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3 RAC Audit Survival Tips

Jeff Elliott for HealthLeaders Media, September 13, 2010

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."

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