1. Take RACs seriously
Now that the much-ballyhooed RAC system has started, things might seem disarmingly quiet at many hospitals. It's tempting to ask, "What's the big deal?" The experts reply: Don't get lulled into a false sense of security; this is the calm before the storm. The four regional RACs are merely in an initial, relatively simple stage of the national rollout of the program. Right now, they are silently mining Medicare claims data to look for overpayments to hospitals and other healthcare providers.
Currently, the RACs are limited to "black and white" audits, such as duplicate billings, improper payment for non-covered services and coding errors. But when Jan. 1, 2010, arrives, hospitals will start feeling the RACs' presence, because they will start asking for documents, says Shannon McGee, director of patient financial services, government payers and cash processing at Florida Hospital in Orlando. Ms. McGee went through the three-year RAC demonstration program in Florida, a prelude to the national RAC program under way now. RACs will be starting their "complex reviews" on Jan. 1, 2010. These reviews, which include investigations for not following Medicare medical necessity requirements, are the RACs' "big fish," potentially bringing in the largest paybacks by hospitals and other providers. Since complex billing errors can only be detected by looking at the medical record, RACs will be asking hospitals for documentation.
As the hospital with the largest Medicare volume in the country, Ms. McGee's institution felt the full weight of RAC reviews — the Florida RAC reviewed a total of 7,000 claims at Florida Hospital over three years — but she reports that Florida Hospital ended up in relatively good shape, partly due to rigorous billing and coding functions already in place.
2. Be prepared for a more aggressive auditing style
CMS is unleashing the RACs because its own studies have determined that an estimated 3.9 percent of Medicare payments, or $10.8 billion in 2007, do not comply with Medicare coverage, coding or billing rules. Hospitals that are used to audits by fiscal intermediaries may not be prepared for the RACs' more aggressive auditing style. While the Medicare fiscal intermediary is paid on a fixed-fee basis, a RAC is paid on a contingency basis, meaning that the more overpayments it finds, the more money it makes. And while the usual claims processing contractors are limited to a fixed budget, RACs can use their extra income to beef up staff and drill down even deeper into a hospital's Medicare claims.
The RACs in the demonstration program, working in five states, netted almost $850 million from hospitals alone and earned a total of $187 million in contingency fees. Ms. McGee says Florida Hospital saw half of its reviewed claims denied and it was forced to pay back a great deal of the money assessed against current reimbursements. "We had so much money tied up in this that it began to affect our bottom line," Ms. McGee says. However, the hospital eventually recouped most of that money through an aggressive appeals campaign.
3. Get physicians and employees on board
Ms. McGee says the top piece of advice she can offer for hospitals getting ready for RACs is to motivate and educate physicians. For example, RACs often had success questioning physicians' short-stay admissions, saying they did not meet Medicare's medical necessity requirements. "The hospital has to meet certain criteria in order to admit a patient," she says. "If the physician is not writing the orders properly, if they are not clear or complete, you are probably going to have a fight [with the RAC], even if you know the patients meet the criteria." The solution to this challenge? "You need to educate the physicians on documentation," she says. "The medical director needs to talk to the doctors. Doctors have to be motivated to help out."
Elissa K. Moore, an associate attorney at the law firm of McGuireWoods, based in Charlotte, N.C., agrees that educating physicians is essential. "Physicians need to be informed and educated on how to document all procedures and exams correctly," she says. Ms. Moore adds that other employees also have to be educated on the audit process. She suggests conducting monthly meetings to discuss recent developments in the RAC's policies and the status of any audit. "Employees who are well informed about the process and the consequences of documentation and billing errors will help the audit move smoothly and streamline the billing process in the future," she says.
4. Build a RAC infrastructure
Laurie Johnson, senior health information management consultant at Ingenix Consulting, based in Eden Prairie, Minn., says it's important for the hospital to develop some solid expertise on RAC, its rules and its deadlines. "It is essential to cultivate an in-house group of individuals who become very knowledgeable about the RAC program," says Ms. Johnson, who has been helping hospitals prepare for RAC. She recommends putting together a RAC task force that oversees all aspects of RAC compliance.
The task force should have the support of top management so that it can quickly respond to the RAC. She says the task force should represent key areas affected by the RAC process, such as the business office, medical records, case management, outpatient areas and the medical director. The task force should be keeping track of all communications from the RAC — the request for records, any overpayment notices and various appeals decisions — so that RAC deadlines will be met and the hospital won't forfeit its ability to contest a RAC finding, she says.
In addition to the task force, Ms. Moore calls for selecting a point person to personally handle all RAC requests. "Make sure that this person receives RAC communications and responds to communications in a timely manner," she says. For example, a RAC's request for medical records has to be answered within 45 days of receipt. "Cultivating a working relationship with the RAC will help smooth the process and ensure timely communication," Ms. Moore says. "This point person should establish a line of communication with the regional RAC." She says RACs send communications to hospital via e-mail, phone, letters and even delivers them in person.
