Ready or Not, Here Come the RACs

John Commins, for HealthLeaders Media, January 7, 2009

Like the smothering Vandal horde that plagued Europe nearly two millennia past, recovery audit contractors will soon swoop down on your hospital, thumb through your records, slosh coffee rings on the paperwork, and pore through every Medicare bill you've filed in the past few years, hoping to earn a commission of between 12 cents and 15 cents for every dollar they find that you've allegedly overcharged the feds.

OK. I hyperbolize. Not all RACs drink coffee.

The fact remains, RACs are coming—if not this year, then next year as the pilot program expands beyond the test states of New York, Florida, and California. And they will be authorized to look through your Medicare filings with a start date of Oct. 1, 2007.

Are you ready?

John Dugan, a consultant for the Health Industries Sector at PriceWaterhouseCoopers, has worked with hospitals involved in the RAC pilot program, and he recommends having a strong multidisciplinary team in place to deal with records requests and challenges.

"We believe there should be an organized RAC committee in each hospital with one individual on point for the organization," Dugan says. That team typically includes representatives from finance, compliance legal, case management, health information management, and a physician liaison. It might be a little tougher for smaller hospitals to assemble such a team or add new staff, Dugan concedes, which may mean an increased workload for existing management.

RACs are permitted to select up to 200 records every 45 days for an inpatient hospital. "You have a tremendous amount of volume coming through and data-gathering that needs to be produced to make sure you are filing on a timely basis," Dugan says. And with a strong multidisciplinary team in place "you've got the perfect protocol to handle appeals successfully," he says.

Many challenges to Medicare billing fall in the gray areas of medical necessity and medical judgment, and Dugan says that's why it's imperative to have a physician on your team who understands the particular medical issue under scrutiny, a case management officer who understands your hospital's quality policies, and a finance officer who understands the reimbursement impact associated with an adjustment. "When we say 'multidisciplinary,' we mean don't make the mistake of putting in one person's hands what a team should be doing so you are getting the best outcomes," says Dugan, who also recommends building a control mechanism to deal with RAC records requests.

Hospitals should also understand their potential reserve requirements and establish a fund for Medicare overpayments. This is tricky, both in terms of finding money for a reserve fund and determining the appropriate amount. If a hospital proactively attempts to understand its potential liability through a self-audit, for example, that hospital then becomes liable — under the False Claims Act —for overpayments it finds. That also opens the door for a deeper RAC audit.

"It's a tough balance from running a limited sample to understand processes, to doing something significant and having a high enough error rate that you've got bigger obligations that are beyond those claims you just looked at," Dugan says. "Hospitals need to think through their objectives for managing risk. You don't want to examine the records, have your findings, and then say 'Oh, what did we do!'"

Rather than delving too deeply into the past, which can't be corrected and which the RACs will probably find anyway, Dugan recommends focusing on the present and reviewing internal controls that are now in place around risk areas. "If I'm a CFO, I want to mitigate my risk, but I don't necessarily want to turn over money to the government that I wasn't necessarily obligated to do previously," he says. "If I'm focusing on short-stay admission, maybe I don't want to look at medical records. What I may want to do is look at my current processes and internal controls and strengthen them going forward."

If you don't have the time, data, or resources to estimate the value of your reserve fund, Dugan suggests an amount representing 2% of Medicare revenues, which he concedes is still a lot of money, especially in these tough economic times.

As arduous as the RAC process may be for larger facilities, Dugan says it could be even tougher for community and rural hospitals, both in terms of resources constraints and financial pressures. Small hospitals may not have the extra bodies needed to throw at a RAC review, and they definitely don't have the operating margins. In addition, Medicare usually makes up a larger percentage of the patient load in smaller and rural hospitals, where fewer treatment options could also raise red flags about medical necessity. "If you've got a patient who shows up at the ED on Friday night without a primary-care physician and no processes in place or other alternatives, that patient will likely be admitted," Dugan says. "It will be interesting to see if the RAC treats this group of hospitals any differently."

John Commins is the human resources and community and rural hospitals editor with HealthLeaders Media. He can be reached at
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