10 Critical Actions to Minimize RAC Recoupment

Bill Phillips, Stephen Forney, and Buddy Elmore, for HealthLeaders Media, February 23, 2009

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.
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