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When the Auditor Comes Calling

Philip Betbeze, for HealthLeaders Magazine, June 13, 2008
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Medicare's RAC demonstration is designed to catch payment mistakes, but some providers say auditors are getting carried away.

During the first year of their Medicare audit, the 17 hospitals in Adventist Health System's Florida division received 50 or fewer record requests each month. That number edged up slightly in May 2007—and to 1,326 requests the next month.

"Suddenly our organization was being overwhelmed with requests," says Richard Morrison, regional vice president of government and public affairs.

That volume of requests continued—with the exception of one month—until Dec. 2, the last day that auditors in Medicare's Recovery Audit Contractor demonstration could request documents. Adventist Health is one of many health systems that have complained to the Centers for Medicare & Medicaid Services about the RAC demonstration, a three-state trial run for the audit program that went national this year. The RAC program, initiated by Congress in the Medicare Prescription Drug, Improvement and Modernization Act of 2003, is designed to catch and correct the inappropriate use of coverage, coding, billing, or payment rules. CMS estimates that in 2007, some 3.9% of Medicare dollars paid were inappropriate in some way; that translates into $10.8 billion in overpayments and underpayments.

RAC auditors work on a contingency basis, prompting critics to call them "bounty hunters" because they have an incentive to be overzealous. "We have that same goal that the federal government has; we want to see any kind of errors found and corrected," says Don May, vice president of public policy for the American Hospital Association. "What we do not believe is that the Recovery Audit Contract program is the best way of accomplishing that."

A key focus of the RAC program has been whether patients should have been admitted to the hospital. Morrison, the Adventist executive, calls it "Monday morning quarterbacking on cases that are two or three years old."

"The big issue is on medical necessity—should a person be admitted or not? It's an interesting position to put hospitals in because a doctor admits, not a hospital," he says. "I'm not sure it's right to substitute the judgment of somebody sitting in Nevada based on a cookbook for a physician's judgment at the time of seeing a patient."

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