Preparing for the RAC: Assessing and Mitigating Financial Risk

We are all familiar with the financial success of the three-year Recovery Audit Contractor Demonstration Project, which as of March 27 yielded nearly a billion dollars in improper overpayments collected from providers. News that may not be as familiar is that, according to a recent report that includes updated appeals statistics through June 30, providers have appealed only 19.6% of the initial RAC determinations, and, of these, a mere 6.8% have been overturned. With numbers like these, it's clear that the rollout of the permanent RAC program in 2009 poses a serious financial risk to the health of acute-care hospitals nationwide.

False sense of security

Hospitals with foresight in preparing for the permanent RAC program are capitalizing on the opportunity to learn from the three state demonstration projects. They are doing this by focusing on the coding and medical necessity issues identified during the project, reviewing their PEPPER reports and redirecting resources to potentially problematic areas. They are also devoting greater resources to validating and monitoring the accuracy of ICD-9 code and MS-DRG assignment, and initiating corrective action when appropriate.

More commonly, though, hospitals are only focusing on ensuring the accuracy of ICD-9 code and MS-DRG assignment, and adhering to medical necessity screening criteria in determining appropriateness of inpatient versus outpatient designation. While this focus of energy constitutes a positive step in the RAC preparation process, two fundamentally important subsets that provide for continued financial exposure are not being addressed: clinical coding accuracy and medical necessity.

Clinical coding accuracy

Coding errors are defined as inaccurate coder assignment of principal and/or secondary diagnoses resulting in inaccurate DRG assignment. Accurate ICD-9 code and DRG assignment are predicated upon complete and accurate clinical medical record documentation—documentation that supports a patient's clinical presentation, medical workup and management throughout as part of the hospitalization. While achievement of the benchmark standard of coding accuracy (between 90% and 95%) is commendable, it should not be construed in and of itself as a measurement of readiness for a RAC audit, because coding accuracy does not necessarily equate to clinical coding accuracy.

Clinical coding accuracy is dependent upon physicians providing accurate, effective, and complete clinical medical record documentation that is reflective of patient acuity and risk of morbidity and mortality. Such documentation ensures that coding professionals have the information they need to make appropriate ICD-9 code and DRG assignments.

Clinical coding accuracy also requires that coding professionals have a reasonable understanding of medical necessity—and the knowledge and skills to recognize the difference between principal diagnosis and clinical principal diagnosis. They must also know when to ask more questions, and how to construct a good query. The following is an interesting case study on these challenges.

Myocardial Infarction vs. Acute Coronary Syndrome

• A patient is admitted to the hospital with chest pain, determined after the patient's workup to be caused by a myocardial infarction with coronary artery disease.
• The initial clinical impression of the emergency room physician (after evaluation in the ER) is that of unstable angina.
• The attending physician—in his progress notes and discharge summary—uses the clinical documentation of "Acute Coronary Syndrome with coronary artery disease and unstable angina," believing that Acute Coronary Syndrome is synonymous with Acute Myocardial Infarction.
• In reality, Acute Coronary Syndrome—in ICD-9 classification—equates to a significantly less severe diagnosis of unstable angina.
• This example illustrates the disconnect between the common clinical language of physicians and the economic language imposed by ICD-9.
• In this particular instance, by using the terms Myocardial Infarction and Acute Coronary Syndrome interchangeably, the result is the coding and reporting of a diagnosis that is 48% less severe from a DRG relative weight standpoint.
• In addition to negatively affecting a hospital's bottom line, such inaccurate coding and reporting of clinical principal diagnosis may increase the probability of RAC record review and adverse determination of improper payment on the basis of medical necessity—wrong setting.

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.