The Centers for Medicare and Medicaid Services in late 2010 launched its nationwide Medicare Recovery Audit Contractors program, employing outside RAC firms to conduct regular reviews of billings from hospitals-and to a lesser extent physician practices-to identify and recoup overpayments for services rendered to Medicare patients as well as identify and correct underpayments.

By January 2012, the program had recouped Medicare payments totaling $3.1 billion, according to CMS.

The program relies on regional contractors that receive a cut of the overpayments they identify and recoup. Those contractors can send requests every 45 days for additional documentation to support the claims submitted by providers being audited.

Since 2010, HealthDataInsights Inc., the regional RAC that has audited four-hospital CoxHealth in Springfield, Mo., has sent requests "on the money" every 45 days, says Carol Conley, director of audit and compliance.

The requests started with documentation demanded for 200 claims and soon doubled to 400 each 45 days. From 2010 until late 2012, CoxHealth's RAC reviewed 5,236 claims. Sixteen percent of the claims-836-involved computer-automated reviews where the RAC denied the level of service billed.

The delivery system's response has been to routinely downgrade the level of service on these claims and rebills, Conley says.

The vast majority of requests for documentation covered "complex" reviews of 4,350 claims, most of which were submitted years before. These reviews, Conley says, almost always center on the medical necessity of the inpatient stay of patients who were admitted to the hospital with the RAC contending they should have been treated in an observation or an outpatient setting.

New York-based HMS Holdings, the parent company of HealthDataInsights Inc., did not respond to a request for comments for this story.

"The denied Medicare Part A inpatient claim results in a significantly lower payment under Medicare Part B, providing reimbursement for diagnostic services only," Conley explains. So, the reviews focus on the inpatient versus outpatient status of the patient, and that determination is made by the treating physician. RACs are reviewing these types of claims long after patients have received treatment and the outcome is known.

But at the time of service, a physician is often seeing a very sick patient and making a judgment call on whether observation or inpatient level of care is appropriate, Conley notes.

So, the RAC is taking the position that a patient wasn't sick enough to be admitted and the provider should have filed an outpatient claim, and is demanding documentation from the provider proving that the proper judgment call at the time was to admit the patient, she says.

The only recourse for hospitals in this situation is to appeal, Conley says. There are five appeal levels for complex reviews, although only the first three are generally used as most providers don't have the resources or see the wisdom in further appeals.

The first two levels are perfunctory functions where providers can appeal disputed RACs decisions to their Medicare contractor and then to a "qualified independent contractor" retained by CMS-and rarely succeed, Conley and other providers say.

CMS declined an interview request for this story and also declined to respond to concerns providers raised about the fairness of the program.

The agency in a statement said it offers providers assistance through a quarterly compliance newsletter and articles on its Medicare Learning Network, and noted it has implemented several edits to its payment system to correct problems that RACs have found.

Further, RACs make themselves accessible to providers by phone and e-mail, and meet regularly with national and state hospital and medical associations, according to the statement. "CMS is always looking for new opportunities to improve the program and welcomes suggestions by providers and associations."

These appeals have to done before a provider can advance to the third level and go before an administrative law judge, who is independent of Medicare contractors and RACs, and where a provider and the RAC present their arguments. This is where providers really fight the complex claims and where they often win.

Joe Goedert’s feature story in the March issue of Health Data Management, “The Trouble with RACS,” explores lessons learned and the fairness of the audit program.

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