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The AHA Argues Fundamental RAC Program Reforms are Needed

(January 21, 2014):  In a contentious letter to the head of the Centers for Medicare & Medicaid Services (CMS), The American Hospital Association (AHA or Association) has argued that the current two-year backlog in Medicare appeals (totaling more than $1 billion), along with a growing number of claims denials by Recovery Audit Contractors (RACs), have resulted in a serious “detrimental impact” on the Association’s member hospitals. To help alleviate this problem, serious RAC program reforms are needed.  In a separate, yet similarly strongly worded letter to Congress, the AHA has shared its concerns with Capitol Hill.  The Association is seeking Congressional support in connection with the current appeals backlog. Perhaps most significantly, the Association is urging Members of Congress to pressure CMS to adopt a number of fundamental RAC program reforms to the current recovery audit framework.

I.  ALJ Hearings are Delayed for at Least Two Years:

The two AHA letters are in response to a recent memorandum from the Department of Health and Human Services (HHS) outlining operational changes to the Office of Medicare Hearings and Appeals (OMHA) system. Effective July 15, 2013, OMHA will temporarily suspend the assignment of most new requests for Administrative Law Judge (ALJ) hearings.

 According to HHS, this suspension will allow OMHA and its 65 ALJs to focus on the nearly 357,000 appealed claims for Medicare services and entitlements already in the system. HHS claims that the suspension was “necessitated by a dramatic increase in the number of decisions being appealed” to ALJs, which have grown by 184% since 2010. Due to the current backlog in claims, the agency does not expect the suspension to be lifted for at least 24 months.

II.  AHA Claims that Avoidable RAC Denials are Straining the Medicare Administrative Appeals System:

As argued by the AHA, the proposed delay is quite significant. The group highlights the fact that these delays “are not only unacceptable, they are a direct violation of the Medicare statute,” which requires that an ALJ issue a decision on the appeal within 90 days of receiving a request for a hearing. Even more, the AHA argues that ALJs’ failure to comply with this statutory deadline is not new.

For example, 94% of hospitals participating in the AHA’s RACTrac survey reported experiencing at least one delay longer than the statutory 90 days. Equally disturbing is the fact that this problem isn’t merely isolated to the third level of administrative appeal. Sixty-six percent of hospitals also reported receiving notification from a Qualified Independent Contractor (QIC), the contractor responsible for handling second level administrative appeals, that the QIC could not make a decision within the 60 days required by the statute.

 So what’s the greatest cause of this strain on the administrative appeals process? According to the AHA, it’s overzealous RACs. The AHA’s letters detail a growing frustration among the Association and its member hospitals in dealing with the private contractors.  As the AHA has noted, this has put many member hospitals in an “an untenable position” due to: 

 “…the nearly unfettered ability of RACs to churn out erroneous denials forces [hospitals] to pursue appeals in order to receive payment for medically necessary care, while the inability of OMHA to manage the appeals process within the timeframes required by the Social Security Act holds that payment hostage.”  (emphasis added).

The overburdened appeals system may stem (at least in part) from the fact that  RAC commissions are based on claims that are “denied” by the contractor BUT no penalties are levied against the RAC if the claims at issue are ultimately found to qualify for coverage and payment. As a result, RAC contractors are arguably incentivized to deny as many high-dollar inpatient hospital claims as possible, regardless of whether or not the RACs’ claims denials are truly non-payable.

According to the AHA, inaccurate denials by the RACs are forcing hospitals to “shoulder the significant administrative burden of pursing appeals in order to receive payment for the medically necessary services they provide to Medicare beneficiaries.” Adding to the AHA’s frustration is the fact that the Association contends that many of the RACs’ denial actions are themselves incorrect. The AHA notes that its hospitals are winning more than 70% of inpatient denials, which “speak to the inaccuracy and abandon with which RACs deny claims.”

III.  The AHA Argues that Fundamental RAC Program Reforms are Needed:

While the hospitals’ have experienced a high rate of success when appealing RAC denials, it is important to note that, over 70% of the RAC denials issued by the contractor thus far, have been appealed by member hospitals since the RAC program began and are still pending in the appeals system.  The AHA notes that there is currently nearly $1.5 BILLION in appealed hospital claims being held up in the Medicare appeals process.

