Medicare's Bounty Hunters Turn Their Sights to Fraud

(MoneyWatch)  As the Obama Administration very publicly cracks down on Medicare fraud, the program's federal overseer has a bright new idea: Sic its bounty hunters on alleged fraud as well.

Wait a second -- Medicare has bounty hunters? Indeed it does. Known as "recovery audit contractors," or RACs, these are private companies hired to identify "improper payments" by Medicare to doctors and hospitals. RACs keep 9 to 12 percent of whatever they recover for the government, and they're pretty good at their job. During a three-year pilot in just six states, they recovered more than $1 billion, mostly from deep-pocketed hospitals.

In the RAC context, the term "improper payments" doesn't necessarily connote fraud. Honest billing errors, poor documentation, or even the lack of a doctor's signature on a visit note could prompt Medicare or a RAC to claim that a provider had been overpaid and to demand reimbursement. Providers accused of fraud, by contrast, are suspected of intentionally overbilling the government. If convicted, they not only have to return the money but could be subject to severe penalties, including jail time for the worst offenses.

RACs are supposed to alert the appropriate authorities when they encounter fraud. Up to now, though, they've had no incentive to do so, because they don't get a dime for turning someone in. In fact, because Medicare forbids RACs to continue reviewing billings from hospitals or doctors suspected of fraud, the bounty hunters can actually take a financial hit for making fraud allegations.

Unsurprisingly, the RACs referred only two cases of suspected Medicare fraud during the pilot period from 2005 to 2008, according to a new report by the inspector general of the Department of Health and Human Services. In fact, Medicare said it wasn't even aware of those two cases until the OIG pointed them out.

That financial disincentive isn't going to change -- at least not right away. But Medicare does plan to formally train RACs on fraud detection and where to refer fraud cases, in apparent hope that enough high-level attention -- from the White House on down -- to the issue will get results from its easily replaceable contractors. And if so, you can expect a lot more doctors and hospitals to come under the microscope, and to complain about it. Loudly.

Previously on BNET Healthcare:

• HHS Office Will Be Funded Partly By The HIPAA Fines It Levies