Hospitals Need Action Plans for RAC Preparedness and Response

The sobering results of the three-year Medicare Recovery Audit Contractor (RAC) demonstration program – more than $900 million in overpayments recovered and nearly $38 million in underpayments returned to health care providers – should have caused hospitals to begin scrutinizing their Medicare fee-for-service coding, documentation and billing processes and to establish an internal RAC team to prepare for and respond to RAC audits.¹

However, even with a delayed phase-in date for the permanent, national RAC program, many hospitals and other providers either are scrambling to pull together a RAC implementation strategy or are waiting to see whether the demands of a RAC audit will truly warrant a formal action plan. Both of these approaches put thousands of reimbursement dollars at risk, according to Laurie Johnson, HIM services director, Ingenix Consulting. “This program is not going away,” she said. “If I were a hospital serving a large Medicare population, I’d pay attention.”

Indeed, 85 percent of the overpayments RACs recovered during the demonstration program – which was conducted between March 2005 and March 2008 in six states – were from inpatient hospitals. The majority of overpayments from inpatient hospital providers were for medically unnecessary services, incorrectly coded records, lack of or insufficient documentation, or wrong setting.

“What we learned from the RAC demonstration program was that we believe inpatient hospitals are ripe for RAC recovery, and that medical necessity was a particular problem area for this type of facility,” Johnson said. “Hospitals may try to operate under the radar for a while, but they need to be proactive about RAC preparedness to avoid possible financial exposure.”

RAC program evolution

Understanding the RAC program’s history and where the program stands today can provide some insight into how it may affect hospitals and how they conduct business.

Section 306 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) required the Centers for Medicare & Medicaid Services (CMS) to conduct a demonstration project using RACs to identify underpayments and overpayments and recoup overpayments under the Medicare fee-for-service program.² The demonstration program covered the states of California, Florida, New York, Arizona, Massachusetts and South Carolina.

In December 2006, during the demonstration program, Section 302 of the Tax Relief and Health Care Act of 2006 (TRHCA) required the Department of Health and Human Services (DHHS) to establish a permanent RAC program nationwide by Jan. 1, 2010. To that end, in October 2008, CMS announced the permanent RACs and their jurisdictions, as follows:

• Diversified Collection Services Inc. of Livermore, CA, in Region A, initially working in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and New York.
• CGI Technologies and Solutions Inc. of Fairfax, VA, in Region B, initially working in Michigan, Indiana and Minnesota.
• Connolly Consulting Associates Inc. of Wilton, CT, in Region C, initially working in South Carolina, Florida, Colorado and New Mexico.³
• HealthDataInsights Inc. of Las Vegas, NV, in Region D, initially working in Montana, Wyoming, North Dakota, South Dakota, Utah and Arizona.

Subcontractors PRG-Schultz Inc. (regions A, B and D) and Viant Payment Systems Inc. (region C) will supplement the four contractor efforts.⁴

A stop-work order that delayed the first phase-in date of Oct. 1, 2008, was issued last fall in response to a protest regarding the RAC contract bidding process. CMS settled that matter Feb. 4 and is engaged in a gradual expansion to all 50 states, with two groups of states phased in by March 1 and the third group being phased in by Aug. 1 or later (states migrating to Medicare Administrative Contractors (MACs) have an additional grace period).⁵

As a result of demonstration program experiences, CMS made the following changes to the permanent program:

• New issues a RAC pursues must be validated by CMS or an independent RAC Validation Contractor
• Each new RAC must hire a physician medical director and certified coders
• RACs must pay back any contingency fee when an improper payment determination is overturned at any level of appeal
• The look-back period is limited to three years instead of four years, and the maximum look-back date is Oct. 1, 2007
• A Web-based application to allow providers to look up the status of medical record reviews must be established.

“CMS is confident that these changes will help contribute to an even more successful RAC permanent program,” a June 2008 CMS report on the demonstration program states.

Challenges of RAC program implementation

With the permanent RAC program now underway, hospitals should not wait to address revenue cycle glitches that could lead to RAC recoveries, said Ingenix Product Manager Carol Endahl. “The RAC program is very simple in its concept, but it has proved to be challenging for hospitals because it affects everyone in the revenue cycle,” Endahl said.

Implementing procedures and processes is further complicated by the fact that some people involved in the coding process – e.g., doctors who may not be providing adequate documentation to support diagnoses codes – often are not hospital employees. Additionally, hospitals that were not part of the demonstration program are unlikely to understand the full burden that a RAC audit might impose, such as requests for up to 200 records per NPI every 45 days.

Hospitals also need to be mindful of the possible financial impact that a coding problem on just one procedure could have under the RAC program, Johnson explained. For example, an auditor might identify a coding problem with percutaneous transcatheter uterine artery embolization procedures performed in radiology, where the procedure is coded as 39.79 instead of 99.29, she said.

