Tag Archives: Medicare Recovery Audit Contractor

Medicare Appeal Backlog Finance Strategy


Part IV — Finance Strategy for Hospitals to Cope with the Medicare Appeals Backlog

This is the fourth part of a series covering the Medicare appeal backlog. In Part I, we examined a few backlog statistics. We concluded that the Office of Medicare Hearings and Appeals (OMHA) does not have the capacity to handle this case load.  It can process only around 72,000 appeals per year, which is less than one-fifth of the needed capacity. As of July 2014, the backlog had risen to over 800,000 appeals. Now it is said to be well over 1,000,000 appeals. (Does anyone really know?) Appeals are taking more than ten times longer than the statutory framework of 10 months to resolve.  That is more than 10 years!

MEDICARE-APPEALS-BACKLOG-BAR.001Figure 1 Medicare Appeals are Running Far Slower Than the Statutory Limit. This ties up hospital claims money for very long periods of time.

We suggested that one way to cut down the number of appeals would be to use audit contractors who make mistakes only 1-2% of the time, instead of 66% of the time, as is the case now. Although this would dramatically reduce the number of appeals, it seems as though we are asking too much.

Another option would be to charge the auditors a tax for each denied claim that is reversed on appeal, and hand that money over to the provider (not to the government). Or we could have the auditor be forced to refund all of the provider’s legal fees spent during the appeal. Even though this is a satisfying fantasy, none of it is going to happen.

In Part II we examined the proposal to insert a new actor into the appeals process. Under new proposals, Attorney Adjudicators (AAs) will take over part of the Administrative Law Judge’s (ALJ) work. We concluded that under the current proposals, even if they are adopted, it is unclear how this would help with the backlog except incrementally. In reality, it would take hiring a very large number of Administrative Law Judges to make substantial cuts in the current appeals backlog.

In Part III we examined proposals for bulk settlement through an alternative dispute resolution process called “Settlement Conference Facilitation” (SCF). We concluded that even if the program was doubled, it would amount to a solution for less than one-third of 1% of the backlog. This option is a form of “throwing in the towel”. That is, OMHA wants to have the appeals simply erased, and is willing to pay out around 66% of the amount in question, which happens to be the average rate for over-turned denials.

The problem with this approach is that it simply skips the carefully thought-out process of litigation. Since the claims themselves are not analyzed in this process, and no ruling is made on whether or not they are valid, this option would allow much fraud to slip through the system, and it would deprive the healthcare community of vital feedback information needed to take corrective actions in filing subsequent claims. It is a type of administrative ground hog day.

Finance strategies

Today we will look at some of the financial aspects of the backlog. Here, we find that hospitals are well aware of their problem. A large amount of their money is being held up in the appeals backlog, and we have shown that at least two-thirds of this money eventually will come back because the auditors are doing such a poor and inaccurate job in their work.

So now lets look at some of the strategies available for hospitals to adjust to a situation in which a large amount of their claims money is improperly withheld from them, and for indeterminate amounts of time. Some hospitals keep these future denial reversals on the books as account receivables for a while, before they are retired in to the bad debt pile.

For hospitals, in 2016, we can estimate there will be around 1,600,000 claims available for appeal. At current rates, approximately 708,000 will be appealed.

Given that there are 77 ALJs available to handle all of this appeals work, this is a rate of around 9,200 claim appeals per ALJ per year, which of course it far too many, and does not take into consideration either the standing backlog or other provider appeals. So there will be continued delays. Indeed, we see that in the first quarter of 2016, 75% of appeals to the ALJ were taking longer than the 90 days provided for in the statute.

We know that in 2015 approximately $1.3 billion was paid to 1,900 hospitals and that represented 68% of the value of the claims under appeal. These payments were made providing the hospital would withdraw its appeal. There was an average of 158 claims per hospital in this tranche. These numbers define an approximate value of $6,375 dollars per claim appeal.

We know that there are 4,818 hospitals registered with Medicare. So using ratio analysis, we can estimate that in 2016 the value of these claims to be held will be approximately $4.8 billion dollars for around 761,250 claim appeals.

One option would be to finance this amount. Such a bridge loan might come into play when triggered by the appeals process exceeding the statutory time limit, combined with the expectation that they will be resolved either with a bulk settlement, or with an ALJ hearing.

