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The Federal Office of Medicare Hearings and Appeals (OMHA) was established in July 2005 to administer the Medicare appeals program. OMHA adjudicates appeals regarding Medicare entitlement and Medicare provider reimbursement. OMHA assigns appeals to one of 65 Administrative Law Judges (ALJs). Beneficiaries and providers file thousands of appeals every month, many of which are under statutory or regulatory timelines for action.

In July 2013, OMHA “temporarily suspended the assignment of most new requests” for an ALJ hearing so as to allow OMHA to address a backlog of claims. However, OMHA did not provide a public notice of the moratorium until five months later.

Justification for Moratorium

In a December 24, 2013 memo posted on its website, OMHA acknowledged the moratorium and asserted that it was necessary based on a dramatic growth in OMHA’s workload, including:

A two year workload increase of 184%;

A backlog of appeals that has grown 500% in the past two years; and

The fact that in January 2012, OMHA received approximately 1250 appeals per week, but by December 2013 it was receiving over 15,000 per appeals week.

OMHA has faced this increased workload with no additional resources and, in fact, the sequestration diminished its resources. In its December memo, OMHA did not address the causes of the workload increase, but others have not hesitated to point the finger at the Recovery Auditor Contracting (RAC) program.

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Hospitals have seen a 30-fold increase in RAC denials since 2010;

The average number of hospital appeals of RAC denials per year has increased from approximately 17 per year in 2010 to more than 300 per year in 2013; and

Hospitals have won nearly 70% of RAC appeals that have been completed.

RACS is the basically the government changing the criteria for reimbursement to hospitals. They have gone back 3-4 years on records and have stolen money from hospitals. Auditors go through the records and say hey "this doesn't meet the new criteria so we are taking $4,500 here from charges you made on this patient" etc.

The worst parts about these audits is that hospitals have to spend time and money preparing for fight against these auditors. Plus, 4 RAC companies collected more than $2 billion from hospitals during the last two fiscal years.

A survey of hospitals found that 40 percent of claims denials were appealed, and hospitals prevailed 72 percent of the time.
Hospital leaders say complying with RAC documentation requests and appealing denials require an enormous investment of staff, time and money.

Small and rural hospitals are especially challenged to deal with the demands of the RAC program. Critics say RACs are incentivized in a way that encourages them to find alleged overpayments quickly but underpayments too slowly.

Proposed legislation would impose more oversight on the RAC program.

Nearly three years after the nationwide rollout of a controversial federal demonstration program that incentivizes private contractors to audit hospital billings on a contingency fee basis, the data are in. Many hospitals are fighting back and regaining ground, while others are losing millions of dollars.
But even hospitals that have successfully challenged the Recovery Audit Contractors program agree it is flawed, unfair and costly.

In 2010, the Centers for Medicare & Medicaid Services expanded the Recovery Audit Program from the three states where it was piloted. The auditors are charged with recovering Medicare reimbursements improperly paid due to error. Many hospitals were caught off guard. The four RACs, which were awarded contracts in different regions of the United States, collected $75 million that first year, a figure that rose to $141 million in 2011 and has exceeded $2 billion in each subsequent year.

All that money didn't go back into federal coffers.
Of the $2.33 billion that RACs collected in overpayments and underpayments in fiscal year 2013 through June 30, more than $200 million went to the auditors thanks to the contingency fees they charge, which range from 9.5 to 12 percent.