A Good First Step: CMS Grudgingly Follows the Law

After three years of delays, the Centers for Medicare & Medicaid Services (CMS) finally awarded new contracts to three companies to audit tens of billions of dollars in hospital billings rife with waste, fraud and abuse.

Clearly, the agency is not a huge fan of the program, having long-ago sided with hospitals that count on over-billing Medicare as part of their business plan. Economists describe this as “regulatory capture,” when agencies become so cozy with the the people they regulate they start to work for them, not for us.

For those unfamiliar with Recovery Audit Contractors (RACs), they’re like bounty hunters, but for government waste. Established as a pilot study during the Bush years, the program pays private companies a portion of any fraud or improper billings they help the government recover.

RACs have been an astonishing success story, recovering over $10 billion in just a few years. It’s like an oasis of fiscal sanity in the desert of government squander — and makes you wonder how much they could find if they were allowed examine everything Uncle Sam spends.

Of course, that money did not magically appear out of thin air. The government had previously paid it — illegally — to someone, and it was taken away from them.

That someone did not appreciate having 10 billion fewer dollars.

Over-billing Medicare is actually big business. Hospitals employ sophisticated and often legally dubious strategies to use billing codes that result in the highest payoffs.

We are talking about a serious amount of money: the Government Accountability Office estimated the government improperly paid $136.7 billion in 2015, more than the cost of the 1991 Persian Gulf War.

All that money helps pay for one of K Street’s most fearsome lobbying operations. In 2010, the industry put its weight, and its dollars, behind passing Obamacare. Ever since then, they’ve gotten one sweetheart deal after another from Obama’s aides.

To give you a sense of how brazen the hospitals have become, here’s how the industry’s spokeswoman reacted to the announcement that CMS would grudgingly follow the laws passed by Congress and implement the RAC program.

“Barring a full-scale reform of the flawed contingency-fee payment structure that incentivizes RACs to deny claims, we foresee continued behavior by the RACs that have imposed an administrative and financial burden on hospitals and led to the overwhelming backlog the Medicare appeals system is buckling under today,” Melissa Myers, senior associate director of policy at the American Hospital Association, told Bloomberg BNA.

Got that? The problem is, paying someone to identify illegal payments “incentivizes” them to find illegal payments. Well, I should bloody well hope so!

Reminder: the the government admits it wastes annually the equivalent of filling an Olympic swimming pool full of money and lighting it on fire — every six days for a year! So, you’re just going to have to deal with the “administrative and financial burdens” of being audited.

Moreover, CMS has done everything it can to undermine the RAC program. For example, the announcement it was finally issuing new contracts, which occurred largely thanks to the heroic efforts of Sen. Orrin Hatch (R-UT) and Reps. Kevin Brady (R-TX) and Pat Tiberi (R-OH) behind the scenes, included some rather interesting caveats.

First, the agency reduced the “statute of limitations” for finding fraudulent billings from three years to six months: any payments older than six months are now immune from audit.

Second, CMS lengthened the time between when funds are recovered by the government and when the RACs get paid from 45 days to what in practice will typically be around one year.

If you’re following the score at home, that means the window during which the RACs can review payments for fraud is shorter than the time they’ll have to wait to get paid for saving taxpayers billions of dollars.

CMS really needs to examine its priorities. Issuing new contracts is a good first step, but the agency should stop putting roadblocks in front of what is the most successful effort to curtail government waste in our lifetimes.