Since the backlog is greatly expanded to more than 130 months, instead of the statutory 10, then it is reasonable to use a 10 year mortgage type calculation, similar to a rolling home equity loan. So at a 3.5% interest rate, the payments would be only $48,000 per month for carrying the $4.8 billion that would be in play. If the interest rate were only 5%, then still the carry payments would be only $52,000 per month. Mere pennies, considering that these interest payments could be shared between all hospitals taken as a whole.

This type of arrangement could be set up through a forward-looking financial institution.  Alternatively, hospitals as a purchasing group could enter into a joint self-insurance arrangement so that each could draw upon the pool as needed. The interest payments, minus administrative expenses, would simply expand the amount of funds available to draw upon.

As soon as any settlement was paid out via a bulk negotiation, such as the 68% rule, or through an ALJ hearing, then the hospital would pay back the pool. In the meantime, for those many months that a hospital has its claims held, it will be able to make use of the money that it could expect, but at a small interest rate. For some hospitals, this might be well worth it.

This seems to be a reasonable opportunity for any financial intermediary who is interested in developing new products addressing new markets, particularly ones like Medicare appeals which seem to be rapidly expanding.

This type of financial solution will do nothing to relieve the appeals backlog, but it might help to make the financial pain more bearable for hospitals.

In Part V we will look at investments in IT as a strategy for many hospitals in building their capacities for both filing more acceptable claims, and also for better handling the information aspects of the claims appeals process when required. We will look at investments in Electronic Health Records (EHRs), patient portal software, e-prescribing and lab integration IT investments. For each of these massive investments, we will examine how it will have an impact on the backlog.

Note: Also appeared in RACmonitor.

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.


New CMS Ruling Limits Scope of Audit Review

MACs and QICs limit their  Audit Review

In RACmonitor,  Dr.  Ronald Hirsch recently wrote that “Nothing is more frustrating to a provider than having a claim denied, preparing a comprehensive appeal, submitting that appeal, and then having the appeal denied – not because the appeal wasn’t compelling or correct, but because the auditor found a second issue and the denial was upheld based on that new issue.”

“Fortunately, this frustration should be going away very soon.”

The Centers for Medicare & Medicaid Services (CMS) have limited the scope of review in certain circumstances, whereby “MACs and QICs to limit their review to the reason(s) the claim or line item at issue was initially denied.”

And this Means…

This means that a claim review can not be modified later with additional objections. The auditor will not be able to “pile on” additional objections if they fail to have a claim rejected based on their initial review.  The auditor must submit all of its objections to a claim from the beginning, and after that, the auditor loses the right to add more objections.

For complete information on this new ruling, see RacMonitor, CMS Announces Limits on Reviews by MACs and QICs.

For more information on how to Reverse Medicare and Medicaid audits, and effectively deal with claims brought against you, contact Barraclough Health (email to info@barracloughllc.com)  to talk about your issues. 

Winning Medicaid Audit Appeals

Winning Medicaid audit appeals (or MIC audits), often depends on the statistical extrapolation which determines how much you will owe in claims.

Medicaid Audit Appeals are very similar to the process in Medicare, but with some important differences explained here.

As with a Medicare Appeal,  one of the most important parts of the review process is the Medicaid Audit Statistical Extrapolation, which based on the review of a small number of billing claims, is applied to all of your claims for a number of years.

It’s the extrapolation of the error rate of the claims that pushes the amounts so high.

Barraclough’s Litigation Strategy is to show that the extrapolation is incorrect. We disprove the validity of the statistics in your favor, so the amount you owe is either nothing or significantly less than originally asked for.

Please read our previous blog, Winning Medicare Audit Appeals for information on Medicare Appeals and the Barraclough Litigation process.

Medicaid vs. Medicare Audits

Here’s a  comparison between Medicare and Medicaid Audits. It’s important to note that since each State has different regulations, a health care provider may have a better chance of winning an appeal in the Medicaid area than in the Medicare process.

Medicaid and Medicare Audit Differences

Medicaid Chart-JFA Revised 2

The Barraclough Advantage for Winning Medicaid Appeals

Credentials matter in MIC audit appeals because rules apply to expert witnesses, and it is in Medicaid audits that  statistics can really make a difference. Barraclough’s expert team of statisticians is a significant asset in all appeals, but this is particularly true in MIC audit appeals.

