Time: May. 8 (Mon.), 13:30 – 15:00(Beijing Time)

Title:  Dynamic Enforcement Decisions of Audit Contractors: Evidence from Medicare

Venue: Zengxianzi Science Building 406

About the speaker:

Dr. Lin joined the Rensselaer faculty as an Assistant Professor of Economics in Fall 2017. Her research interests include topics in Health Economics, Industrial Organization, and Applied Econometrics.  She currently focuses on topics related to health information technology (IT) adoption, how health IT impacts hospital financial and quality performance, and how the policy reforms affect healthcare providers coding behavior.

Abstract:

We propose a dynamic model to explain enforcement practices by recovery audit contractors (RACs) charged with detecting over-payments to providers in the Medicare program. These contractors are compensated using a contingency rate, in proportion to the money they recover through audits they conduct in their exclusive geographic jurisdictions on reimbursement claim submitted by providers. Because of this compensation structure, these audit contractors have an incentive to encourage provider upcoding and resulting over-payment in some periods so as to maximize their opportunities for detection of such over-payments and therefore their own profit in the future. In addition, these providers often have time-limited contracts. This leads to non-stationary behavior with the RACs becoming more aggressive in their auditing practices as they approach the expiration of their contracts. We develop a simple model to characterize the decision-making of RACs and then provide empirical evidence consistent with the model's predictions using audit data and exploiting a difference-in-difference design that arises from contract expiration for one of the auditors. Our findings provide insights into the optimal design of RAC contracts and on the amount of excess upcoding that results from less-than-optimal audit contracts, with important fiscal implications for Medicare.