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RAC Demonstration Project Offers Valuable Lessons

Karen Bowden, for HealthLeaders Media, June 12, 2009

CMS created the Recovery Audit Contractors program as part of an effort to reduce improper Medicare payments by contracting independent auditors to detect and collect overpayments. The auditors are also charged with identifying underpayments although during the RAC demonstration phase about 25 times more overpayments were collected than underpayments paid ($980 million vs. $37.8 million).

The demonstration project, which ended its three-year process in March 2008, is the best body of evidence we have to project what the permanent program will be like. The permanent program continues to roll out across the country, with the goal of having all four RAC regions, each responsible for a quarter of the country, fully operational by 2010. Hospitals and other healthcare organizations interested in preserving their Medicare revenue—including already billed and collected funds—would do well to study the demonstration and learn as much as they can to prepare for a future where RAC audits will soon become an unavoidable reality.

Following are some of the insights my organization gained working with several hospitals affected by the demonstration project to the tune of hundreds of millions of dollars. In our work appealing those retroactive denials, we were able to achieve 93% successful overturn rate at the fiscal intermediary level. While we learned a great deal about successful appeal and prevention strategies, we also found the appeals process to be fairly opaque and arbitrary—a situation we hope will be remedied over time as CMS works out the kinks in the permanent phase.

Lessons learned
As a part of our work for a large academic teaching hospital in New England we pursued about $4.2 million worth of appeals on a set of 72 claims. Our experience with this group of appeals highlights some of the odd and seemingly arbitrary aspects of RAC denials and appeals:

  • The claims were all very similar: inpatient implanted defibrillator procedures flagged by the auditor for "wrong setting." The hospital had actually performed 92 of these as inpatient procedures within the look-back window, but we were never able to get a clear answer as to why the 72 were denied but the other 20 were not.
  • We appealed all 72 to the FI level: 64 were approved, eight still denied. Those eight were appealed at the Qualified Independent Contractor level and denied there as well. No satisfactory explanation was ever given at any level for the difference between the eight and the 64.
  • We are currently appealing at the Administrative Law Judge level.

A few interesting points to note from this and other similar cases:

  • Certain procedures seem to be getting the most attention from RAC auditors:
    • High-cost, short-stay procedures like defibrillators, stents and peripheral angioplasty performed on an inpatient basis
    • DRGs where principal diagnosis sequencing is questioned, such as respiratory failure
    • One-day medical stays for chest pain, back pain, gastroenteritis, congestive heart failure, etc.
    • Three-day stays with a transfer to skilled nursing facility
    • The vast majority of denials were for inpatient claims and half of those were "wrong setting" denials
  • The grounds for both the initial denials and the subsequent appeals decisions are unclear. Organizations should continue to escalate to the next level of appeal until they receive a rational response.
  • These opaque adjudication procedures also make it very difficult to know on what grounds denials should be appealed. We recommend building a library of successful appeal letter templates.
  • Appeals can be very tough. One claim which included a charge of more than $5,000 was denied at the QIC level because the admission order was not dated.

RAC Inoculation
So, what can you do to protect your organization from RAC auditors and be best prepared if and when they do come knocking?

Be forewarned: Assessing your risk is an important first step to understanding how big of a problem RAC could be for you. Review historic claims against RAC findings to get a ballpark estimate of how your organization would fare in an audit.

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