“The impact of the incorrect code would trigger an incorrect MS-DRG, and may result in a potential repayment of nearly $12,000 per case,” she noted. Even claims with smaller dollar figures can be problematic if an issue affects a large volume of claims, Endahl added. “The smaller dollar figures could add up to big money if the RAC is able to extrapolate the findings of a sample to the whole population. This process could result in higher paybacks to Medicare,” she said.

During the RAC Summit on March 5, the RACs discussed their intention to compare hospital and physician claims. For example, for a patient who was an inpatient but should have been an observation patient or an outpatient, the RACs also would look at the physician claim and the Evaluation and Management code submitted and adjust the payment level for those accordingly. The introduction of the MAC promotes this type of review. RAC representatives also stated that all types of providers will be pursued as part of a RAC issue review, but noted that their automated reviews initially will target the more black-and-white issues.

RAC to-do list

In today’s economy, Johnson asserted, hospitals literally cannot afford to be unprepared for RAC audits. “RAC findings may significantly impact hospital cash flow, which is a huge concern as hospital budgets get tighter and tighter. Problems with RAC reviews may immediately affect their bottom line.”

To set their RAC preparedness plans in motion, each hospital needs to develop strategies for fulfilling RAC requests, tracking and trending RAC results, monitoring facility response and appeals, and managing medical staff relationships, according to Johnson. Initial action steps should include establishing a RAC task force and identifying a RAC coordinator, developing education programs on RAC processes and targets, performing data mining to identify facility issues, developing a RAC response process and creating appeal templates and devising a system for monitoring RAC results.

After those elements are in place, hospitals need to drill down further into specific tasks that will forward their RAC goals and reduce stress for the facility, such as transitioning medical documentation to electronic/scanned medical records, developing a matrix for all areas under the hospital provider number that generate medical documentation, and reviewing frequent rejections or denials to identify problematic patterns.

RAC program support

Because RACs are paid based on the percentage of over- or underpayments they find, “they are going to be using very aggressive methods and sophisticated tools to root out reimbursement errors,” Endahl said. “Hospitals are being put in the position of being reviewed and audited through statistical sampling that they don’t necessarily have access to or haven’t performed themselves.”

To counter that situation, hospitals would be wise to explore external tools and services that will improve their preparedness as well as their response. Ingenix Consulting offers RAC Support Services and the Ingenix RAC Manager provides robust tracking, early warning, and dashboard reporting tools. “Hospitals need automated tools and workflow processes to prepare for and manage a potentially high-volume of complex RAC audits,” Johnson said.

Depending on a hospital’s situation, it either can select the entire suite of RAC Support Services below or pick and choose the services that supplement its existing program:

• Mock audits, which provide clients with an expert, third-party evaluation of their coding programs
• Shadow audits, which help hospitals determine which cases are more likely to have a successful appeal
• Appeals support, which provides assistance in the development and evaluation of the internal RAC processes and assistance with appeals
• Analytic reports, which provide a focused analysis of the areas that RAC audits target for recoveries
• Education programs, which include sessions covering RAC management concerns and coder hands-on education presented at the client site.

Hospital finance and HIM executives seeking to minimize the effects of a RAC audit also should consider employing Ingenix RAC Manager, a new technology tool that serves as an early warning system to identify and flag cases that are likely to fall under RAC review, Endahl suggested.

Ingenix RAC Manager uses historical claims data and RAC audit rules to analyze pre-billed claims data and helps prevent RAC audit and risk for monetary take-back. It provides automatic tracking of the complete lifecycle of a RAC Audit from request to resolution.

This tool also provides hospitals with a database of RAC audit outcomes and profiles of hospital-specific exposure areas. Accessed through the Internet, RAC Manager “allows for rapid deployment of the product and minimizes IT involvement on implementation,” Endahl said.

RAC Manager also recommends a course of action or appeal strategies based on analytics and benchmarks. “Not every claim should be pursued,” she noted. “The product will provide intelligence about the likelihood of an appeal result, so the hospital can make decisions regarding where to spend its time, money and resources.” Finally, hospitals can select from various financial assessment/dashboard reports that identify dollars at risk and recommended areas of focus (e.g., coding quality, medical necessity limitations, clinical documentation of services provided).

Bottom line, Johnson remarked, addressing problems in a transactional or claim-by-claim basis does not affect the root cause. Endahl concurred. “If hospitals do not get to the root cause of a problem, and are just trying to ‘get through’ the audit, they will keep making the same mistakes,” Endahl said. “Or, Ingenix can help them get their arms wrapped around the problems so they can reduce their risks moving forward.”

¹ CMS Press Release, “CMS Enhances Program Integrity Efforts To Fight Fraud, Waste and Abuse in Medicare,” (Oct. 6, 2008).
² www.cms.hhs.gov
³ CMS Press Release: “CMS Announces New Recovery Audit Contractors To Help Identify Improper Medicare Payments” (Oct. 6, 2008).
⁴ CMS Web site.
⁵ Id.

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