Statistical examinations are different for the 50 States. Some States have very specific rules about how the statistics work. Barraclough will meet all of these State statistical requirements.

Local expertise is important since rules differ from State to State the rules regarding statistics and how the audits are done.  Barraclough has worked in many States and has the local knowledge, including the knowledge from previous cases

A strong discovery process is a key in winning a MIC audit appeal. With each State, discovery can be used as a tool to defeat the audit results.

Medicaid Audit Process Background

Medicaid Integrity Contract (MIC) audits are  conducted by private companies under contract to the Medicaid Integrity Group (MIG) of CMS.

MIC audits are contracted by CMS and paid under that contract. This is unlike Medicare RACs which are paid based on the amount of money in improper payments they identify.

Like the Medicare RACs, the  MIC audit utilize sampling and extrapolation. MIC audit sampling and extrapolation decisions take into account the circumstances of the particular audit and the laws and regulations of the State to which the provider submitted its Medicaid claims. Audit look backs are allowed for up to five years.

The MIC audit will use a variety of data during the audit process, including, but not limited to, Medicaid claims data, recipient medical records, and other provider records.

The States are responsible for collecting over payments from providers.

The MIC Audit Process

  • MIC auditors perform field audits and desk audits.
  • The MIC auditor prepares a draft audit report, which is first shared with the State and  then with the provider.
  • The State and the provider each have an opportunity to review and comment on the draft report’s findings. CMS will consider these comments and prepare a revised draft report.
  • CMS allows the State to review the revised draft report and make additional comments. CMS then finalizes the audit report, specifies any identifies overpayment, and sends the final report to the State.

The State will then pursue the collection of any overpayment in accordance with State law. Providers have full appeal rights under State law.

MIC auditors can examine:

  • Provider financial records
  • Client medical records
  • Employee records
  • Provider appointment books
  • Any other applicable records related to services billed to the Department

MIC audits may review claims looking back up to 5 years.

For More Information

Winning Medicare Audit Appeals

Winning Medicare Audit Appeals often depends on the RAC Statistical Extrapolation which determines how much you will owe in claims.

In this Guide, Barraclough LLC explains one of the more important aspects of the RAC review process: the RAC Statistical Extrapolation, which based on the review of a small number of billing claims, is applied to all of your claims for a number of years. Barraclough wants to remind you that it’s the extrapolation of the error rate of the claims that pushes the amounts so high.

Winning Medicare Audit Appeals

Barraclough’s Litigation Strategy is to show that the RAC extrapolation is incorrect. We disprove the validity of the statistics in your favor, so the amount you owe is either nothing or significantly less than originally asked for. This can mean that Winning the Medicare Appeal is a matter of looking at the numbers.

Medicare Audit Process Background

Medicare billing is investigated by subcontracted professional auditors. The Recovery Audit Contractor (RAC) program began in 2005. Medicare can and does investigate the medical billings of any practitioner who bills Medicare for services, including but not limited to: solo physicians, chiropractors, physical therapists, small or large medical practices, pharmacists, clinics or hospitals. This is referred to as the RAC review process.

RACs receive payment which is a percentage of what’s recovered for alleged billing errors. The remainder of the amount goes back to the Medicare Trust Fund.

Part 1:  RAC Statistical Extrapolation is a Key Determinant of Amounts

RACs use statistical sampling to calculate the overpayment demand following an audit. While the use of statistical sampling for overpayment estimation is limited by statute, the auditor will examine a small percentage of claims, and then extrapolation can range from the tens of thousands into the millions, depending on the size of the entity being audited.

Significant problems occur  because RACs  use faulty statistical methods. When this happens, health care professionals will be forced, unfairly, into paying large refunds that they  really do not owe.

The remedy for this is your own independent audit done by Barraclough’s experts.

How We Work:

Barraclough’s Litigation Strategy for Medicare Audit Appeal


Medicare Audit Appeal
Medicare Audit Appeal

Part 2: The Audit Notification

You’ve just received a notification that you are under investigation for Medicare billing claims. This is the first that you, the doctor or health facility, knows of the audit. An analysis of billing has taken place behind the scenes.

