Lori Brocato
Nancy Hirschl
Stanley Padfield

At a Glance

To meet the challenges presented by recovery audit contractors (RACs), hospitals should perform six tasks that require appropriate investments in staff:

  • Conduct a financial risk assessment of the impact of RAC reviews on the organization
  • Establish a RAC team and assign a coordinator
  • Receive and fill RAC requests
  • Track RAC activity
  • Manage RAC appeals
  • Analyze RAC audit outcomes

Revenue cycle teams nationwide have been preparing for Medicare's recovery audit contractor (RAC) program seemingly for years now. Although the continued delays and postponements of 2009 have been frustrating, the delays also provided additional time for hospitals to educate staff, install technology, and organize RAC teams.

During the three-year RAC demonstration project, Medicare ecouped  nearly $1 billion from provider organizations. Some of these dollars were taken back simply because deadlines to submit medical records were not met or appeal letters were not filed. Missed deadlines for complex RAC reviews are usually due to understaffing, specifically in the areas of filling requests, tracking activity, and managing appeals.

Now is the time for hospital leaders to take a final accounting of RAC needs, ensure optimal staffing levels, and guarantee the right skill sets are in place. Successful staffing for RAC audits helps providers manage the deluge of record requests, meet paperwork deadlines, and mitigate financial loss. Without optimal staffing to meet RAC demands, hospitals may find themselves facing a virtual flood of audits with no help in sight. 

Preparing for RAC Audits: What Providers Have Learned

If there is one major lesson to be learned from the demonstration project, it is the financial impact that a RAC review can have on an organization-not only in dollars paid back to Medicare, but also in additional resources to manage the process-and the need to invest in staff to handle RAC requests. Hindsight gained during the demonstration project should be used by all providers to prepare for complex RAC reviews in 2010.

For Lee Memorial Health System, a public health system with four acute care hospitals in southwest Florida, complex RAC reviews hit like an unexpected hurricane in March 2005. The RAC requested 7,000 records during the three-year demonstration project, with more than $42 million at risk and more than $5 million paid back. In some cases, Lee Memorial staff would receive several RAC request letters with a single month, with thousands of records per request. The workload was overwhelming and sporadic, making staffing levels difficult to predict and maintain.

Four years later, Lee Memorial is still fighting a few appeals and waiting to recoup Medicare takebacks. Important lessons learned during the demonstration project include the following:

  • Record requests from RACs can come as an onslaught. Up to 200 records were requested every 45 days for each National Provider Identifier (NPI) during the demonstration project.  
  • Time, staffing, and general resource constraints will quickly become evident.
  • Communication and workflow efficiency between RAC stakeholders is usually lacking.
  • Simple spreadsheets and databases are not adequate to fulfill RAC requests for information.
  • The five-stage appeal process can linger for months-even years-and become quite costly.

In 2010, revenue leaders should focus on identifying and closing gaps in three key areas: RAC staffing, technology, and communications. These three areas bear the weight of RAC compliance and, conversely, can be an organization's strongest line of defense if properly planned, staffed, and executed.

Action Steps to Prepare for RACs

With almost an entire year to plan, most hospitals have closed the gap on technology and communications. However, determining adequate RAC staffing for complex reviews continues to be a difficult task. There are six steps or processes in the RAC cycle that should be managed, with adequate staff as appropriate.

Conducting a financial risk assessment. Regardless of size, all hospitals should assess their financial risk from RAC audits yearly. Staff will be needed from finance, IT, and health information management (HIM). Depending on the skill set of the management team, this step can be performed internally or with the help of an experienced RAC consultant.

To get started, hospitals should be aware of the key RAC targets for complex reviews as well as the organization's current weaknesses in coding and clinical documentation. During the RAC demonstration project, complex reviews were conducted mostly for inpatient cases and one-day stays. These cases were reviewed for diagnosis-related group (DRG) accuracy and medical necessity in multiple areas. HIM leadership should be consulted and results of any recent coding audits in these areas reviewed.

Once areas of weakness are identified, hospital executive teams can better predict financial risk and identify an appropriate RAC reserve. Information gleaned from the financial risk assessment should be shared with the organization's RAC team and coordinator.

Establishing a RAC team. Best practices for a solid RAC team are well-documented. At Lee Memorial, the RAC team included representatives from compliance, HIM and coding, case management, the central business office, reimbursement (finance), and the medical director. As reviews began to include physician office issues, representatives from the physicians' billing offices were also included. The RAC team reported directly to the organization's C-level executives.

The hospital's RAC team should focus primarily on implementing policies, people, and technologies to help the organization successfully meet-and exceed-RAC requirements. A successful team will extend its vision further to include an overarching commitment to clinical documentation improvement (CDI) and coding/revenue integrity. The RAC team should meet once a week during the first quarter of complex reviews. Processes, technology, resource requirements, and performance benchmarks established during the planning phase should be refined as real-life experience is gained.

Following the first quarter of 2010, RAC meetings should occur twice a month, at a minimum, for the first year and then monthly thereafter. A designated team leader will be needed, along with action plans, status reports, and a database reporting tool that is easily accessible by all team members.

