Sept. 5—A government watchdog’s report this week on Medicare contractors did not refute long-standing hospital concerns that the auditors are usually inaccurate, according to provider advocates.

The Office of Inspector General (OIG) reported this week that in 2010 and 2011, providers appealed only 6 percent of the 1.1 million claims in which recovery audit contractors (RACs) found that they overbilled Medicare. And only 44 percent of those appeals resulted in overturning the audit findings.

The analysis—which was not focused on determining RAC accuracy, but rather on oversight of the contractors by the Centers for Medicare & Medicaid Services (CMS)—diverged from widely touted data compiled through the American Hospital Association’s (AHA’s) survey of 2,300 participating hospitals. The AHA’s “RACTrac” reports have found that hospitals appeal about 41 percent of all Medicare claims denied by a RAC and that hospitals were successful in overturning 72 percent of challenged RAC denials.

The RAC Analyses: Taking a Closer Look

Marie Watteau, a spokeswoman for the AHA, said the differences in the rate of appeals and the success of those appeals highlighted in the two studies stemmed from the differing timeframes involved. The OIG report is based on 2010-2011 data, while AHA’s “RACTrac” data are being gathered through 2013,

Another reason the OIG appeals numbers differ from AHA data is because they are examining different providers and types of appeals, said Mark Polston, a partner at King & Spalding, who represents hospitals seeking RAC program changes. Specifically, the OIG report included all providers and all claims examined by RACs, while the AHA included only inpatient hospitals and their related claims.

“It also includes the routine automated reviews where the RAC is looking to see if someone included the right reimbursement or diagnosis code,” Polston said in an interview. “Providers aren’t appealing those as often because often, RACs may be correct in that there is an incorrect reimbursement code.”

The large number of provider types and appeal types included in the OIG report effectively watered down the rate of hospitals’ challenges to payment denials related to inpatient stays—the focus of hospital concerns. The OIG report did not break out separate appeal rates related to inpatient stay determinations, although a previous CMS report found inpatient payment denials accounted for 85 percent of RAC recoveries in 2011.

“The overall percentage of claims denied by RACs that are appealed and overturned is not the relevant statistic for determining if the RAC program is successful or not,” Polston said. “The question is, of the dollar volume of the recoveries claimed by RACs, what percentage is appealed and overturned?”

The latest OIG report and previous CMS reports on RAC performance did not drill down to the rate that denials related to inpatient stays were overturned on appeal, which is the focus of AHA’s survey. That left AHA standing by its appeals numbers and their implication that the RAC program is not achieving its waste control goals.
“Hospitals are drowning in the deluge of unmanageable medical record requests and inappropriate payment denials, and the appeals system is severely overburdened due to inappropriate RAC denials,” Watteau said. “CMS and Congress need to make the audit processes more fair and transparent.”

Hospital Advocates Cite Flaws in RAC Incentives

Hospital advocates have urged passage of the Medicare Audit Improvement Act, which would establish a limit on medical record requests, impose financial penalties on RACs that fail to comply with program requirements, and require the public release of RAC performance evaluations.

Alternatively, CMS could begin to address the RACs high failure rate in assessing payment denials related to inpatient care settings by instituting a moratorium, which would allow time to clear a years-long backlog of related hospital appeals, Polston said.

“CMS needs to address the fundamentally flawed incentives in the RAC program’s design,” said Richard L. Gundling, vice president healthcare financial practices at HFMA. “It costs RAC auditors little to request and review medical records from providers and to subsequently deny claims. The cost burden of questionable denials will continue to be borne by providers.”

Advocates for RACs have countered that the legislation would make RACs, which rejected $2.29 billion in Medicare claims in 2012, “less effective.”

“While the American Hospital Association continues to push Congress for less oversight of provider payments, the GAO says the biggest problem is ‘variance’ among the different audit programs, not the inconvenience claimed by providers,” Becky Reeves, a spokeswoman for the American Coalition for Healthcare Claims Integrity, said in a release.

The latest RAC examination came as hospitals prepare for the Oct. 1 implementation of new CMS rules on patient admitting and rebilling denied claims. Hospital advocates have raised concerns that hospitals face adverse financial impacts from both rules aimed at clarifying which Medicare patients qualify for inpatient status and rules establishing a one-year time limit on appeals of denied claims.


Rich Daly is a senior writer/editor, in HFMA’s Washington, D.C., office. Follow Rich on Twitter @rdalyhealthcare.

Publication Date: Thursday, September 05, 2013