By Terry Baynes

Feb 19 (Reuters) - A U.S. government-sponsored audit program that forces healthcare providers to return improper Medicaid payments doubled its recoveries in fiscal 2012 over the prior year, according to the Centers for Medicare and Medicaid Services.

The Recovery Audit Program, which uses private contractors to scour Medicare records and identify suspect payments, recouped close to $2.3 billion in fiscal 2012, a spokeswoman for the Centers for Medicare and Medicaid Services told Reuters. That figure is up from $797 million in 2011, the first year the program was fully operational, according to agency reports.

The audit program seeks to identify coding errors, payments for services that were not medically necessary, payments that lack sufficient supporting documentation and other lapses. Once a suspect payment is discovered, the government is able to reclaim what it paid for those services and pays the auditors a commission on the collections.

The escalating recoveries reflect increased activity on the part of the four private contractors that conduct the audits: Performant Recovery in Livermore, California; CGI Federal Inc in Fairfax, Virginia; Connolly Inc in Atlanta; and HealthDataInsights Inc Las Vegas. In 2011, the auditors collected on 827,000 claims for overpayments, up from 185,000 in 2010, according to annual reports issued by the Centers for Medicare and Medicaid.

The audit program has drawn harsh criticism from hospitals and their lawyers who accuse the private auditors of being overly zealous in their efforts to recover money for the government and of being motivated by the commissions they earn.

In 2011, when the Centers for Medicare and Medicaid Services collected $797 million from the audit program, it paid the contractors a total of $82 million, according to a report the agency submitted to Congress on Feb. 5 for fiscal 2011.

"The increase (in recoveries) demonstrates what's happening out there. They're getting much more aggressive," said Joe Whatley of plaintiffs' firm Whatley Kallas, who represents providers in cases challenging the auditors' claims of overpayment. The auditors "have every incentive to go out there and make demands for as much money as possible."

DECISION DISPUTES

A spokeswoman for Performant Recovery declined to comment and referred inquiries to the Centers for Medicare and Medicaid Services. Spokeswomen for the other three auditing companies did not respond to requests for comment.

A spokeswoman for the Centers for Medicare and Medicaid said in an email that the agency has sought to work closely with healthcare providers and that it issues quarterly newsletters providing information about the types of problems the auditors find and suggestions for avoiding those pitfalls.

The contractors regularly meet with hospital associations to gauge their impact on providers, according to the agency.

The audit program has sparked at least one lawsuit asserting that the government is seeking to shirk its obligation to reimburse providers for medically necessary care.

In the suit, filed last year in U.S. District Court in Washington against the U.S. Department of Health and Human Services, the American Hospital Association is challenging the auditors' practice of disputing decisions by doctors to treat patients in the hospital instead of on an outpatient basis. In the case when an auditor overrides a doctor's decision, the government reclaims what it paid for the inpatient services. The auditing companies are not named in the lawsuit.

The hospital association contends that even if a patient could have been treated in an outpatient setting, the government still has to reimburse the provider for medically necessary care.

In the report the Centers for Medicare and Medicaid submitted to Congress on Feb. 5, the agency noted that 2011 was the first year the auditors actively reviewed short-stay inpatient admission issues. Those admissions represented a large portion of the overpayments the government collected in 2011, the report said.

After auditors' fees, expenses and appeals were deducted from the total recovery, the Centers for Medicare and Medicaid Services returned $488 million to the Medicare Trust Fund for 2011, the report said.

In addition to the overpayments, the auditors also identified $142 million in underpayments that were repaid to providers and suppliers in 2011, according to the report.

The Centers for Medicare and Medicaid has not yet submitted its full, official report for 2012.

Follow us on Twitter @ReutersLegal | Like us on Facebook