Hospitals, physicians, and other providers across the country will be introduced in 2009 to the new Medicare contingency-fee contractors. The national rollout of the Recovery Audit Contractor (RAC) program has been delayed, but contractors will be unleashed on providers when a bid protest is resolved in February.
RACs will earn a contingency fee of between 9 percent and 12.5 percent for identifying improper Medicare payments. To nobody's surprise, the vast majority of improper payments will be overpayments recouped from providers.
To mitigate audit-related risk, providers need to look at their processes and make changes now.
RAC Demonstration Offers Insights Into Permanent Program
As rollout of the RAC program approaches, providers are essentially studying for an open-book test. Looking at the results of a three-year demonstration of improper Medicare payment offers insights into questions that will be on that test.
Medicare's national payment error rate in 2003 was 9.8 percent. Given this relatively high error rate, Congress gave the Centers for Medicare & Medicaid Service (CMS) authority to conduct a three-year demonstration using contractors to detect and correct improper payments in the Medicare fee-for-service program. And to incentivize contractors, Congress authorized CMS to pay them on a contingency fee basis.
From March of 2005 to March of 2008, RACs identified more than $1.03 billion in improper payments and earned a contingency fee of $187 million. The RACs first reviewed claims in New York, California and Florida. They expanded the audits in 2007 to Massachusetts, South Carolina and Arizona.
Approximately 96 percent of the improper payments identified were overpayments. Of that amount, approximately 89 percent of the overpayments were paid by hospitals. About half of the roughly 500,000 claims containing improper payments were Part A claims, and half were Part B claims. Nearly $20 million in overpayments was recovered from physicians.
Focus Will Be on Largest Claims
RACs conducted complex reviews on nearly 490,000 medical records during the demonstration. Approximately 33 percent of all the records reviewed resulted in an overpayment. The average value of an overpayment varied among the contractors from $4,000 per claim to $12,000 per claim.
As CMS noted in its June, 2008 report on the on the demonstration, because RACs are incentivized by a contingency fee, they start with the highest dollar claims.
During the demonstration RACs established strategies to focus on high-dollar improper payments, like inpatient hospital claims, which gave them the highest return with regard to the expense of reviewing the claim and/or medical record. CMS anticipates permanent RACs will adopt a similar strategy at first.
Reviews Flag Both Clear and Likely Errors
RACs perform two types of reviews: automated and complex.
Automated reviews, which are conducted through data mining, use proprietary techniques to detect clear errors. During the demonstration, automated reviews identified, for example, entities billing for multiple units of Neulasta. Providers used to bill for one unit for each milligram, but several years ago CMS changed the definition and directed providers to bill one unit for each vial of drug delivered. More than half of the errors associated with physician claims related to excessive/multiple units.
This type of review also found multiple colonoscopies being billed on the same patient in the same day. CMS says it would never be medically necessary to perform two colonoscopies on one patient the same day.
A complex review would be undertaken if an error is likely, but a review of the medical record is required. The contractor for New York, Connolly Consulting Inc., collected $88 million in overpayments for surgical procedures performed in an inpatient setting— claiming these should have been performed in an outpatient setting.
Permanent Program Will Limit Record Requests
After a year of the demonstration, Congress required CMS to expand the RAC program to all states by January 1, 2010. Contractors were announced in October, and meetings were scheduled with providers. But a bid protest was filed, and the national rollout was put on hold temporarily.
The bid protest will likely be resolved in February, and record requests could reach providers as early as April.
Meanwhile, CMS has made some changes to the permanent program to address certain criticisms of the demonstration. Most significantly, CMS announced a limit to the number of records that could be requested to perform complex reviews.
For inpatient hospitals, RACs cannot within a 45-day period request more than 10 percent of the average monthly Medicare claims, not to exceed 200. For outpatient hospitals, RACs cannot within a 45-day period request more than 1 percent of the average monthly Medicare services, not to exceed 200. These limits are actually tied to national provider identifier (NPI) numbers rather than tax ID numbers, causing some providers with multiple NPIs to question how the limit will be calculated. The American Hospital Association continues to work with CMS to clarify the record limits, particularly for hospitals with multiple NPIs.
RAC Appeals Process Involves Multiple Levels
According to the most recent data from the RAC demonstration, providers appealed roughly 22.5 percent of all RAC-initiated overpayments and were successful on 34 percent of all appeals. This shows that, at least in the demonstration, it pays to closely scrutinize RAC-initiated overpayments and adopt a vigorous appeals strategy.
Unlike the demonstration, the permanent program will allow providers to avoid recoupment by filing timely appeals to the first and second level. And RACs will be required to refund any contingency fees related to a recoupment that is overturned at any level of appeal.