It’s unclear why you are being investigated.  Perhaps it was a whistle-blower or an anonymous tip. But for the most part, audit targeting appears to occur as large  data mining programs sift through the billions of claims in order to uncover allegedly suspicious billing patterns.

The next step in the RAC review process is a demand to see some of your patient records. When these are sent in, a team of auditors examine each record. Medicare rules in the strictest possible manner.

Many of your billing claims which are being examined in the RAC review process may be rejected because they were “not medically necessary.” Others may simply be a case of minor clerical errors in paperwork. We have yet to see a true fraud case.

But it is the case that any error, no matter how trivial, will be highlighted. It is not uncommon in the RAC review process for some rules to be applied incorrectly or for other rules appear suspect.

The result is that the auditor will come up with an “error rate” based on this sample of claims.  If one-third of the claims have problems, then your stated RAC review error rate is 33%.

What’s critical to understand is that then the auditor takes that error rate and applies it to all of your claims for a number of years. This is why winning an Medicare Audit Appeal can be so difficult.

The result is a letter to you demanding return of one-third of all Medicare payments you have received over this entire period.

So, it’s not just the Medicare audit, it’s the extrapolation of the error rate of the claims that pushes the amounts so high.  For many small practices and medium sized health facilities, like clinics, this is enough to bankrupt the entire business.

 Part 3: Barraclough Litigation Strategy

 Show that the RAC Extrapolation is Incorrect

Examining the RAC statistical work is the key; the goal is to disprove the validity of the statistics in your favor, so the amount you owe is either nothing or significantly less than originally asked for, i.e., just the amount on the original small sample of cases.

Barraclough statistical and medical experts prove where the Medicare audit is incorrect.

Because there is a defined window of opportunity to object to the extrapolation, you need to pursue this immediately after you receive the judgementAfter that,  you lose the right to ever appeal anything you have not mentioned before, such as these statistics.

That’s why, getting correct statistical  extrapolation soon as possible is critical to winning your case.

In Barraclough’s many cases, we have examined a number of these demand letters, and looked carefully at the underlying statistical work. Thus far, we have yet to find even a single demand (statistical extrapolation) that used flawless statistics.

Examples of the problems we have uncovered include:

  • The contractor may use the wrong formulas for basic calculations.
  • The contractor may skip entire parts of the statistical procedure and “wing it” by making up crucial numbers.
  • The contractor may make complete ludicrous claims, such as that a statistical sample with no stratification was “actually stratified, but with only one stratum”.

There are other problems as well. The “explanation” to the doctor may be useless even though it’s full of lengthy statistical boilerplate, complete with a number of impenetrable formulas. In one case, the auditor even supplied a photocopy of a software manual as part of their justification.

Part 4: Reverse the Medicare Audit

Barraclough’s clients have had success in Medicare audit reversal because they have pushed back against these kinds of Medicare audit results.

Here are a few things you can do:

  1. As soon as you receive notice of an audit, contact an attorney who specializes in responding to Medicare Audits.
  2. Check to make sure they have specific and successful experience handling Medicare refund audits.
  3. Don’t expect the Medicare auditor to be forthcoming in providing you data.
  4. From the very beginning, insist on a complete statistical review of how all samples and calculations were made.
  5. No matter what you do, don’t settle for boilerplate.
  6. Make the auditor shows their work including every single calculation from beginning to end.
  7. Make them give you the spreadsheets.
  8. Challenge every single stage of the audit process from the initial targeting of your practice to the extrapolated refund demand.

Don’t take at face value anything written in your audit letter, especially the interpretation of the rules. Don’t expect your attorney or even the Judge to be able to understand the formulas. Instead, use a qualified statistical expert to review all materials.

With a successful statistical challenge, the extrapolation can be thrown out completely.

For More Information

Senate Acts on RAC Audits and Appeals Process

Audit Appeals Process Quagmire

Barraclough LLC  Dubious  of Senate RAC Actions

The Congress continues to try to fix Medicare’s arduous healthcare audit procedures, as the RAC audit process and healthcare providers continue to be locked into a claims remediation nightmare. The Audit and Appeal Fairness, Integrity, and Reforms in Medicare, or AFIRM, Act of 2015, was introduced on June 3, 2015.

