10 Critical Actions to Minimize RAC Recoupment

After CMS announced the Recovery Audit Contractor expansion in September 2008, most healthcare financial seminars have had sessions on the RAC program. Using data from the RAC demonstration project, the focus was generally on the RAC appeals—but interestingly, appeals of overpayment denials were so rare in the demonstration project that $992 million was recovered from hospitals in California, Florida, and New York.

In RAC Expansion, however, PPS hospitals' first focus should be on preparation, not appeals. A vigorous appeals response is essential, but it is the last step. Appeals can be compared to a football team's offense (the RAC) having a first-and-goal game situation. Preparation is the defense by PPS hospitals before the game situation gets to first and goal.

From the demonstration project, PPS hospitals should now recognize that effective preparation can reduce the number of appeals and minimize recoupment. These 10 actions could do just that.

1. The RAC is not an FI: All PPS hospitals are familiar with their FI. The FI is paid on a fixed fee basis, with incentives for meeting or exceeding certain performance standards. Communication is usually friendly and informative. When a claim is denied, the appeal is a friendly, non-onerous process. By contrast, the RAC is a new and very different kid on the block. The RAC is paid on a "contingency basis," that is, the more recoupment by the RAC, the greater its fee. By 2010, all PPS hospitals will be subject to RAC reviews. RAC will start with automatic and proceed to complex reviews, with a letter to PPS hospitals requesting specific medical records within 45 days. As the RAC may request records as far back as Oct. 1, 2007, some records may be stored off-site. If not available electronically, it may be difficult to provide in the time specified. An appeal for more time should be filed with the RAC immediately.
2. Appoint a CRO: All RAC requests should go to one individual, a Chief RAC Officer with authority and responsibility to direct specific actions across the organization. It should be clearly understood that a CRO request has priority over any operational issues and a timely response is not only essential, but required. Only the CEO can intervene. Finally, if anyone else in the organization receives an RAC request, it should be immediately forwarded to the CRO.

3. Prepare, prepare, prepare: The RAC may review records as far back as October 2007. To prepare. PPS hospitals should take the following steps:

   (1) Identify all cases at risk; (2) Prioritize by recoupment impact; (3) Perform coding and medical necessity reviews; (4) Establish a RAC repository; (5) Test RAC work flow; (6) Prepare periodic status reports; (7) Get RAC updates (e.g. new targets, new issues)

   As steps 4 and 5 are perhaps the most critical, they deserve further comment.

   Step 4—Establish RAC Repository: This repository will consist of all claims that may be requested and subject to possible recoupment. The repository will identify the claim, potential issue, corrective action taken (if any), and medical record location. If possible, these records should be available electronically to facilitate timely medical record response.

   Step 5—Test RAC Work Flow: RAC requests for medical records will cover from October 2007 to the current date. As the time period could be 1½ to 2 years, the volume may be large—possibly 500 records. To ensure a complete and timely response, RAC workflow should be thoroughly tested, well before RAC requests begin.

   Together, steps 4 and 5 should facilitate a complete response to RAC requests and eliminate overpayment denials for lack of timely response—frequently the case in RAC Demonstration. These seven tasks will allow PPS hospitals to identify and correct possible exposure to RAC audit targets, reduce overpayment denials, and minimize recoupment. If sufficient personnel and system resources are available, preparation may be done by internal staff. If sufficient personnel and system resources are not available, it should be done by external staff, with prior RAC experience and RAC systems capability.

4. Conduct pre-RAC audits of targeted claims: A retrospective audit of all RAC targets should be conducted by independent internal or external staff using data-mining techniques identified in step 4 above. This should not be a sample record audit, but a thorough audit to ensure that all reviewable claims are accurately coded and appropriately documented. Steps 4 and 5 may require more resources than are available. When this is the case, qualified outside resources should be utilized.
5. Implement RAC record request and appeal tracking systems: PPS hospitals should develop (or acquire) an effective RAC tracking system to quickly identify and trend areas of exposure and multi-level appeals. Without such a system, RAC overpayment denials will multiply, making it impossible to efficiently track RAC denials. As the managed care appeal system is based on payer contract language and state regulations, a separate and new appeal system may be required (see No. 8 below). RAC appeal systems are available from consultants and vendors.
6. Establish clinical and coding feedback: PPS hospitals should develop (or acquire) a feedback system that quickly identifies new coding and documentation issues from your RAC. Armed with this new data, your hospital can immediately take corrective action on new issues.

