As Denials Rise, Hospitals Working Harder to Fend Off RACs

With Medicare recovery audit contractors racking up more claims denials, hospitals are forced to put more time and energy into improving their claims-processing track record.

After a relatively easy 2010, "hospitals will be stretched for resources in 2011," says Dennis Jones, director of compliance services for CBIZ KA Consulting Services, based in East Windsor, N.J. "It's going to be really tough."

More volume, more money on the line
The four Medicare RACs started automated reviews in 2009 and complex reviews in 2010. By the end of 2010, the value of RAC denials was burgeoning. The AHA's RACTrac survey reported the value of denials doubled from $42 million in the third quarter of 2010 to $86 million in the fourth quarter.

One reason for the leap in the value of denials is the RACs' switch from automated to complex denials, which are thirteen times more expensive. The latest RACTrac survey valued automated denials at $399 per claim and complex denials at $5,281 per claim.

With more volume and more money on the line, hospitals are building up resources to take on the RACs. Half of hospitals reporting to the latest RACTrac survey said administrative costs have increased due to RACs and nearly a quarter reported hiring a utilization management company or other consultant to improve billing compliance. A recent survey of healthcare compliance professionals by Compliance 360 showed the same trend, with 40 percent saying their budgets were increasing in 2011, partly due to stepped-up activity by RACs.

RACTrac reported that $1.7 billion in Medicare payments were targeted for medical record requests through the fourth quarter of 2010. "The volume of claims and coding for Medicare alone is just unbelievable," says Gloryanne Bryant, regional managing director of HIM and co-chair of the RAC Committee for Kaiser Northern California. "With these levels, how can providers not make mistakes?" Therefore, hospitals have to be all the more careful in how they handle claims, she says.

RACs are here to stay, and grow
RACs are likely to be a permanent fixture for hospitals and get even more intensive in the coming years. At a time when federal debts are expected to stretch into the long-term future, RACs provide a welcome source of new income. As of March 1, RACs collected $217.9 million in overpayments, CMS said.

CMS has been loosening the reins on RACs to enhance their money-collecting abilities. For hospitals with more than $100 million in Medicare payments per year, CMS recently raised the number of medical records RACs could request from 300 to 500 in a 45-day period. The agency also recently stated that RACs could review the same claim for multiple problems, contradicting many providers' assumptions of the rules.

Now a new wave of RACs is on the way. The healthcare reform law authorizes new RACs for Medicaid and for Medicare Part C payments for Medicare Advantage plans. Medicaid RACs were supposed to start in each state on April 1, but in February CMS postponed the start-up date so it could discuss details with state Medicaid offices further. The agency will announce the new implementation date when it publishes a final rule for Medicaid RACs later this year. There is also no start-up date for Part C RACs. Even the proposed rules for Medicare Advantage RACs are not expected for several more months.

In addition, RACs may soon be passing their findings on to other government agencies.

In a 2010 finding, the HHS Office of the Inspector General urged CMS to report hospitals with significant RAC collections to Medicare fiscal intermediaries. The reasoning was improper payments could be stopped before they are made, rather than the more expensive route of "pay and chase," said Mr. Jones.

The OIG is also urging CMS to report hospitals with significant RAC collections to the Department of Justice. "CMS wanted to move these hospitals to an education track, but the OIG wanted more," Mr. Jones said. Growing pressures to collect more income for federal agencies may force CMS to do this. More money is at stake because the Justice Department has a much longer lookback period than RACs have to recoup money from hospitals, Mr. Jones said.

Keep up on new issues
Not getting dinged by a RAC means closely monitoring postings of new issues on its website. Under federal rules, before a RAC can pursue a certain issue, it has to explain its strategy and win approval from CMS. Then it posts the issue on its website. But hospitals have been finding that it is difficult to track approved issues on the RAC website. For example, some RACs do not post issues in chronological order, says Jennifer Colagiovanni, an attorney at Wachler & Associates in Royal Oak, Mich. And when a RAC updates an issue, it may simply rewrite the text without indicating the text has been changed, she says.

Connolly Consulting, known as the most aggressive RAC and the one that other RACs often emulate, has been posting hundreds of new issues on its website. Connolly, which covers Region C, mostly in the South, posted 35 new issues in September, 77 new issues in January and an omnibus issue in March that dealt with 309 MS-DRGs and 141 ICD-9 diagnosis codes. Since the postings frequently refer to ICD-9 codes, it takes some detective work to figure out what DRGs might be involved and precisely what the RAC is looking for in each DRG, says Ernie de los Santos, chief information officer for eduTrax.

"The RACs do not want to show you their hand," Mr. de los Santos says. "If they explained exactly what they are doing, hospitals would be prepared for them and they wouldn't make any money." He says RACs are essentially "bounty hunters," getting a contingency fee of 9-12 percent on any overpayments.

Learn how RACs think
A good way to deal with RACs is to learn to think like them, says Paul Spencer, compliance officer for Fi-Med Management in Wauwatosa, Wis. "Ask yourself, 'If [I] were a RAC, what targets would [I] focus on?" he says. RACs don't want to mess with hospitals that are highly compliant with claims and coding rules because they'll find little money to recoup. "When a RAC starts coming up with nothing at a particular hospital, it will move on to easier opportunities," Mr. Spencer says.

Put another way, RACs are always looking for easy prey, Mr. de los Santos says. In addition to focusing on big-ticket claims that can offer a big payout, they look for claims that have greater chances of being denied, such as a claim linked to only one ICD-9 code. "All the RAC has to do is knock down that one code and it might be able to get the whole payment denied," he says.

Basic ways to protect against RACs
Elizabeth Lamkin, CEO of Pace Healthcare Consulting in Hilton Head, S.C., says the chief way to protect against RACs is to move resources from the back of the operation to the front. That is, instead of waiting until the claim is sent out, carry out concurrent monitoring at the hospital admissions department, in case management and in the medical records department, she says.

The case manager examines charts and works with physicians and, if the hospital has one, the physician advisor. "The case manager keeps his eyes on the admitting physicians and bed placement," Ms. Lamkin says. "You have to have a gatekeeper because you have to act quickly." The hospital has only 24 hours after admission to change a patient's billing status.

Hospitals should also appeal RAC determinations. "Any healthcare provider who feels that they have grounds for a RAC appeal should file an appeal," Mr. Spencer says, noting that the RAC Demonstration Project yielded a successful provider appeal rate of 64.4 percent, which is impressive.

One of the most basic ways to protect against RACs is to make sure physicians adequately document charges in the medical record, says Leo Paul D'Orazio, who directs the Healthcare Services Group in the New Brunswick, N.J., office of WithumSmith+Brown. "Hospital claims are based on medical records created by physicians, but since physicians are under a different reimbursement system, they do not have a direct financial incentive to help hospitals with RAC demands," he says.

Read more coverage on RACs:

- RAC Demands Can Expose Rifts Between Hospital, Physicians

- Playing Cat and Mouse with RACs: Q&A With eduTrax's Ernie de los Santos

- 8 Actions Hospitals Can Take to Protect Against RACs

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