WASHINGTON (AP) – In coming weeks, private audit companies will begin scouring mountains of medical records. Their mission: Determine if health care providers erred when billing Medicare and require them to return any overpayments to the federal government. The auditors will keep a tidy percentage for their services.

The contractors have shown they’re pretty good at their work. In just three years, they’ve returned more than $300 million to the federal government – and that’s just from three states. That experiment is winding down. But a larger, national program will soon take its place.

The rollout of “recovery audit contractors” will be gradual. They’ll monitor health care providers in 19 states beginning this spring. In October, an additional five states will join.

Health care providers are nearly unanimous in their dislike of the program’s continuation, much less its expansion. Many lawmakers have similar sentiments, though it was Congress in 2006 that made the program permanent. A bill sponsored by Rep. Lois Capps, D-Calif., calls for a one-year moratorium.

The program’s critics say that contractors have too much incentive to question as many claims as possible. That’s because they get to keep about 20 percent of the overpayments.

“What we have here is bureaucrats and government contractors coming in and trying to second guess what doctors and nurses have done in a hospital setting,” said Don May, vice president for policy at the American Hospital Association. “They’re playing Monday morning quarterback.”

While the contractors are often described as overzealous, that’s a compliment as far as one watchdog group is concerned.

“A little zealotry is what were looking for on the part of the taxpayers,” said Leslie Paige, spokeswoman for Citizens Against Government Waste. “We think it’s about time.”

The government will spend about $430 billion this year on Medicare, which provides health coverage to 44 million elderly and disabled people. The sheer size of the program, with more than 1.2 billion claims filed each year, not only makes it ripe for fraud but for mistakes. The Office of Management and Budget estimates that payment errors total about $10.8 billion a year.

To put the number of Medicare claims in perspective, that’s 4.5 million claims each work day and 9,579 claims per minute. Rarely does the government and its contractors give those claims a detailed review. The agency has contractors that process claims. It also has an inspector general. But, now, auditors will routinely review patient’s medical records as well as the claim.

It’s the contractors’ job to find both overpayments – and underpayments. Besides returning overpayments to the government, they return underpayments to health care providers. So far, they’ve returned $20 million, mostly to hospitals.

A report from the Centers for Medicare and Medicaid Services shows that contractors reviewed about 930 million claims in Florida, California and New York during the program’s first 2 1/2 years. They identified errors in less than 0.2 percent of the claims reviewed.

Among the errors: A hospital billed Medicare for conducting multiple colonoscopies on the same patient on the same day. In another instance, a provider billed for one type of diagnosis, respiratory failure, but a look at the medical record indicated another principal diagnosis, sepsis, which is a potentially deadly infection.

Hospitals appealed in about 11 percent of the overpayment cases. Only 5 percent were fully or partially overturned.

Those statistics tell Medicare officials that the program is working.

“We’ve had substantial recoveries,” said Kerry Weems, the acting administrator for the Centers for Medicare and Medicaid Services. “And if you look at the rate at which our decisions are overturned, that rate is pretty low.”

Health care providers say the CMS statistics are misleading. Many appeals have not been completed. Also, many providers won’t appeal because of the amount of money and time it takes.

“It costs at least $2,000 to run an appeal all the way through the process,” May said.

When providers overcharge the government, they also have to refund any overcharged copayments or deductibles to the patient. If providers need more time to repay the government, they can apply for a repayment plan. If a provider just refuses to pay, the Medicare contractor processing their claims will deduct from future payments until the debt is paid.

Hospital officials said the repayments make the job of providing care more challenging and have the potential to force them to reduce services or charge customers more to make up the expense.

CMS said it also has safeguards in place to ensure that patient information is handled securely. Providers, when they sign up for Medicare, also agree to make any necessary information available to the agency or its contractors.

One of the hospitals targeted by the Recovery Audit Program was the Rehabilitation Institute at Santa Barbara, Calif. The center treated patients who needed extensive therapy because they suffered a stroke, brain injury or other serious injury.

According to the institute’s CEO, the private auditor for California, PRG-Schultz International, reviewed medical records for about 314 patients. In all but a handful of cases, the contractor determined the patient failed to meet Medicare’s criteria for admission into an inpatient rehabilitation facility.

With a $2.9 million IOU to the government hanging over its head, the 50-year-old rehab hospital hurried up its search for a partner or buyer. It decided that selling its assets to a local hospital was the best way to ensure its services to the Santa Barbara community would continue.

Meanwhile, the facility appealed and thus far has won all the cases that have been completed, said Melinda Staveley, the hospital’s CEO at the time.

After hearing complaints from the California congressional delegation, Weems ordered PRG-Schultz to stop reviewing certain claims made by rehab facilities such as the one in Santa Barbara. It was clear that the auditor as well as contractors who heard the appeals had not consistently applied Medicare’s payment policies, he said.

One person intimately familiar with the rehab center is the congresswoman now calling for a moratorium of the audit program. Capps’ late husband, Walter, was treated there after a car wreck. Her husband was a member of the House, his term cut short by a fatal heart attack in October 1997.

Capps, a nurse, said the hospital was “essentially driven out of business by this government program run amok.”

She is concerned that legitimate Medicare bills are being denied for reasons that aren’t being well communicated to the providers.

Weems said he has tried to address many of the concerns. When the program goes national, all contractors must have a medical director on staff. The agency also is limiting how far back auditors can look when reviewing patient records. The limit will be three years, but under no circumstances, before Oct. 1, 2007.

Finally, the agency is working on regulations that would defer repayment until after the appeals process is completed. Currently, the money is taken back regardless of the appeal status, which providers say is a financial burden and akin to guilty until proven innocent.

But what gets health care providers most upset is when auditors determined a procedure or hospital admission was not medically necessary.

May said that there’s a “lot of gray area” when it comes to whether a patients needs to be admitted to a hospital or rehab facility. Often the patients have diabetes or other complicating factors that prompt a physician to want closer monitoring.

“You need a physician looking at these daily if not more so to make sure the patients are being managed effectively,” May said.

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On the Net:

Centers for Medicare and Medicaid Services report: http://www.cms.hhs.gov/RAC/

American Hospital Association: http://www.aha.org

AP-ES-03-01-08 0349EST