Hospital staff involved in billing, medical records and case management need to dedicate at least part of their time to RAC issues. For example, Florida Hospital has hired two extra billing clerks and two case managers who are solely dedicated to RAC issues, Ms. McGee reports. Ms. Johnson adds that smaller hospitals that cannot hire new staff can redeploy existing staff. Ideally, these people should come from the clinical-medical area, so they can handle questions of medical necessity, and from the financial area, so they can assess the impact on overpayment and underpayment decisions, Ms. Johnson says.
5. Perform a mock RAC audit
"If you systematically assess your hospital's risk now, you will be ready for RAC requests and denials," Ms. Johnson says. That way, you can get a idea of what the RAC will be surveying because each RAC must post a list of CMS-approved audit issues on its Web site, she says. However, she cautions that RACs can expand their list of issues and assess data retroactively three years into the past, so it is a good idea to be aware of all billing issues.
To help hospitals prepare for RACs, Ms. Johnson says she routinely performs a mock audit, or self-audit, using the list of audit issues. "We screen data that the client provides us and strategically pick inpatient and outpatient claims," she says. These mock audits typically look for billing or coding inaccuracies, lack of supporting documentation and duplicate claims.
The audit should look for patterns of errors, such as specific DRGs, admission level of care, readmissions within 24 hours, discharge status codes, particular specialties or groups of contract providers. The Medicare Office of the Inspector General suggests auditing a sample of 50 cases and if the error rate exceeds 5 percent, then facilities should conduct a statistically valid audit and then share the findings with clinical, financial, compliance, legal counsel, coding, billing and medical records staff.
Limit the self-audit to the time periods that the RAC can audit: billing records going back for three years, or no earlier than Oct. 1, 2007. Ms. Moore advises hospitals to check if medical records contain appropriate documentation, in the event of a RAC complex review. "Complete documentation can provide helpful evidence that a procedure was medically necessary if the claim is challenged," she says. She also advises checking reports on the past demonstration project, which can be found on the CMS Web site, to identify patterns of denied claims. "See if any of these patterns exist within your hospital," she says. For example, the demonstration program identified $88 million dollars in overpayments to inpatient hospitals due to surgical procedures performed in the wrong setting, which CMS classifies as medically unnecessary.
Ms. Moore says that if you identify an overpayment in the self-audit, it may be best to voluntarily report it to the Medicare intermediary so as to avoid a RAC audit later. She adds that the hospital would still have to pay interest on the overpaid amount.
6. Focus on medical necessity decisions
It's expected that the RACs' medical necessity reviews will make up a substantial part of their denials, thus making up a big chunk of returned payments. Since these reviews start on Jan. 1, 2010, there is still time to prepare for them.
In the RAC demonstration project, about one-third of the identified overpayments were related to lack of medical necessity of a physician's order. In the permanent program, the RACs have indicated in their "Scope of Work" reports on their Web sites that the emphasis on medical necessity will continue. The money lost can be substantial. For example, a RAC could deny an admission as not medically necessary, meaning that the bill for the whole hospital stay would have to be paid back, with interest.
Ms. Johnson says many hospitals have the tools to ensure medical necessity — software that matches the doctor's order to Medicare's medical necessity rules in real time, when the patient is admitted to the hospital — but they haven't been applying the results. That is, when medical necessity cannot be found, the hospital may not be redirecting patients. If the diagnosis indicates there is no medical necessity for testing or admission, she says the hospital should ask the patient to sign an advanced beneficiary notice indicating that Medicare may not pay for the procedure and the patient may have to pay for it out-of-pocket. "No one likes to tell a patient that this test of yours is not covered, but this is good information for everybody — patient, physician and hospital — and they can decide what to do with it," she says.
Ms. McGee says Florida Hospital undertakes concurrent reviews of all treatment decisions for Medicare patients. A case manager looks at the case while the patient is still in the hospital and contacts the physician if she thinks the records won't pass muster with Medicare, she says.
7. Respond promptly to RAC communications
Deadlines to respond to RAC requests are ironclad and hospitals that do not meet them face the consequences. The hospital has 45 days to respond to a RAC request for medical records, though the hospital can apply for an extension within that time period. Before denying the claim for failure to submit documentation, RACs must make one more attempt to contact the hospital. And later, when a RAC sends the hospital an overpayment determination, the hospital has just 30 days to dispute the determination, allowing the hospital to retain the disputed funds in the first two levels of appeal. Otherwise, the money is recouped 41 days after the date of the notice of overpayment.
These deadlines may seem adequate, but a hospital can easily exceed the time limits if RAC requests are held up or lost internally, says Lester Perling, a partner with the Fort Lauderdale office of the law firm of Broad and Cassel, who dealt with the RAC demonstration program in Florida. On several occasions in the Florida demonstration, he says hospitals missed deadlines because mail from the RAC wasn't opened on time. Even when RAC correspondence is properly delivered by the mailroom, he says, it has been known to sit on someone's desk until after the deadline has elapsed.
When responding to RACs, Mr. Perling counsels hospitals to go above and beyond what the RAC requests. He recommends including documents that were not requested but that might help explain the hospital's decision. For example, if the RAC only asks for progress notes, the hospital might also want to send the history and physical at admission and the discharge summary. "It's more resource-intensive but there are payoffs in the long run," he says. He also suggests including a cover letter to explain the additional documents so that there is no confusion.