The AHA further argues that RACs are directly contributing to this figure and that RAC program reforms are badly needed to help alleviate this backlog.  Since 2010, RAC denials “have increased nearly 30-fold,” with the average number of appeals per hospital growing from 17 in 2010 to 300 in 2013.  This increase simply leads to a further spiral in the number of claims being held up – and adds to the hold up in reimbursements for their services. According to the AHA:

 “Hospitals are bearing the financial burden with over a billion dollars caught in a broken appeals process that takes several years to issue a final determination.”

The Association’s January 14th letter to Marilyn Tavenner, Administrator for CMS, asks that the agency make fundamental changes to Medicare’s claims auditing system.  AHA has made several suggestions to help mitigate the detrimental impact that the currently delay is having on hospitals.

For example, the AHA has proposed that the most straightforward solution to this problem would be for CMS to suspend RAC audits until the appeals system has had an opportunity to catch up with the current workload.  Other suggested remedial measures include:

 ·   Postponing recoupment for appealed claims should until after the hospital receives an ALJ determination.

 ·  Enforcing the statutory timeframes that ALJ must abide by in issuing appeals decisions by entering a default judgment in favor of the provider if an appeal has not been heard within the required statutory time period.

 ·    Addressing systematic issues with the RACs that lead to avoidable claim denials and appeals and provide a mechanism for erroneous denials to be reversed outside of the appeals process.

 ·    Lowering the alternative dispute resolution (ADR) limit, which would decrease the volume of claims that can potentially end up in the appeals system.

 ·    Enforcing the RAC’s deadline to issue a decision on a claim by denying a RAC its contingency fee for any claim for which it has missed its deadline.

Whether CMS is likely to adopt any of AHA’s recommendations is yet to be determined. As a result, the Association has also taken its fight to Members of Congress. The AHA’s letter to Congress contends that “the need for fundamental RAC relief has become even more apparent and urgent.”

 Rick Pollack, the Executive Vice President for AHA, reiterated the success rate that many of its member hospitals have been having in their appeals of claims denied by RACs.  As Mr. Pollack argued:

 “…hospitals win more than 70 percent of appealed inpatient denials, meaning that the majority of appealed inpatient claims that were denied by RACs are accurate, necessary, and supported by clinical guidelines.”

Mr. Pollack further stressed that hospitals’ resources should be used on providing quality services to Medicare beneficiaries. Instead, hospitals’ funds are being used to fight “incorrect RAC denials for years on end.” This results in insufficient or adverse care to patients, as well as higher out-of-pocket expenses.  Without fundamental reforms of the current RAC program. Mr. Pollack states that “the RAC program will continue to improperly harm Medicare beneficiaries and hospitals.”

The AHA is asking that Congress encourage CMS to adopt a number of necessary reforms to the national RAC program.  The recommended reforms track those set out in the previously introduced Medicare Audit Improvement Act of 2013, (S. 1012 & H.R. 1250).  First introduced in March 2013, this proposed legislation currently remains in House and Senate committees.

IV.    Final Remarks:

If the results of the RACTrac survey prove accurate, RAC auditors have unfairly denied thousands of inpatient hospital claims, holding up a significant amount of reimbursement money for hospitals.  In many instances, we have seen auditors focusing claims for care provided during a short length in stay where they presume that, if the length of stay is short, the patient likely could have been seen in a lesser intensive level of care.  These include outpatient services in a skilled nursing home or through a home health agency.  Unfortunately, beneficiaries may not qualify for Medicare coverage in these types of care.

As seen at the ALJ hearing, a number of the RACs’ presumptions regarding the claims at issue have been shown to be incorrect.  Unless Congress and / or CMS moves to restrain RACs in their overzealous pursuits, hospitals and other Medicare providers are likely to continue to see increasing RAC audits (and denials) of their Medicare claims.  In that case, providers will continue to spend countless dollars fighting to receive payment for the services they have rendered.  As both hospitals and physicians can attest, although their administrative appeal of denied claims may ultimately be successful, these providers will have spent significant time and money defending themselves.  These appeal activities make it even more difficult to focus on treating  our nation’s Medicare beneficiaries.

Should you receive a medical records request for records from a RAC, ZPIC or another CMS program integrity contractor, please feel free to give us a call.

Healthcare LawyerRobert W. Liles, Esq., serves as Managing Partner at Liles Parker, Attorneys & Counselors at Law.  Liles Parker attorneys represent health care providers and suppliers around the country in connection with Medicare audits by ZPICs and other CMS-employed specialty contractors.  The firm also represents health care providers in HIPAA privacy breach matters, state medical board inquiries and regulatory compliance reviews. For a free consultation, call Robert at:  1 (800) 475-1906.  

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