3 Key Medicare RAC Issues for Hospitals

Since their introduction in 2006, Medicare recovery audit contractors— which aim to retrieve overpayments from providers — have remained a significant financial issue for hospitals.

Nine out of 10 hospitals participating in the American Hospital Association's RACTrac survey reported RAC activity in the third quarter of 2013, consistent with the second quarter's findings. AHA created the web-based survey to exclusively study RAC activity because of the lack of data from CMS concerning the impact RACs have on providers, according to the RACTrac website.

Furthermore, 68 percent of the hospitals surveyed reported spending more than $10,000 managing the RAC process during the third quarter, according to Michael Ward, AHA's senior association director of policy.

During a Dec. 12 webinar, Mr. Ward and AHA senior associate directors Robyn Bash and Melissa Jackson gave a summary of the third quarter RACTrac results and discussed other RAC-related policy issues.

1. The rise of RAC activity — RACTrac survey results. The AHA has collected data from 2,452 hospitals, of which 2,164 reported RAC activity during the year through September 2013 as part of the survey, which the group conducts quarterly to assess how Medicare RACs affect hospitals. Here are a few key findings from the third quarter results, according to Mr. Ward.

1. Cumulative medical record requests have increased by 13 percent since the first quarter of 2013, and cumulative complex audit denials reported by respondents went up by 28 percent during the same six-month period.

2. Of the medical records RACs reviewed through the third quarter, 56 percent didn't contain an improper payment.

3. Hospitals reported $2.5 billion in denials through the third quarter, according to the survey.

"The most commonly cited reason for a complex denial was 'short stay: medically unnecessary,'" Mr. Ward said. "We also see a high number of inpatient coding [denials] as well."

The AHA has developed a new tool for hospitals called the RACTrac Analyzer, which is interactive and user-driven. Mr. Ward said the group will have a link to the tool up for members soon. It will allow hospitals to compare their RAC activity to other hospitals with a similar RAC region, bed size, urban or rural provider status and other characteristics, he said.

2. Medicare audit improvement legislation. Ms. Bash called on hospitals to support the Medicare Audit Improvement Act of 2013, which has been introduced in both the House and the Senate (the versions are identical, according to Ms. Bash).

"These bills are very important and we need your continued advocacy on them," she said. "Reach out to your members of congress in support of the legislation."

The legislation would establish a consolidated limit for medical requests, improve RAC auditor transparency, require physician review for medical necessity denials and allow denied inpatient claims to be billed as outpatient claims when appropriate, according to the AHA.

Additionally, the bills would aim to improve auditor performance by enacting financial penalties on underperforming auditors and by requiring medical necessity audits to focus on widespread payment errors. 

3. The two-midnight rule. The two-midnight rule is a new regulation that was included in the 2014 Medicare inpatient prospective payment system final rule. The regulation generally considers inpatient admissions spanning two midnights as qualifying for payment under Medicare Part A.

Under the new rule, stays lasting less than two midnights must be treated and billed as outpatient services. To assess compliance, Medicare MACs will carry out prepayment patient status reviews for claims that span less than two midnights and have dates of admission on or after Oct. 1, 2013, and before March 31, 2014. Medicare contractors won't conduct post-payment patient status reviews for claims during that same period.

Depending on the hospital's size, MACs will review 10 to 25 claims per hospital. They will base their review of a physician's expectation of medically necessary care spanning two or more midnights on the information available to the admitting physician at the time.

Hospitals have criticized the two-midnight rule heavily since it was released. The AHA has said the policy is unclear and undermines the medical judgment of physicians. The AHA is working to ensure RAC enforcement of the two-midnight rule is clear and fair.

"We continue to press CMS for clarification on the policy and will monitor the audit process," Ms. Jackson said. "As these audits go onwe're considering doing some data collection on hospitals' experience with the audits."

The AHA also supports legislation the organization sees as easing the RAC burden on hospitals and health systems. AHA Executive Vice President Rick Pollack recently wrote a letter to Rep. Jim Gerlach (R-Pa.), voicing the AHA's support for his bill that would delay the two-midnight rule's implementation. AHA is also urging CMS to round up stakeholders during the delay to figure out a new payment methodology for inpatient and observation care.

More Articles on Medicare RACs:
OIG: First-Level Medicare Appeals Up 33% From 2008 to 2012  
AHA: Medicare RAC Reviews on the Rise for Hospitals  
AHA: Hospitals Successfully Appeal 72% of Medicare RAC Denials 

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