By Maxwell Drain, Manager, Knowledge Management, Press Ganey Associates, Inc.
After recovering more than $1 billion in improper Medicare payments in a three-year demonstration project, the Centers for Medicare and Medicaid Services is moving full steam ahead with plans to roll out Recovery Audit Contractor (RAC) automated reviews nationwide in late June or July. Any provider or supplier that bills Medicare Parts A and B could be subject to an RAC audit.
Congress authorized the RAC demonstration to detect and collect overpayments from providers and to settle underpayments. Overpayments occur when health care providers are paid for claims that do not meet Medicare’s coding or medical necessity policies. Underpayments occur when providers are paid for claims that medical records indicate should have been coded for more complicated procedures.
Although RACs are intended to protect taxpayers and Medicare beneficiaries from improper Medicare billing, they ultimately may increase health care costs due to the increased costs of staffing and responding to RAC requests. The audits also could not have come at a worse time for many providers who are facing a rising tide of red ink from treating nonpaying patients, losses in investment income, and a drop off in elective procedures.
Although automated reviews—initiated after a computer analysis of claims without review of medical records—begin soon, audits for medical necessity of services, also known as “complex” reviews, won’t start until 2010. Those require providers to supply medical records to the RACs for review within forty-five days. They presumably will be initiated after fairly large or complicated discrepancies are identified through computer analysis. The RAC then has sixty days to issue a denial or an “all-clear” letter to the provider.
During the demonstration, 32 percent of all claim denials were for medical necessity, but a recent CMS-sponsored study found a 40 percent error rate in medical necessity denials. RACs now are required to have a medical director on staff to review cases and reduce the incidence of inappropriate denials.
Each RAC has a unique system to analyze claims data. The systems flag any claims in which overpayments are likely. During the demonstration, the hospital services most often identified for overpayment included surgical procedures in the wrong setting, the surgical removal of excess and dead tissue, and treatment for heart failure and shock in the wrong setting. For physicians, incorrect coding of pharmaceutical injectables led the list of services with overpayments.
Although some improper payments are the result of claims processing errors, the majority of RAC-identified improper payments have been a result of providers billing for services that were incorrectly coded or did not meet Medicare’s medical necessity policies.
To reduce the chance of recovery audits, Press Ganey recommends that clients review their documentation, coding, and billing processes and establish strong internal controls. They should also educate physicians on the RAC process and the importance of documenting the medical necessity of all inpatient admissions. Finally, providers ought to conduct an internal audit review to evaluate their compliance with CMS rules.
Although outliers in dollars and coding patterns have the greatest risk of being audited, RACs are more likely to find overpayments than underpayments. CMS allows RACs to keep 9 percent to 12.5 percent of payments they collect from providers, so the more overpayments they find, the more they get to keep. During the demonstration project, only 3.7 percent ($37.8 million) of the money recovered by RACs were underpayments paid to providers.
Keep track of denied claims and look for patterns. Determine what corrective actions you need to take to prevent improper payments. Appeal RAC decisions if you feel they are incorrect. During the RAC demonstration, a third of overpayment and 59 percent of Medicare-denial appeals were successful.
Finally, monitor the CMS RAC website for updates and changes to the program.
After recovering more than $1 billion in improper Medicare payments in a three-year demonstration project, the Centers for Medicare and Medicaid Services is moving full steam ahead with plans to roll out Recovery Audit Contractor (RAC) automated reviews nationwide in late June or July. Any provider or supplier that bills Medicare Parts A and B could be subject to an RAC audit.
Congress authorized the RAC demonstration to detect and collect overpayments from providers and to settle underpayments. Overpayments occur when health care providers are paid for claims that do not meet Medicare’s coding or medical necessity policies. Underpayments occur when providers are paid for claims that medical records indicate should have been coded for more complicated procedures.
Although RACs are intended to protect taxpayers and Medicare beneficiaries from improper Medicare billing, they ultimately may increase health care costs due to the increased costs of staffing and responding to RAC requests. The audits also could not have come at a worse time for many providers who are facing a rising tide of red ink from treating nonpaying patients, losses in investment income, and a drop off in elective procedures.
Although automated reviews—initiated after a computer analysis of claims without review of medical records—begin soon, audits for medical necessity of services, also known as “complex” reviews, won’t start until 2010. Those require providers to supply medical records to the RACs for review within forty-five days. They presumably will be initiated after fairly large or complicated discrepancies are identified through computer analysis. The RAC then has sixty days to issue a denial or an “all-clear” letter to the provider.
During the demonstration, 32 percent of all claim denials were for medical necessity, but a recent CMS-sponsored study found a 40 percent error rate in medical necessity denials. RACs now are required to have a medical director on staff to review cases and reduce the incidence of inappropriate denials.
Each RAC has a unique system to analyze claims data. The systems flag any claims in which overpayments are likely. During the demonstration, the hospital services most often identified for overpayment included surgical procedures in the wrong setting, the surgical removal of excess and dead tissue, and treatment for heart failure and shock in the wrong setting. For physicians, incorrect coding of pharmaceutical injectables led the list of services with overpayments.
Although some improper payments are the result of claims processing errors, the majority of RAC-identified improper payments have been a result of providers billing for services that were incorrectly coded or did not meet Medicare’s medical necessity policies.
To reduce the chance of recovery audits, Press Ganey recommends that clients review their documentation, coding, and billing processes and establish strong internal controls. They should also educate physicians on the RAC process and the importance of documenting the medical necessity of all inpatient admissions. Finally, providers ought to conduct an internal audit review to evaluate their compliance with CMS rules.
Although outliers in dollars and coding patterns have the greatest risk of being audited, RACs are more likely to find overpayments than underpayments. CMS allows RACs to keep 9 percent to 12.5 percent of payments they collect from providers, so the more overpayments they find, the more they get to keep. During the demonstration project, only 3.7 percent ($37.8 million) of the money recovered by RACs were underpayments paid to providers.
Keep track of denied claims and look for patterns. Determine what corrective actions you need to take to prevent improper payments. Appeal RAC decisions if you feel they are incorrect. During the RAC demonstration, a third of overpayment and 59 percent of Medicare-denial appeals were successful.
Finally, monitor the CMS RAC website for updates and changes to the program.
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