3 RAC Audit Survival Tips

With the dry run of the Centers for Medicare & Medicaid Services' (CMS) medical necessity Recovery Audit Contractor (RAC) audits complete, attentive hospitals are taking the lessons learned and preparing to defend their inpatient admissions practices.

According to CMS, approximately one-third of reimbursements collected during the demonstration phase were due to "wrong setting" denials. In other words, hospitals provided patients with unnecessary care, chiefly submitting patients to overnight care when no such designation was necessary. At issue, according to Karen Bowden, president of consulting at revenue cycle solutions provider ClaimTrust, is that many providers still don't understand Medicare's definition of an inpatient.

"While many organizations indicate they use published admission screening guidelines, oftentimes it boils down to each individual case manager applying their own judgment," she says.

Additional problems arise when organizations that are overly aggressive with their inpatient admissions do not have the appropriate documentation to back up their cases. Unlike commercial payers that often can approve or deny an inpatient case before charges are billed—allowing for near real-time appeals—Medicare's medical necessity review process kicks in after the bill is dropped. And if the appeal is lost, the hospital will lose full payment on the claim.

In a twist of logic, however, Bowden admits that denials have an upside. "If you have no denials, you may be too relaxed with your policies to reduce the risk of a denial, which may be an indicator that you're losing revenue."

1. Understand what an inpatient is. Hospitals must understand Medicare's definition of an inpatient and ensure that their staff applies admission screening rules consistently throughout the organization, Bowden says. "Criteria should be vetted clinically and adopted through the utilization management committee to prevent individual case managers from using their own personal judgments."

2. Do the legwork. Is the appeals process the best use of your valuable resources? Much like preventing claims denials begins during the admission phase, surviving a RAC audit relatively unscathed requires legwork upfront, which according to Bowden, includes using published inpatient procedures (Medicare or other), developing of defensible criteria for "gray-area" procedures, and instituting a second-level reviewer or case manager to ensure consistent admission practices.

In the medical necessity demonstration appeals process, organizations that were successful in appealing denials were the ones that took the Medicare guidelines for admissions and responded to them point-by-point.

3. Watch the handwriting. Though it sounds complicated, proving medical necessity may be the easy part with the new RAC audits. Hospitals are in for quite a surprise, though, when it comes to physicians' handwriting. "The thing I'm most worried about is hospitals losing payments because of illegible physician handwriting," Bowden says.

Unbeknown to many organizations, auditors have been instructed to challenge any patient record in which the doctor's admission order, including signature, is illegible or missing, which places revenue at risk. "This is just another thing that can bury a healthcare provider in denials," according to Bowden.

One bright note from the demonstration project: CMS has taken a more reasonable approach to diagnosis-related group (DRG) reviews. "The quality of what they're doing vastly improved throughout the process," Bowden claims. "We need to give them credit for responding appropriately to the criticism that came out of the demo project."

The best advice experts offer: Don't fear the RAC audit. Historically speaking, nearly 70 percent of a RAC audit's results are overturned through the right appeals process. In some cases, the audits are even finding underpayments and returning money to hospitals.

Best of luck with your RAC audit!