10 Critical Actions to Minimize RAC Recoupment

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

7.  Calculate the impact of overpayment denials: During the RAC Demonstration, many hospitals did not have a system to quickly quantify the financial impact of overpayment denials. For those that did, the volume of denials often overwhelmed the hospital. Further, the absence of specific allowance codes made it difficult—or impossible—to quantify the impact of RAC recoupment, and frequently the magnitude of RAC recoupment was not known until the RAC appeal deadline had passed. In preparing for the Expansion RAC, PPS hospitals should have allowance codes to enable quick computation of revenue impact. This will enable hospitals to prioritize appeals by revenue impact, most helpful when resources are limited.

8.  Start yesterday: In spite of RAC delays (contractor appeals), the time period for RAC Expansion review remains from Oct 1, 2007 to the current date. Thus, a delay adds several months to the review period, increases the number of claims subject to review in RAC Expansion, and makes the RAC requests more difficult to handle in a timely manner. Instead of taking a deep breath and deferring the start of RAC preparation, PPS hospitals should prepare immediately for RAC Expansion. Delaying this decision for any reason only exacerbates the problem. PPS hospitals that have not started to prepare will be disadvantaged. This may mirror the situation faced by hospitals in California, Florida, and New York during the RAC Demonstration, where they were overwhelmed by the number of claims requested. As they could not respond in a timely manner, the overpayment denial was automatically affirmed. General George Patton defined an "unforgiving minute" as the instant a decision is made that cannot be easily reversed. Similarly, a decision to delay RAC preparation might prove to be a costly error in judgment.

9.  Appeal, appeal, appeal: As CMS proudly reported, PPS hospital appeals were low during RAC Demonstration. Further, appeals decided in favor of providers were paltry. Given the lack of preparation and an effective appeals system, this should not be a surprise. As in the RAC Demonstration, RAC Expansion will do two types of overpayment review: Automated and complex.

• Automated—Does not require any medical records. An overpayment is determined based on data review. RAC Expansion will probably start here.
• Complex—Medical records required. High probability that service was not medically necessary or in corrects setting (1/3).

Automated reviews identify clear overpayments. For example, duplicate claims for the same beneficiary for the same surgical procedure in the same hospital is clearly (1) not medically necessary, (2) should not have been billed twice by the hospital, and (3) should not have been paid twice by the FI. The automated review applies when the improper payment is obvious.

Complex review is when the RAC believes that the claim was likely an error. Here, medical records are requested. Following medical record review, the RAC determines whether the claim was medically necessary or in the correct setting and whether the payment was correct, overpaid, or underpaid. In the RAC Demonstration, one of three requests resulted in an overpayment denial. PPS hospitals should appreciate not only the timing of these reviews, but the substantial preparation required to minimize recoupment for each.

Although the appeal is the last line of defense, it should be pursued vigorously. The RAC appeal process is arduous and long, and a thorough and timely response is essential to minimize recoupment. As the RAC Expansion will likely identify new overpayments for denial and recoupment, a strong and vigilant appeals process is both critical and necessary. When PPS hospitals missed an appeal deadline, the appeal was automatically affirmed in favor of RAC. When an appeal was made, only 27% of overpayment denials were decided in the Provider's favor. Regrettably, in the RAC Demonstration, a vigorous appeals process for Part A claims was too often lacking or absent.

10.  Re-bill all IP denials as OP: One of the major overpayment denials was for inpatient setting. Still, some PPS hospitals did not promptly re-bill inpatient denials as outpatient claims, further adding to their loss. In addition, most FIs have already added RAC Demonstration overpayment targets for review. Consequently, PPS hospitals should appeal most—if not all—FI denials. This will ensure that the hospital is carefully watching these target claims for the RAC Expansion.

In RAC Demonstration, unprepared PPS hospitals paid $992 million in recoupment. As RAC Expansion, recoupment could easily double or triple. Thus, strong offense (preparation) and vigilant defense (appeals) are essential to minimize recoupment. When not prepared, the margin of PPS hospitals could be reduced or possibly erased.

As Louis Pasteur said, "chance favors the prepared mind." Minimizing RAC recoupment is first about preparation and second about appeals. Effectively applied, these 10 actions can minimize the chance of margin erasure from RAC recoupment.

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Buddy Elmore is executive vice president and chief financial officer of Sacred Heart Health System in Pensacola, FL. Stephen Forney is vice president of margin development at Ardent Health Services in Nashville, TN. Bill Phillips is associate professor of healthcare finance at The George Washington University and Vice President & Chief Revenue Officer, Revenue Strategies. He may be reached at billinfll@juno.com.

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