Tracking and Trending: How Hospitals Should Handle the Rise in Commercial Audits

Since the Medicare recovery audit contractor program began in 2009, Morehead Memorial Hospital in Eden, N.C., has handled "a great deal" of RAC audits, says Annette White, director of Morehead Memorial's health information management department.

The hospital could handle the RACs, she says. But then other payers started following Medicare's lead. "I think a lot of the commercial companies and the HMOs saw the RAC process, the rewards they were reaping by reviewing the charts," Ms. White says. "They said, 'We need to do this also.'"

Hospital industry experts say what Morehead Memorial is experiencing isn't an isolated phenomenon. Providers are dealing with a rising number of audits not just from RACs — which recouped almost $2.25 billion in Medicare funds from hospitals and other providers from July through December 2013 alone — but also from commercial payers.

"We're seeing an increase in commercial audits with a number of our clients in a number of different states," says Jackie Poliseno, RN, senior consultant/director of case management at healthcare revenue management software company Craneware. "Commercial payers, just like Medicare, are looking for opportunities to recover some of their money."

The rise of commercial audits and distinctions from RACs
Although comprehensive data on RACs is available from CMS and the American Hospital Association, there isn't as much tracking going on or data available about the level of audit activity on the commercial side, says Brian Conner, a partner at the public accounting firm Moss Adams.

"It's harder to monitor than the RAC audits," he says. "But anecdotally, we've definitely seen an increase."

Mr. Conner says his company has also seen growth in some of the organizations that handle audits for commercial health insurers, and there seems to be an increase as well in provider-payer disputes.

Although similar to RACs, audits from commercial payers present a distinct set of issues for hospitals and other healthcare providers to tackle. Ms. Poliseno says commercial audits tend to be much more timely and occur much closer to the actual patient encounter. Additionally, commercial auditors will show up on site. "They'll come directly to the institution, sit right there, and review the medical records," she says. "It's a different level of priority [than RACs]. They have to be dealt with; they're sitting in your space."

However, she says their presence can also be beneficial for the provider. "Having the auditors on site gives the facility the opportunity to interact with them" she says. "Oftentimes, the hospital staff can go back and actually find whatever it is the auditor couldn't find, preventing a denial."

Audits from commercial payers also differ from RAC requests in that private insurers will withhold payments, rather than reimbursing the provider and then asking for the money back, says Sheri Hughes, a senior manager in Moss Adams' healthcare consulting division. Commercial insurers conduct prepayment authorization and are increasingly keeping an eye out for inappropriate charges or reasons to lower the payment amount, she says. Health insurers, like RACs, keep an eye out for issues like medical necessity and charging for inpatient services that should have been classified as outpatient, she says.

Overall, Ms. Hughes says RAC audits are actually "much more challenging" than commercial audits. "You think you're doing the right thing, and there's no way to get it approved before you do it," she says. "That's the challenge faced with the RAC. In the commercial setting, if you want to administer services, you need to contact that plan and get approval to provide that service. That helps the hospital understand better that there's a problem."

However, the health insurance exchanges established under the Patient Protection and Affordable Care Act are having a significant effect on the preauthorization process, says Mr. Conner of Moss Adams. Because exchange enrollees can sign up for a health plan but not officially have coverage until they make their first premium payment, it can be unclear whether a patient actually has insurance.

"I think you're going to see, over the next year or so, a real increase in those kinds of issues between commercial plans and providers because authorization is now murky," he says. "You can provide services to patients and the premium payment wasn't made, and the patient didn't actually have insurance."

What hospitals can do to tackle commercial audits
Hospitals should approach commercial audits in the same organized, thorough way that they handle RAC audits, Mr. Conner says. They need a process for identifying and monitoring requests and a quality control protocol to ensure they're doing everything they can internally to track audits in an organized way. "At times, those processes can get lost in the whirlwind, and the request can get lost in the whirlwind, and that's when occasionally we see providers paying out more than they should," he says.

Ms. Hughes agrees, suggesting that hospitals use tracking software or another method to keep a close eye on commercial audits. "Once you're tracking and trending it, you will see overall that it is meaningful to your organization," she says.

Hospitals should also scrutinize the contracts they have with commercial insurers and make sure processes are aligned with what payers expect, according to Ms. Poliseno of Craneware.

In response to rising commercial audits, Ms. White says Morehead Memorial started using tracking software this past December. The HIM staff member who gets the audit request puts it into the electronic system. "Before we could never keep track of where everybody was, how many we had in process, how many we had in appeal," she says. "This has really helped us makes us more efficient."

She also says the hospital has assembled a team of staff members to deal specifically with audits, and they meet regularly to ensure efficiency. She advises other providers to make good processes for dealing with audits a priority.

"We meet monthly to discuss what's going on, how can we make it better, how can we respond, what are the patterns we're seeing," she says. "With commercial audits, we have to be on top of it to make sure our facility can get the financial reimbursement that we're entitled to."

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