingency basis, typically receiving 9 percent to12.5 percent of any amounts recovered.

RAC Involvement and Rise in Appeals

“Short-stay hospitalizations became a favorite RAC target. But given the regulatory uncertainty and complex medical judgment involved in determining the appropriateness of an inpatient versus an outpatient stay, RAC audits also spawned high rates of provider appeals.”

Barraclough notes that  “The number of pending appeals overwhelmed the Office of Medicare Hearings and Appeals, leading to CMS’ offer to settle hospitals’ claims for partial payment—68 cents on the dollar—of net allowable amounts.”

Hence, one of the reasons for all the settlements that have been in the news lately.

As a result,  CMS recently proposed incremental changes to the Two-Midnight Rule.”

Read more about how the RACs lost control of the Two-Midnight rule and the issues of claims and settlements going forward.