Senator’s Wyden statement about the Finance Committee Markup of this bipartisan effort is that it “will streamline the appeals and audits process so cases are resolved quickly and at the earliest possible step.” The legislation provides for:

  • More HHS personnel resources pick up the pace in order “to keep up with the enormous increase in appeals.” The Office of Medicare Hearings and Appeals can currently adjudicate 77,000 appeals in a year, far below the 474,000 appeals OMHA received in 2014.
  • HHS can use its resources more efficiently and process more appeals because of a new track for lower-cost, less-complex cases to be considered by a different set of hearing officers than other cases.
  • Requiring CMS to better coordinate provider audits “to ensure the entire process is more transparent and efficient, including the creation of an independent Ombudsman position at CMS” in order to assist those considering appeals. Providers who consistently bill correctly are exempted for burdensome audits, as a reward for their business practices.

Although this markup provides some improvement by separating high value from low value cases, Barraclough LLC  is  dubious about the additional number of people on the CMS payroll to deal with the appeals backlog and the overall  impact of the Audit and Appeals Ombudsman which has yet to be fully explained.  RAC Audit Appeals would be better served with more data transparency,  a change in RAC auditors contingency fee payments, and the quality of initial determinations.

For the full text of Senator Wyden’s statement, click here.

As the  AFIRM legislation progress, Barraclough LLC will continue to analyze the impacts and make recommendations for the best course of action.


The Centers for Medicare & Medicaid Services (CMS) recently released its annual report to Congress:   Recovery Auditing in Medicare for Fiscal Year 2013: FY 2013 Report to Congress as Required by Section 1893(h) of the Social Security Act.

The report is full of statistics on the Medicare auditing program.  It presents a picture of “profit”, that is, less money is spent by the government on running the auditing program than is recovered.

The report, however, does not address the discrepancies between states for recovery “claw back” of Medicare claims.   The calculation is shown in the figure below.

2013_RAC_DATA_AnalysisWhen we chart the amount recovered and compare it to the number of persons living in the state, the difference is vast.   In Maine, for example, there was $2 per state resident recovered.   However, in North Dakota, there was $36 dollars recovered for each resident.

Does this mean that the health care providers in some states are being more strictly audited than in others?   The CMS report does not give any clue to the answer.

Which States Use Extrapolation for Medicaid

A survey by the National Conference of State Legislatures (NCSL) identifies which states use statistical extrapolation for Medicaid Audits.   Here is some of the detail:

States Using Statistical Extrapolation with Medicaid Audits

  1. Connecticut;
  2. Iowa;
  3. Massachusetts;
  4. Nebraska;
  5. New Jersey;
  6. New York;
  7. North Carolina;
  8. Oklahoma;
  9. Oregon;
  10. Washington
  11. Rhode Island may be using extrapolation in the future.

States NOT Using Statistical Extrapolation with Medicaid Audits:

  1. Delaware;
  2. Maryland;
  3. New Hampshire;
  4. Pennsylvania;
  5. Vermont;
  6. West Virginia;
  7. Wisconsin

Under the Affordable Care Act (*) states contract with Recovery Audit Contractors (RACs) to identify under and over-payments and recoup the over-payments.

For Medicaid audits sponsored by the Centers for Medicare and Medicaid Services (CMS), a Medicaid Integrity Contractor (MIC) is used.

Medicaid Integrity Contractors (MMICs) work out of five jurisdictions:

  • New York (CMS Regions I & II)
  • Atlanta (CMS Regions III & IV)
  • Chicago (CMS Regions V & VII
  • Dallas (CMS Regions VI & VIII)
  • San Francisco (CMS Regions IX & X)


(*) Affordable Care Act was passed by Congress and signed into law 23 March 2010.  It was reviewed by the Supreme Court and was upheld.  See USSC, National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al. Syllabus, October, 2011.

RAC Contingency Fees

When do the RACs get paid their contingency fees?  

Generally, it is after the first level of appeal.    This rule is about to change, so that the RACs will get their fee only after the matter is completely decided, after the second appeal, or perhaps beyond.

