Karen Testman, senior vice president of financial operations at MemorialCare Health System, agrees with the concept of reducing Medicare overpayments, but takes issue with the administrative work it creates for providers.
The goal of CMS's Medicare Recovery Audit Contractor program is to identify and correct overpayments—and, to be fair, underpayments—made on claims for healthcare services provided to Medicare beneficiaries. That sounds good in theory, given that the government can hardly afford to waste billions of dollars on care that isn't necessary.
Yet, as with most things, theory is a far cry from reality, at least in the eyes of many hospitals and health systems.
Karen Testman, senior vice president, financial operations at MemorialCare Health System, a six-hospital institution based in Long Beach, CA, says that while she agrees with the concept of reducing Medicare overpayments, the administrative work it creates for providers is a "nightmare."
"As a taxpayer, I can certainly understand that you don't want someone abusing the system so that the government is paying for a fraudulent situation or claims they shouldn't be paying, but [RAC auditors] are getting into arguing about medical necessity, and we get caught in the middle," she says.
RACs are paid a percentage of the money they recover from hospitals and other providers, and commonly determine that procedures billed as inpatient hospital care under Medicare Part A should instead have been delivered as an outpatient procedure under Medicare Part B.
'Hindsight is 20/20'
Auditors have the unfair advantage of looking at cases after the patient has been released, Testman says, while physicians have to make realtime decisions about care. "If a physician orders a test and admits a patient based on looking at the clinical data that the patient is presenting, and someone comes along after the fact, then the physician is being second guessed all the time. Hindsight is 20/20."
Testman says she expects the problem will only get worse because "auditors are becoming more and more aggressive with their denials."
The cost of managing RAC audits is considerable. To deal with RAC cases, MemorialCare has added an FTE to coordinate and track appeals. The system also pays fees for lawyers and medical experts for each case that makes it far enough into the appeals process to reach an administrative law judge for a final decision. On top of these expenses, there is the lost cash flow for rightful payments that are held up for years.
"Our overturn level is significant… We are winning the appeals, but even if they ultimately pay you back, there is a cost to them keeping your money for years," says Testman.
Appeals Process Slow
According to the American Hospital Association's RACTrac survey, which monitors and summarizes the impact on providers of RAC activity, hospitals are generally pretty successful when it comes to appealing cases. In the second quarter of 2013, hospitals appealed 40% of all RAC denials with a 70% success rate.
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Melissa Jackson, senior associate director for policy at the AHA, agrees with Testman that the RAC process is still costly for providers, even those with a high overturn rate.
"The process creates an administrative burden on hospitals. Our most recent RACTrac data show that 63 percent of hospitals spend $40,000 or more just managing the RAC process," Jackson says.
"… [O]ur data show that 60% or more of claims audited by RACs contain no error, and 72% of inpatient claims denied by RACs are reversed by an administrative law judge," she adds.
Additionally, the appeals process is slow and cumbersome, Jackson notes. "RACs can audit claims for up to three years after the service is provided, and if a hospital appeals a RAC's decision, it can take up to two additional years to work through the appeals system."
Mary Ann Freas, senior vice president and CFO at Southwest General Health Center in Middleburg Heights, OH, also believes the after-the-fact RAC review gives the auditors an unfair perspective.
'A Proven Revenue Source for CMS'
"It is frustrating to have significant dollars taken back based on an auditor's retrospective review of the provider's delivery of care based on their professional judgment at the time," she says. "… [T]he auditor has benefit of hindsight and the documentation that becomes available after the intervention and hospitalization has occurred and the outcome at discharge is known… It is particularly frustrating because the dollars have already been expended on taking care of those patients."
Southwest General is tackling the RAC challenge by making efforts to improve clinical documentation, tightening up internal controls, and using an outside service to review its inpatient Medicare cases. But all of that comes at a price.
"We have added charge capture specialist positions that assist with denial prevention. Other than that, the cost to the program is really the opportunity cost of having our director of HIM, case management, revenue cycle, vice president of medical affairs, and others reviewing denials and working with our largely independent medical staff on documentation improvement. Another hard cost is the fees we pay to an outside agency to review nearly all of our Medicare admissions for medical necessity," Freas says.
"We don't expect this process to go away," she adds. "It's a proven revenue source for CMS."
Provider Must Be 'Vigilant'
Kim Looney, partner at Nashville-based law firm Waller, says provider organizations should pay close attention to HHS' annual Work Plan, which outlines new and ongoing reviews and activities that the Office of Inspector General plans to pursue throughout any given fiscal year.
"They release the plan every year, and it sets out what they are going to focus on," Looney says, stressing that providers need to know what is contained within the Work Plan. "That is part of being proactive. You can't ever let your guard down."
"[Providers] have to be so diligent and vigilant," she adds. "They have to be educated to know what the guidelines are, and if they change, they have to be aware of it."
Looney says it is important for providers to appeal denied claims for financial reasons, but also for the principle of the matter.
"You almost have to keep fighting or there is no reason for the RAC not to try to continue to take money back," she says. "If no one is going to argue with the RAC, they are going to keep denying claims."