All of Washington, D.C., as well as the rest of the country, has been binging on the third season of the wildly popular Netflix original series “House of Cards,” the sordid tale of Washington politicians who will stop at nothing to bend the power structure to their will in order to gain power, prestige, and money. While the program is a dark fictional fantasy, some of its recurring themes of political gimmickry, backroom deals, and public pronouncements that bear no resemblance to what is happening behind the scenes might resonate with those watching how Congress and the Center for Medicare and Medicaid Services (CMS) are undermining a highly successful anti-government waste tool, the Recovery Audit Contractor program (RAC).     

On March 4, 2015, U.S. Comptroller General Gene L. Dodaro testified before the Senate Budget Committee on the Government Accountability Office’s (GAO) report on “Opportunities to Reduce Fragmentation, Overlap, Duplication, and Improper Payments and Achieve Other Financial Benefits,” which updated taxpayers on the progress (or lack thereof) in addressing more than 440 GAO recommended actions, both executive and congressional, to cut waste in government spending programs and implement efficiencies in government services, across 180 areas of concern that GAO has identified in past annual reports on overlap and duplication.  The report noted that “For the first time in recent years, the government-wide improper payment estimate significantly increased—to $124.7 billion in fiscal year 2014, up from $105.8 billion in fiscal year 2013. This increase of almost $19 billion was primarily due to estimates for Medicare, Medicaid, and the Earned Income Tax Credit, which account for over 76 percent of the government-wide estimate.” 

In fiscal year (FY) 2014, Medicare’s fee-for-service program had an improper payment rate of 12.7 percent, a 50 percent increase over the 8.5 percent rate in FY 2012, which translates into $60 billion in losses.  For durable medical equipment, the error rate was an astronomical 53 percent.     

GAO faulted CMS for failing to make good use of the anti-waste tools the agency has at hand, including the RAC program, which has been under suspension for the last 18 months. 

After a successful demonstration program between FY 2005 and 2008, the RAC program became law and went fully operational nationwide in January, 2010.  CMS was given the authority to contract with one RAC for each of CMS’s four regions and one just to review durable medical equipment, DME, and home healthcare claims in order to identify Medicare improper payments, and recover any overpayments to replenish the Medicare Trust Fund. 

Contractors are paid on a contingency basis from the recoveries and CMS also takes a cut to assist with overhead and provider education activities.  Between 2010 and 2014, the RAC program has returned $9.7 billion to the Medicare Trust Fund, even though RAC contractors are limited by law to reviewing only 2 percent of providers’ claims at one time.  RACs are under CMS’ direct supervision and can only review claims after the agency has identified specific areas vulnerable to improper payments and given them a green light. 

In the short period in which RACs have been operational, the provider community has become increasingly hostile to the program, particularly hospitals, since they are responsible for 94  percent of the claims that CMS has found to be worthy of increased scrutiny.  The American Hospital Association, as well as state hospital associations, have made destroying the RAC program one of their top priorities, claiming that RACs’ demands for documents are an undue burden, that the RACs’ decisions are error-ridden, and that hospitals often win on appeal.  In fact, RAC decisions are overturned at the final level of appeal only 7 percent of the time and CMS reported that RAC auditors had an average 96 percent accuracy rating in 2014. 

In October, 2013 CMS told the auditors to stop post-payment audits related to hospital stays.  But that wasn’t all the CMS did.  Since all of the RAC contractors were approaching their annual contract renewal dates and sensitive negotiations were ongoing, CMS thought it made sense to suspend the whole program instead of just the post-payment audits, even though federal law would have permitted RACs to continue reviewing error-ridden claims going back five years.  CMS also claimed to want to retool the rules governing inpatient hospital stays to address hospitals’ concerns.  Subsequent to that executive branch action, the leadership in the House of Representatives, making use of some peculiar and anonymous legislative gimmickry, slapped another year onto the CMS suspension with no explanation.    

During the interregnum, the hospitals have continued to push through inpatient hospital claims and those claims have not been subject to RAC oversight or recovery of overpayments to the Medicare Trust Fund.  If past is prologue, a significant number of the hospital claims being pushed through the system now would have been found to be improper.  The latest CMS figures indicate that RACs only recovered $48 million in the first quarter of FY 2015, a dramatic drop from the time when the program was returning about $1 billion per quarter.  With RACs sidelined, taxpayers are being shafted and the Medicare Trust Fund is losing money it will likely never get back.          

In advance of granting new RAC contracts, CMS has also made changes to the program, which, while appeasing specious hospitals allegations that RACs pose too onerous a burden on them, will also make it more difficult for RACs to fulfill their statutory mission to identify and retrieve erroneous overpayments on behalf of the Medicare program and taxpayers. 

Yet, even with CMS’s regulatory mollification, hospitals are still dissatisfied, proclaiming that “Financial incentives drive RACs to make inappropriate denials of claims. Change won't come until RACs face financial penalties for poor performance.”  With these statements, the hospitals overplay their hand.  While Medicare providers do operate under the inefficient and bureaucratic Medicare FFS compliance regime, with a dizzying array of post-payment review schemes, the only post-payment auditors that hospitals have targeted for demolition are those that can truly prevent waste, fraud, and abuse and return billions in overpayments. 

The RAC suspension, if left intact or lengthened, will lead to a dramatic diminishment of the Medicare’s most successful and effective anti-waste auditing tool.  In truth, until Congress enacted the statute that established the RAC program, CMS data indicated that hospitals that had incentives to submit inappropriate claims and retain Medicare overpayments, with no fiscal consequences.  If anything, Congress should consider instituting financial penalties on hospitals and other providers who consistently submit error-ridden claims.  Without RACs, Medicare improper payments will continue to grow, ushering in more wasteful spending, and worse, fraud. 

On March 7, 2015 it was reported that Sen. Bob Menendez (D-N.J.) is slated to be indicted on federal corruption charges related to two incidents in which he allegedly “improperly tried to persuade Medicare officials … to change reimbursement policies in a way that would make millions of dollars for Dr. Melgen, one of the country’s biggest recipients of Medicare funds.”  Dr. Salomon Melgen, a Florida ophthalmologist, was a Menendez friend and donor.  Another report on the impending indictment indicate that prosecutors are looking at allegations that Sen. Menendez and his staff pressured Secretary of Health and Human Services Kathleen Sebelius and former CMS Administrator Marilyn Tavenner to have CMS drop charges against the physician for overbilling Medicare for $9 million. 

And Representative Sheila Jackson Lee (D-Texas) was also reported to have intervened with Tavenner on behalf of a Houston hospital alleged to have overbilled Medicare for services never provided.  After conferring with Jackson Lee, Tavenner directed her subordinates to restore overpayments to the hospital, even though it was under an active investigation.  According to a December 11, 2014 Wall Street Journal report, “About two months after that order, Riverside’s top executive was indicted in a $158 million fraud scheme. The hospital was barred from Medicare this May, and the CEO was convicted in October.”  What happened to the overpayments is anyone’s guess.

Even the writers of “House of Cards” would be hard-pressed to match fiction with this wasteful reality.  Members of Congress who publicly preen about their fiscally-conservative credentials and deep commitment to eradicating wasteful spending are standing by while the RAC program becomes a casualty of special interests run amok.  If politicians in Washington, D.C. had deliberately set out to make the Medicare program more vulnerable to waste, fraud, and abuse, they couldn’t do a better job than they are doing right now by allowing the program to die on the vine.  The machinations in Congress, as well as within CMS, to destroy the RAC program would make even Frank and Claire Underwood blush.