Ms. Moore also advises making sure the RAC is following CMS guidelines. For example, while the demonstration project did not set limits on how many files the RAC could demand, the permanent program does set limits. Hospitals should make sure RACs are following the new rules, which allow RACs to request no more than 10 percent of average monthly Medicare claims of an inpatient facility and a maximum of 200 claims every 45 days.
8. Track all your claims denials
A denied claim could represent the tip of the iceberg. For every one denied claim, there could be many more in the same category that were improperly paid. These bills are obvious prey for the RACs. It is important to track all claims denials, no matter how small, Ms. Johnson says. "In the past, a lot of hospitals ignored denials picked up by their claims scrubber if the amount wasn't worth the effort to seek out," she says. "It was not worth their effort, so they just wrote it off. But RACs look for patterns of errors and try to root out all similar claims that were incorrectly paid, which could amount to a substantial payback.
"It is important to identify trends — trends of mistakes," Ms. Johnson adds. For example, a client of hers was billing incorrectly for a lab test. "The bill was supposed to be for a blood sodium test, but when we looked at the CPT code being used, it was for urine sodium, which is a higher reimbursement," she says. The client corrected the coding and reimbursed CMS for the difference, in advance of a RAC audit.
"Know your weaknesses, because they are going to find them," Ms. McGee advises. "Your weaknesses will be unique to your institution, so you have to develop your own denial management, based on your own experience." Florida Hospital has developed its own homegrown system to track denials as kinds of bills that the RAC has been interested in. On a spreadsheet, staff record RAC requests, denials, what transpired in appeals and any other RAC correspondence. "This helps us identify patterns — where the RAC is looking," she says. "We found out we were getting hits for certain groups of DRGs, such as sepsis and chest pain."
9. Carefully decide what to appeal
Deciding which RAC decisions to appeal and which to let go is crucial. The AHA estimates that it costs a provider an average of $2,000-$7,000 to file a RAC appeal. In addition to this cost, the unpaid sum in a failed appeal is subject to an interest rate of about 12 percent a year.
Not only is the appeals decision crucial, but it must be made fast. The hospital has to file an initial rebuttal, containing a clear statement on why the RAC is in error, within 15 days from the date of notice of overpayment in order to prevent Medicare from recouping the disputed funds during the crucial first two stages of appeal, Ms. McGee says.
A hospital that chooses its cases wisely has good chances of winning an appeal because the RACs are often wrong. An independent study of the California RAC's determinations in the demonstration project found that its medical necessity decisions were wrong 40 percent of the time.
Ms. McGee reports that in the demonstration, Florida Hospital appealed almost everything that its RAC denied and "we were very, very successful." But she warns that a hospital with an inaccurate billing operation wouldn't be that successful. In the demonstration project, hospitals were generally very shy about appealing, and when they did appeal, they were usually unsuccessful. According to McGuireWoods, providers appealed just over 22 percent of all adverse RAC determinations and only about one-third of those appeals were successful.
Since the legal bill for an appeal can be costly, Mr. Perling, the Broad and Cassel attorney, advises putting a dollar limit on the billings that are appealed. "If the bill is for a relatively small amount, say $10,000, it may not be worth having a lawyer," he says. "But if it's over $100,000, then you might want a lawyer from the start." Ms. Moore agrees that it is not worth appealing a small claim, but she would not name a specific value. She says the value would vary, depending on the hospital.
Some experts argue that a hospital should appeal every RAC decision believed to be in error because not doing so might suggest that the hospital agrees it made a mistake. Federal authorities, the thinking goes, might assume the hospital is admitting that it routinely makes errors in this particular type of case, opening itself up to a larger scale governmental investigation. Ms. Moore, however, says this is unlikely and hospitals should not be overly concerned.
10. Pursue appeals vigorously
When you appeal a RAC decision, be prepared for a raft of denials in the initial appeals. The first two levels of appeal — a "redetermination" filed with the Medicare administrative contractor and a "reconsideration" filed with the qualified independent contractor — "get you nowhere," says Ms. McGee, based on her experience with the demonstration. She says she won most of her successful appeals at the third level, with an administrative law judge, who is an attorney working for HHS.
Hospitals that are still unsuccessful with the ALJ has two more chances to appeal — first with the Medicare Appeals Council, which may either modify or reverse an ALJ's ruling or return the case to the ALJ for a second hearing, and, finally, by filing a lawsuit against the RAC in federal district court.
For the appeal to be successful, hospitals will need to hire an attorney knowledgeable in RAC and the appeal process, says Mr. Perling, the attorney. He advises contacting an attorney as early as possible in the appeals process. "It's harder for a lawyer to jump into the appeals in the middle," he says. He notes that after the reconsideration stage, it may be too late to add new documentary evidence to the hospital's case file.
Ms. Moore, the attorney for McGuireWoods, advises that the hospital's RAC attorney should be informed about the case as early as the RAC review stage. "Valuable time and resources may be saved if the provider is able to respond to the RAC's requests as soon as possible," she says.
Contact Leigh Page at leigh@beckersasc.com.