RAC Audits and Medical Billing Errors & Omissions Liability Insurance

If you’re not concerned about the possibility of your practice being RAC audited, you should be. And if you don’t currently carry Medical Billing Errors & Omissions Liability Insurance, now is the time to consider it.

Established through the Medicare Modernization Act of 2003, the Recovery Audit Contractor (RAC) program was designed to remove waste from the Medicare system by identifying and recovering improper payments paid to healthcare providers by the federal government. Improper payments include incorrect payment amounts, non-covered services (including services considered not reasonable or necessary), incorrectly coded services and duplicate services. During the last decade, the RAC program has been very successful in reclaiming money through retrospective reviews of fee-for-service claims, a process known as “claw back.”

Imbued with new powers under the Patient Protection & Affordable Care Act (PPACA) of 2010, the Centers for Medicare & Medicaid Services has expanded the use of recovery audit contractors, adopting new tools to curb fraud and abuse in both the Medicare and Medicaid programs. The federal government expects to devote about $500 billion less to Medicare over the course of the next 10 years due to anticipated savings from these audits.

Medicare audits were initially intended as focused oversight where only “red flag” practices were investigated. The auditors were employees of the Centers for Medicare & Medicaid Services, and the audit division had a limited budget to work within. Today’s RAC Audits are being conducted by outside medical collection agencies as well as independent contractors. These agencies and contractors are compensated on a contingency basis, keeping 9 to 12.5 percent of the overpayments identified and recouped, infusing the process with a “bounty-hunter” mentality and a more aggressive approach from the auditors. Medicare audits are also no longer a one-and-done inconvenience, as they are now intended to be an ongoing, year-round process. In effect, PPACA has created new risks—as well as widened previous ones—for false claims liability when auditors identify overpayments.

When a physician or practice is determined to be in noncompliance with clinical payment criteria as well as documentation and/or billing requirements, the penalties can be significant. The Centers for Medicare & Medicaid Services can dictate civil fines of up to $11,000 per error, impose treble damages, exclude your practice from Medicare/Medicaid and even recommend criminal penalties that include fines and imprisonment. Healthcare providers found to be out-of-step with medical necessity reviews face a complex appeals process and the automatic recoupment of Medicare/Medicaid funds. The typical cost to appeal the findings of a RAC audit begins around $50,000.

Because of the unique nature of medical billing errors and omission risks, forward-thinking practice managers will want to work with an insurance agent with experience in the healthcare sector. While different Medical Billing Errors & Omissions Liability Insurance policies will carry different limits and vary slightly, they should all include the following:

• Coverage for defense costs, fines and penalties arising out of HIPAA, EMTALA and STARK violations as well as extend to allegations made by governmental agencies, contractors working on behalf of the government and commercial payors.

• Coverage for a broad definition of loss, including punitive and exemplary damages, settlements and statutory attorney fees

• Cover prior-acts

• A “Duty to Defend” provision