The American Hospital Association is encouraging providers to closely track appeal information and associated costs so it can report the impact of the RAC program on providers. Clearly it is in a provider's best interest to carefully manage and track RAC appeals, particularly at the outset, since RACs will be targeting the highest dollar claims first.
The structure of the appeals process is similar to the normal appeals process for denied Medicare claims.
First Level
The first level of appeal is to the Medicare contractor (fiscal intermediary, carrier, MAC). It is considered a request for redetermination. There is a 15-day rebuttal period to the RAC, but it doesn't stop the 30-day clock running on the request for redetermination.
At least in the RAC demonstration, providers found the timeline for the rebuttal period to be too short to review the denial, evaluate the case, and draft a rebuttal. Plus, they had little success in changing the result. So most providers concentrated on the first level of appeal.
In the RAC permanent program, a provider has 120 days to file a first-level appeal. However, unless an appeal is filed within 30 days, the money will be recouped. Interest will accrue if an appeal is filed within 30 days but is eventually unsuccessful. This suggests that a provider shouldn't adopt a practice of appealing all RAC overpayments without some analysis of the merits.
Second Level
The second level of appeal is to a qualified independent contractor (QIC). It is considered a request for reconsideration. Providers have 180 days to appeal to this level, but again, recoupment can be avoided if the appeal is filed within 60 days.
The most significant point about this level of appeal is that it is the provider's last opportunity to submit documents that will eventually be part of the record should it be necessary to appeal to an administrative law judge (ALJ) or beyond. Therefore, providers would be well advised to have an attorney review the documents submitted to the QIC, if an attorney has not already been involved. If a provider is unsuccessful at this level, CMS will recoup the identified overpayment with interest.
Third Level
The third level of appeal is to the Office of Medicare Hearings and Appeals where the case will be reviewed by an ALJ. Hearings are usually conducted by phone or video teleconference. Providers have 60 days to appeal to this level following receipt of the reconsideration decision. During the RAC demonstration, approximately 5,000 claims were appealed to this level.
Fourth Level
The fourth level of appeal is to the Medicare Appeals Council, otherwise referred to as the Departmental Appeals Board (DAB). Providers have 60 days to appeal to this level. During the RAC demonstration, approximately 200 claims were appealed to this level.
Fifth Level
The final level of appeal is to a federal district court. Providers have 60 days to appeal to this level. The amount in controversy must be at least $1,220.
Audit Preparation Must Be Joint Effort
Within hospitals and other health care entities, personnel and management in a number of areas will need to work together in preparation for RAC record requests.
Compliance staff will need to study issues identified in the RAC demonstration and implement prevention strategies. For example, medically unnecessary hospital admissions have been an area of significant recoveries by RACs. This issue has not been an area of major focus in the past by many Medicare contractors. Compliance officers need to make sure their hospitals have adequate processes in place to review and document the medical necessity of inpatient admissions.
Finance officers will need to determine whether or not to set a reserve for future recoveries from RACs. If you know the average value of an inpatient, outpatient and physician claim, you can take into account the number of medical records that can be requested—and the fact that RACs found overpayments in 33 percent of all records requested. While this is one way to estimate the future impact, it does not take into account the impact of automated reviews. In any event, any actual recovery by a RAC is likely to be too speculative at this point to justify a reserve. Perhaps by the end of 2009 the picture will be clearer, and a reserve would be prudent.
Health information management departments need to be prepared to respond in a timely manner to medical record requests from RACs. Each request should be reviewed for completeness before it is produced to the RAC. All communication with the RAC, as well as documents produced, should be scanned and preserved so that they can be quickly reviewed when a denial is received. Tracking and preserving RAC-related records may require special software.
Revenue cycle management departments may be the central clearinghouse for RAC denials. They routinely receive and respond to denials from all third party payers. What is unique about RAC denials is that they will likely involve medical judgment, and the value of a claim denied by a RAC will be much higher than the average claim denied by Medicare. Is your RCM department able to request a redetermination from the fiscal intermediary, carrier or MAC? Who will review certain types of denials? Will outside experts be necessary? Should your RCM department obtain legal review on at least second level appeals and beyond?
Conclusion
Although some providers are tired of hearing about the impending RACs, it looks like, in 2009, they really are coming. And it's time to get prepared.
If there is a bright side to these audits, it is that their focus and process is no mystery. The demonstration highlights areas where providers would do best to identify and mitigate RAC-related risk before they receive record requests.
To ensure their businesses do well when this test comes, providers need to be ready to submit records, review denials and submit appeals in a timely manner. Collaboration among a number of departments will be necessary. If internal resources are not sufficient for some of the required tasks, entities may wish to consider adding or developing personnel or engaging outside assistance.
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