Opinion

The Medicare Recovery Audit Program Works For Taxpayers

Andrew F. Quinlan President, Center for Freedom and Prosperity
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Among the vast multitude of federal government programs, a rare few have as their mission the protection of the general taxpayer interest. Those that do are typically beset by special interests and the beneficiaries of government largess. An example is the Recovery Audit Program, which identifies and recovers improper Medicare payments, but is now under siege from the hospital industry.

The Recovery Audit Program has proven valuable in its few years of operation. Since its implementation in 2010, the program has returned over $9.7 billion to the Medicare Trust Fund, and led to a reduction in improper payments from 10.8 percent in fiscal year 2009 to 8.5 percent in 2012. In 2013 alone it recovered $3 billion. Unfortunately, after the program was hamstrung and certain audits suspended in October 2013, improper payments returned to 12.7 percent by fiscal year 2014.

The program works by contracting with companies that are paid to find waste and abuse in Medicare payments. Contractors employ medical professionals to review claims and ensure they are billed according to Medicare policy, and can collect up to 12.5 percent of the monies recovered. This provides a strong incentive to advance the taxpayer interest and find improper payments.

Given its success to date the program ought to be expanded if anything, but it has been the target of constant attacks from the hospital industry. Given that most improper payments are recovered directly from the providers that received them, it’s no surprise that they spent $20 million lobbying Congress in 2014 alone in an aggressive effort to tame the program.

Rules exist to protect hospitals from unfair targeting or excessive scrutiny. No more than 2 percent of a single provider’s claims can be reviewed. Among those that are reviewed and determined to be improper, an appeals process allows providers to dispute claims while keeping those payments until the process has concluded.

Nevertheless, hospital lobbyists argue that recovery auditors are incentivized to carelessly flag payments as improper. They want auditors to also be fined for errors as added motivation, but there’s no evidence that is necessary.

Auditors already are unable to collect a fee if a determination is overturned on appeal, meaning they must absorb the costs of the time and resources wasted on incorrect determinations, which for a profit-making enterprise is incentive enough to minimize errors as much as possible. The evidence suggests they do just that, with the independent validators who regularly oversee the auditors reporting accuracy rates of roughly 95 percent.

It’s rather ironic that they are arguing that recovery auditors are poorly incentivized while hospitals get fat from a system that encourages the bilking of taxpayers rather than provision of top notch care. Absent broad reforms of Medicare and the health care system in general, however, that incentive is not going to change. The least that can be done for taxpayers is to ensure that providers are not benefiting from improper and unnecessary payments.

The Government Accounting Office recently estimated that fiscal year 2014 saw an estimated $60 billion in improper payments. That’s over $1,000 for every Medicare beneficiary. The Recovery Audit Program doesn’t promise to recover all those funds, but it can mitigate the waste. Medicare spent $7.1 billion more than it received in income in 2013 according to the Medicare Trustees, making the billions found by auditors all the more crucial. If nothing else, ending wasteful and improper payments can make the hard task of reforming and returning Medicare to solvency a little less daunting.