RAC Reform Movement Gains Some Traction

For some physicians and the hospitals where they work, an audit by a Recovery Audit Contractor may be a wreck waiting to happen—through no fault of their own.

The 391-bed Munson Medical Center, in Traverse City, MI, might feel that way. It failed to receive millions of dollars from Medicare following RAC audits for services provided to patients even though the care was deemed in advance to be reasonable and medically necessary.

RACs, which are paid a percentage of the money they recover from hospitals and other providers, have been determining, as in the Munson case, that many procedures billed as inpatient hospital care under Medicare Part A should instead have been delivered as outpatient procedures under Medicare Part B.

There were literally "hundreds of times" between 2007 and 2012 that Medicare demanded repayment from Munson for patient care the government agency believed should have been performed and billed as outpatient, according to court papers in a lawsuit the American Hospital Association (AHA) filed against Centers for Medicare & Medicaid Services (CMS).

All told, the RAC denials required Munson to repay Medicare $6.4 million.

Munson appealed. In court papers, the medical center noted that it had paid plenty to deal with the RAC audits. It hired a coordinator to oversee the appeals process, two billing employees—one full-time and one part-time—two registered nurses, and spent more than $165,000 on technology upgrades to track the status of RAC records, requests, and audits and appeals.

CMS Changes Course, Slightly
The medical center's costly investment in people and technology was due to CMS nonsense, Lawrence Hughes, JD, assistant general counsel for the AHA, told me. Ultimately, CMS agreed that it had not only violated policy—but the law, Hughes said.

As a result, the government has announced that it will change its policy of denying reimbursements to hospitals that provide medically necessary care, even when it is later determined by auditors to have been delivered inappropriately in an outpatient setting.

CMS's changed position is due, in part, to the AHA's lawsuit, which referred to Munson's situation and similar experiences at three other hospital systems.

The CMS interim rule (PDF) reflects the agency's revised position and is seen as a major victory for hospitals, which had claimed that the existing rule prevented them from collecting hundreds of millions of dollars in reimbursements. The suit is continuing, however. "We are in the process of filing an amended complaint," noted Hughes, who declined to detail what the complaint will claim.

Audits are Lucrative
So the government is making a tiny effort on RAC audits, but apparently it's too lucrative for the government to make wholesale changes, for now. Obviously, the RAC audits mean hefty returns for the government, despite the unevenness of enforcement.

The U.S. Government Accountability Office has estimated that $32.7 billion a year in improper Medicaid payments are made, with the federal share accounting for $18.6 billion and states' improper payments set at $14.1 billion. The government probably will continue to be aggressive in its use of RACs, says Jon Elion, MD, a cardiologist at The Miriam Hospital in Providence, RI. The Medicare program may amount to $2 billion per year, he says.

"The Medicaid RACs do include contingency fees, and for that reason, folks predict that the Medicaid RAC auditors will be more aggressive," says Elion, who also is founder and CEO of ChartWise Medical Systems, which offers a comprehensive system to support clinical documentation improvement, and is an expert in RAC audits.

Battle to Cap RAC Requirements Ensues
Now the American Hospital Association and some members of Congress are trying to derail the RACs, or at least make them more manageable.

"Our current litigation is part of a larger strategy around RACs and the concerns hospitals have about [them]," Hughes, the AHA lawyer, says. That includes support of legislation, the so-called Medicare Audit Improvement Act , which would include a "cap" on documents that could be sought by Medicare audit contractors.

"Smaller hospitals in particular have expressed deep concern over the administrative burdens being placed on them by Medicare audit contractors, including large increases in the number of documents being required," one of the co-sponsors, Rep. Sam Graves, (R-MO) said in a statement.

The voluminous records sought by RACs are only one problem, Hughes says. "RACs [also] have a poor record in terms of accuracy of their decisions" related to denying hospital claims. And overall "transparency," is another issue the AHA is concerned about, Hughes adds. "The RAC bill is also focusing on improving the performance by a number of contractors."

Appeals Costly
A CMS study reveals that about 40% of RAC findings are appealed, but providers win those appeals about 75% of the time. Despite the good odds of winning an appeal, providers complain that the process is cumbersome and too costly.

In the past, RAC audits solely focused on Medicare. Soon, they will expand to include Medicaid. And RAC audits are only some of the financial reviews hospitals face. Others include Medicaid integrity contractors, zone program integrity contractors and state Medicaid program integrity audits.

It's important to "get your documentation as good as it can possibly be—what was documented and what was billed. That's the position you want to be in," says Elion.

Physicians and their hospital leadership should look at some elements to avoid problems with government audits, especially RACs. Among the recommended checkpoints:

• Examine potential physician self-referral
  Hospital leadership should "look carefully at categories of payments that may be considered as Medicaid overpayments" related to providing incentives to physicians, or self-referrals, Elion says. Those areas could be violations of the Stark Law, "for services induced by kickback, (or related) to drug and medical device company payments to physicians," he adds.

Also, Elion advises that hospitals check the Office of Inspector General's list of excluded individuals and entities before making new hires. Every six months that list should be reviewed, to avoid the risk of receiving payment for services ordered or provided by an excluded provider, he says.

• Establish a tracking system on RAC requests for reviews
  Elion says hospital leaders should familiarize themselves with various state limits on how many records and how often they would be reviewed by RAC. He says that authorities should especially review Medicare claims that already have been audited, or ones that are more than three years old, to assure accuracy of the data.
• Establish a Comprehensive Clinical Documentation Program
  Such a program would ensure "complete and accurate clinical documentation," Elion says. Hospitals "are scared and got too conservative with their billing and only hurt themselves," he adds. "That's what I think is happening. They are so afraid of the headlines, so afraid of the newspaper, so afraid of treble damages," he says.

"I maintain hospitals should be paid fairly for the work they did," Elion adds. "Hospitals are finding themselves in a dilemma."

That may be putting it mildly. Some would say they are finding themselves in a vise.