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Hospitals are Seeing Dramatic Increases in RAC Audits

Know your rights in Debt Collection(November 26, 2013):  According to the latest American Hospital Association (AHA) RACTrac survey, Medicare’s Recovery Audit Contractors (RACs) are “dramatically increase[ing]” audits for hospital claims which will continue to impose an “immense administrative burden” on hospitals.  Over the third quarter of 2013, hospitals have seen a 28% increase in complex denials.  Since 2010, RACs have reviewed medical records documenting worth more than $10 billion in Medicare payments.  From this amount, RACs have denied almost $2.5 billion in payments.  In response, hospitals appealed 47% of all RAC denials, with a 67% success rate in getting the denial overturned.

I.  The Recovery Audit Contractor Program:

The Centers for Medicare & Medicaid Services (CMS) RAC program was implemented to identify and correct Medicare improper payments through the detection and collection of overpayments made on claims for health care services provided to Medicare beneficiaries.  RACs also identify underpayments to providers so that the CMS can implement actions that will prevent future improper payments throughout the United States.

RACs conduct automated reviews of Medicare payments to health care providers using computer software to detect improper payments.  As a result, no medical record is generally needed for these types of reviews.  Claims will also be denied through the automated process if the supporting documentation is not received on a timely basis.  In addition, RACs conduct complex reviews of provider payments using human review of medical records and other medical documentation to identify improper payments to providers.  An improper payment may include any one of the following:

  • Incorrect payment amounts, whether it is an overpayment or underpayment;
  • Incorrectly coded services;
  • Non-covered services, including those services that are not medically reasonable and necessary; and
  • Duplicate services.

Each RAC is responsible for identifying overpayments and underpayments in approximately one quarter of the country.  Moreover, each RAC jurisdiction matches the Durable Medical Equipment (DME) MAC jurisdictions.

II.  RACs Dramatically Increase Audits of Hospitals:

The AHA’s RACTrac survey collects data from hospitals on a quarterly basis to assess the impact of the RAC program on hospitals across the United States.  The latest survey covers the third quarter of 2013, a period that ended on September 30.  This survey collected reports from almost 1,300 hospitals.

From the outset, 93% of responding hospitals reported experiencing some form of RAC activity.  The majority of hospitals reporting RAC activity include general medical and surgical hospitals.  However, the survey reflects wide variation in the amount RAC activity across the four jurisdictions.  The greatest number of hospitals reporting RAC audits came from Jurisdiction C.  This jurisdiction includes the southern and southeastern part of the country, states such as West Virginia and Virginia, down to Florida and Louisiana, and across to Oklahoma, Colorado, and Texas.

Importantly, the third quarter survey reflects that hospitals are reporting dramatic increases in RAC audit activity.  In fact, just since the first quarter of this year, cumulative medical record requests have increased by 13%.  Moreover, the number of cumulative complex audit denials reported by the hospitals has increased by 28% over 2013.  From the hospitals participating in the latest survey, over $10 billion in Medicare payments were targeted for medical record requests during the third quarter.  From this figure, Medicare RACs denied almost $2.5 billion.

The survey also noted differences between complex and automated reviews.  Complex reviews denied 97% of the payments while automated denials made up the other 3%.  In terms of dollar amounts, the top service area for complex denials was inpatient care.  The most commonly cited reason for a complex denial was “short-stay medically unnecessary.”  In contrast for automated denials, outpatient care was the top service area.  While automated denials were being issued for a wide variety of problems, the most popular reasons were for outpatient billing or outpatient coding errors.

III.  The Appeals Process is Still Complicated:

Notable issues related to the appeals process was also revealed in the latest survey.   For 2013, the value of appealed claims is approaching $1.5 billion.  On average, hospitals reported appealed 309 claims each.  Nationwide, 47% of all denials were appealed, which included a 67% success rate in overturning the denial decision.  Moreover, 63% of hospitals with a RAC denial overturned had a denial reversed because the care was found to be medically necessary.

Unfortunately, hospitals are receiving many notices from Qualified Independent Contractors (QICs) stating that issuing a determination on a RAC appeal will take longer than the statutory maximum of 60 days.  Furthermore, 94% of the respondents have experienced at least one delay longer than the statutory limit of 90 days for an Administrative Law Judge (ALJ) determination to be issued.  In fact, 83% reported a delay of greater than 120 days.  For more than 40% of the claims appealed to an ALJ, the judge has taken longer than the statutory limit of 90 days to provide his or her determination to the hospital.  Overall, over 70% of all appealed claims are still sitting in the appeals process.

IV. Other Notable Findings from the Survey:

Some of the more notable findings of the survey also indicated that:

56% of medical records reviewed by RACs “did not contain an overpayment”;

 67% of hospitals indicated medical necessity denials were the most costly complex denials;

71% of all appealed claims are still sitting in the appeals process;

 64% of short-stay denials for medical necessity were because the care was provided in the wrong setting, not because the care was medically unnecessary;

 43% of participating hospitals reported having a RAC denial reversed through utilization of the discussion period; and

 70% of all hospitals filing a RAC appeal during the third quarter of 2013 reported appealing short-stay medically unnecessary denials. 

V.  RAC Audits Are Becoming a Financial and Administrative Burden:

The RACTrac survey noted that hospitals were incurring significant administrative costs in response to RAC audits.  Indeed, over half of all reporting hospitals noted that they had increased administrative costs due to the program.  These expenses include costs associated with training, software, additional hours from clinical staff, modifications for admission criteria, and implementing internal task forces to prevent negative audit findings.  The recent survey reflects that about 12% of hospitals are spending more than $100,000 managing the RAC audit process.  Almost half of the respondents stated that the spent more than $25,000.

According to Melissa Jackson, a senior associate director of policy for the AHA, “the data show that RACs continue to demonstrate a high level of inaccuracy when reviewing claims, which means that hospitals must spend funds that could be used for patient care in order to appeal inappropriate denials.”  In addition, Ms. Jackson says the RAC program “requires fundamental reform so that hospitals can avoid this immense administrative burden and focus on their mission to provide patient care.

VI.  Conclusion:

As the latest AHA RACTrac survey demonstrates, hospitals across the country are continuing to get hammered by Medicare’s RACs.  More than three-fourths of all hospitals, including teaching and non-teaching, rural, urban, and critical access hospitals were audited during the survey period.  While the greatest impact was felt by large hospitals, smaller and rural hospitals must still be aware that an audit may be coming their way.  It is vital that providers participating in the Medicare program review both their operational and documentation practices to ensure that a RAC examining their patient treatment records years from now can readily see why certain care and treatment decisions were made and that the services billed to the Medicare program were medically reasonable and necessary.

Healthcare AttorneyRobert Saltaformaggio, Esq., is a health lawyer with the boutique law firm, Liles Parker, Attorneys & Counselors at Law.  Liles Parker has offices in Washington DC, Houston TX, McAllen TX and Baton Rouge LA.  For a free consultation, call: 1 (800) 475-1906.

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