What is the timing involved?   Generally, a first level appeal takes 100 days.   This means that the RAC gets their fee in about three months.   But if the new rules come into effect, then the RAC will need to wait to see if their audit withstands the second-level appeal, but that is an average of 400 days long — more than one year!

So obviously this would have an effect on the cash flow for the RACs.

This “second appeal” proposed rule appears to be a compromise because these matters often are decided at the Administrative Law Judge (ALJ) level at a hearing.   When does that take place?  The data is fuzzy, but it appears to be frequently more than 750 days, that is, more than two years later.

If the health care providers had their way, then the RAC would not get paid until a final decision is made.   Yes, the RAC would have to wait to get its money, it would not have the “free use” of money that it can hold until a final decision.

This is important because many ALJ decisions over-turn RAC audits.

Two  RACs evidently have protested this new rule.   The protestors include HMS Holdings (HealthDataInsights) and CGI Federal (which was fired after it botched the roll-out of the Obamacare enrollment website).     This new rule, after all, would disturb their financial model because they would not get paid until they actually earn their money.

What is the right answer to this?

There is no answer that is acceptable to everyone, but lets look at the dynamics.   Under the current “100-day” system, the RAC has every incentive to rush as quickly as possible through the first level of appeal.   In that way, it gets its money as fast as possible.   But after the first level appeal, the RAC has zero incentive to do anything but drag its feet and slow down the process.    It is incentivized to delay the process, because the longer the delay, the more it can hold on to money that later might be taken away should the final decision go in favor of the health care provider.

This delay behavior frequently is done through the standard practice of taking every day of available time to fulfill even the smallest request.   Even if something takes 10 minutes of work, if the RAC has 60 days to do it, then it will complete the 10 minutes of work on the 60th day.   The longer the RAC delays, the longer it holds on to its money.

The health care provider, however, suffers immensely from this practice.   It is guaranteed that the RAC will work for as long as possible and using every possible tactic to lengthen the appeal time.   There is little if any attention given to the difficulties faced by the health care provider.

So under the proposed system, the RAC will have have incentives to operate efficiently up through the second level appeal, then it can continue to drag its heels beyond that.

It is a compromise.

Barraclough has been in dozens of cases involving the statistical extrapolation part of Medicare appeals.   It always has amazed us how long it takes for the RACs to respond to even the most basic information.   This lack of responsiveness slows down the process, harms the health care provider, and perverts the course of justice.   Anything that can be done to curb these practices is a good thing.

Something potentially good from the Government Accountability Office (GAO).



Audits are a Failure and Data Mining Has Presumption of Guilt

Senator Bill Nelson (D-FL), Chairman of the Senate Special Committee on Aging has criticized the Recovery Audit Contractor (RAC) process.   His argument is, in part, that since the RACs receive between 9% – 12.5% of whatever they recover, then there is an inherent incentive to keep improper payment rates high.  Details regarding types of audits are found in a slides presentation of the RAC program.  “The Recovery Audit Program and Medicare: The Who, What, When, Where, How and Why?”  There are three types of review:  (1) Automated reviews; (2) semi-automated, which is listed as “claims review using data and potential human review of a medical record or other documentation); and (3) “complex” review, in which a medical record is required.

What does “automated review” mean?  In practice, it means the use of secretive and proprietary large data mining of records to discover patterns, leading to targeting of health care providers for audits.  It is important to keep in mind that this is not really auditing, it is merely finding targets based on patterns of data.  So, for example, if a physician or practice works overtime, and on the weekends, and therefore produces more billing that other practices that work a “normal” amount of time, then they will be targeted.

Data mining works on the assumption that if the billing records are out of the ordinary, then there is something wrong, and so the practice should be audited.  There are two sides to this.  On the one side, deviation from the norm might be a problem; on the other side, it might indicate honest health-care service providers who are working as hard as possible serving a disadvantaged market.   In that latter case, an audit based on nothing other than data mining, simply burdens the health care system, and cuts off deserving patients from the health care they are entitled to.   This is a non-incentive for the  hard workers in the health care space.

The use of big data mining to control health care costs is the world’s greatest pressure towards average performance, that it, towards mediocrity.

The use of big data mining should be abolished, or at a minimum big data mining and the issue of presumption of guilt should be investigated.