Preparing for the RAC: Assessing and Mitigating Financial Risk

Medical necessity

Many hospitals utilize McKesson Interqual Level of Care, Milliman Care Guidelines or other professional standards to assist in making billing interpretations as they relate to inpatient versus outpatient observation determination. The challenge hospitals face in their case management/utilization review medical necessity operational process is that the RACs do not adhere to or follow any of these commercially published screening criteria in their medical necessity determination decisions. In the view of the RAC, these criteria are intended merely as screening guidelines, are not dispositive on the issue of the existence of medical necessity with respect to any particular claim, and do not eliminate the need to utilize independent clinical judgment when reviewing claims. Further, these criteria reflect clinical interpretations and analyses, and cannot alone provide the sole basis for definitive decisions.

A common misconception is that adherence to commercially published clinical screening criteria in the assignment of patient designation reduces the financial exposure to RACs for adverse medical necessity determinations as part of the record review process. This opinion couldn't be further from the truth. Frankly, following and adhering to medical necessity screening criteria only provides structure, regimen, and reliability to the patient designation determination process. What is missing from the equation is:

• Explicit medical record documentation outlining the physician's clinical judgment, medical decision making, and other factors he or she incorporated into the clinical decision to admit the patient as an inpatient versus outpatient;
• Salient points including patient risk of untoward outcomes, clinical uncertainty and unpredictability; and
• Established patient clinical risk factors contributing to increased levels of risk of morbidity and mortality.

Ultimately, the clinical documentation must depict an effective, concise and clear picture of the patient's acuity of illness, potential for untoward outcome, and established plan of care as evidence of medical necessity. Hospitals should consider this to be the standard of clinical documentation. Failure to adhere to this standard will undoubtedly contribute to unnecessary, self-inflicted RAC and other third-party payer medical necessity denials.

Next step

Inaccurate coding and lack of medical necessity accounted for the vast majority of improper Medicare payments identified by the RACs during the demonstration project. For this reason, it is imperative that—as a part of RAC preparation initiatives—hospitals determine baseline clinical coding accuracy rates and implement clinical documentation improvement programs as a first step toward improving clinical coding accuracy. Secondly, it is imperative that hospitals conduct an assessment of their clinical documentation practices as they relate to the demonstration of medical necessity. To this end, the hospital will be on its way to reducing financial exposure to RAC record reviews and increasing the probability of overturning RAC denials through an effective appeals process.