7.  Calculate the impact of overpayment denials: During the RAC Demonstration, many hospitals did not have a system to quickly quantify the financial impact of overpayment denials. For those that did, the volume of denials often overwhelmed the hospital. Further, the absence of specific allowance codes made it difficult—or impossible—to quantify the impact of RAC recoupment, and frequently the magnitude of RAC recoupment was not known until the RAC appeal deadline had passed. In preparing for the Expansion RAC, PPS hospitals should have allowance codes to enable quick computation of revenue impact. This will enable hospitals to prioritize appeals by revenue impact, most helpful when resources are limited.

8.  Start yesterday: In spite of RAC delays (contractor appeals), the time period for RAC Expansion review remains from Oct 1, 2007 to the current date. Thus, a delay adds several months to the review period, increases the number of claims subject to review in RAC Expansion, and makes the RAC requests more difficult to handle in a timely manner. Instead of taking a deep breath and deferring the start of RAC preparation, PPS hospitals should prepare immediately for RAC Expansion. Delaying this decision for any reason only exacerbates the problem. PPS hospitals that have not started to prepare will be disadvantaged. This may mirror the situation faced by hospitals in California, Florida, and New York during the RAC Demonstration, where they were overwhelmed by the number of claims requested. As they could not respond in a timely manner, the overpayment denial was automatically affirmed. General George Patton defined an "unforgiving minute" as the instant a decision is made that cannot be easily reversed. Similarly, a decision to delay RAC preparation might prove to be a costly error in judgment.

9.  Appeal, appeal, appeal: As CMS proudly reported, PPS hospital appeals were low during RAC Demonstration. Further, appeals decided in favor of providers were paltry. Given the lack of preparation and an effective appeals system, this should not be a surprise. As in the RAC Demonstration, RAC Expansion will do two types of overpayment review: Automated and complex.

• Automated—Does not require any medical records. An overpayment is determined based on data review. RAC Expansion will probably start here.
• Complex—Medical records required. High probability that service was not medically necessary or in corrects setting (1/3).

Automated reviews identify clear overpayments. For example, duplicate claims for the same beneficiary for the same surgical procedure in the same hospital is clearly (1) not medically necessary, (2) should not have been billed twice by the hospital, and (3) should not have been paid twice by the FI. The automated review applies when the improper payment is obvious.

Complex review is when the RAC believes that the claim was likely an error. Here, medical records are requested. Following medical record review, the RAC determines whether the claim was medically necessary or in the correct setting and whether the payment was correct, overpaid, or underpaid. In the RAC Demonstration, one of three requests resulted in an overpayment denial. PPS hospitals should appreciate not only the timing of these reviews, but the substantial preparation required to minimize recoupment for each.

Although the appeal is the last line of defense, it should be pursued vigorously. The RAC appeal process is arduous and long, and a thorough and timely response is essential to minimize recoupment. As the RAC Expansion will likely identify new overpayments for denial and recoupment, a strong and vigilant appeals process is both critical and necessary. When PPS hospitals missed an appeal deadline, the appeal was automatically affirmed in favor of RAC. When an appeal was made, only 27% of overpayment denials were decided in the Provider's favor. Regrettably, in the RAC Demonstration, a vigorous appeals process for Part A claims was too often lacking or absent.

10.  Re-bill all IP denials as OP: One of the major overpayment denials was for inpatient setting. Still, some PPS hospitals did not promptly re-bill inpatient denials as outpatient claims, further adding to their loss. In addition, most FIs have already added RAC Demonstration overpayment targets for review. Consequently, PPS hospitals should appeal most—if not all—FI denials. This will ensure that the hospital is carefully watching these target claims for the RAC Expansion.

In RAC Demonstration, unprepared PPS hospitals paid $992 million in recoupment. As RAC Expansion, recoupment could easily double or triple. Thus, strong offense (preparation) and vigilant defense (appeals) are essential to minimize recoupment. When not prepared, the margin of PPS hospitals could be reduced or possibly erased.

As Louis Pasteur said, "chance favors the prepared mind." Minimizing RAC recoupment is first about preparation and second about appeals. Effectively applied, these 10 actions can minimize the chance of margin erasure from RAC recoupment.