With the strategic steps of risk assessment and leadership complete, staffing decisions must shift to the logistical aspects of RAC. The processes involved with receiving and filling RAC requests, tracking RAC activity, and managing RAC appeals proved to be the most labor-intensive throughout the RAC demonstration project, leading many hospitals to outsource day-to-day tasks and search for new technology solutions.  

Receiving and filling RAC requests. Responsibility for receiving and filling RAC requests is part of the release-of-information function. Typically housed within the HIM department, additional personnel in this area are critical to meeting submission deadlines and mitigate RAC takebacks. Thirty-seven percent of hospitals anticipate an increase in medical record requests due to complex RAC reviews, and results of the demonstration project support this belief (Hospital ROI Market & Partner Model Assessment, Standpoint Market Research, May 2009).

Lee Memorial initially staffed the "receive and fill" function internally during the demonstration project. HIM staff charged with the release-of-information function were responsible for finding, photocopying, and sending medical record copies to the RAC. Lee Memorial also had a full-time employee dedicated to reviewing each record prior to submission to the RAC.

Within the first year, Lee Memorial turned to an outsourced partner to take over the initial steps (receiving request letters, retrieving records, scanning documents, and sending copies to the RAC). Six months later, the outsourced partner also assumed responsibility for the initial record review. By outsourcing this step, staffing burdens were dramatically reduced, and the responsibility to meet RAC deadlines was turned over to the outsourced partner.

The partner also provided a robust RAC database for use by Lee Memorial's internal team and RAC coordinator. Also used by Lee Memorial to track appeals, the original system has been greatly enhanced and expanded to support internal review of cases prior to submission, e-delivery of records to the RAC, and extensive RAC reporting for financial risk analysis and appeals outcome auditing.

Hospitals that continue to perform the release-of-information function internally will find they need additional staff for RAC complex reviews. To calculate how many additional staff members will be needed to perform this function, a hospital should first establish a baseline of current record request volumes and ROI staffing. The hospital then should calculate an approximate number of requests per FTE assigned to this task. The second step is to calculate the maximum number of new medical record requests that may be received every 45 days from the RAC and increase staffing accordingly.

To do this, hospitals should calculate 1 percent of all claims (inpatient and outpatient) submitted to Medicare per campus unit for the prior fiscal year and divide this number by eight. This number represents the maximum records the RAC can request from each campus unit every 45 days. There is a cap of 200 requests through April 1, 2010, per campus unit and 300 requests per campus unit from April 1 until October 1, 2010, although RACs can request permission from CMS to exceed the cap after the first six months of the fiscal year.

According to an announcement by CMS on Dec. 2, 2009, a campus unit may consist of one or more separate facilities/practices operating under a single tax ID number (TIN), but must be physically located within zip codes displaying the same first three digits. Locations outside of the same first three zip code digits represent a second "campus unit," regardless of TIN.

Tracking RAC Activity. Request letters trigger a complex series of decision letters along with denial, rebuttal, and appeal deadlines. In this phase, technology should be used and made easily accessible to the RAC team and coordinator. During the demonstration project, many hospitals relied on Excel spreadsheets and ACCESS databases. These desk-top applications will probably suffice for smaller hospitals (fewer than 100 beds) and physician practices. Based on feedback from demonstration project participants, larger hospitals or organizations with multiple campus units will need more tools to capture RAC activity.

Managing RAC appeals. Concurrent appeals are inevitable. Staff involved in RAC appeals management should have excellent project management skills and strong attention to detail. In addition to the RAC team and coordinator, revenue cycle experts should be involved in the appeal process to closely track the dollars at risk throughout the process and understand the real-time impact of this process on cash flow. Dashboards within the RAC tracking tool will support this effort.

Other staff involved in the appeals process should include those in case management, coding, medical staff, and compliance. Hospitals might also consider employing outsourced physician advisers to supplement the RAC team. Such advisers could help with writing appeal letters, meeting with RAC representatives, and educating medical staff. Employing an outsourced physician adviser might also be considered when:

  • No internal physician adviser on staff or readily available
  • Existing medical staff are not fully engaged with RAC efforts
  • The current physician climate/hospital relationship is highly political
  • There are high levels of denials for medical necessity or patient status issues

Analyzing RAC outcomes. The last step to consider from a staffing perspective resembles the first step and involves some of the same key personnel: finance, IT, and HIM. Hospitals should also use analytical tools and technology in this final, strategic step to identify trends and improve processes. Information gleaned from RAC analytics can be used to:

  • Determine the cost-benefit ratio for RAC appeals (Which cases are worth pursuing an appeal?)
  • Pinpoint areas of weakness by diagnosis, procedure, physician, coder, etc., and take corrective measures to prevent future denials
  • Quantify the financial impact of RAC and conduct a comprehensive analytical assessment of risk

With the help of analytics tools, staff assigned to this task will be exponentially more efficient and easily able to determine the cost of RAC in human resources, time, and Medicare take-backs. This type

of software also will help mitigate future financial loss and identify what amount of money should be "set aside" to prevent underfunding of RAC.

Finding the Best Candidates

Through each step in the RAC cycle discussed above, ideal candidates should be detail-oriented, analytical, and possibly experienced with other types of external audits or reviews. Physicians involved with RAC should possess strong conflict management, communication, and education skills as they team up with peers to rebut RAC decisions and process appeals.

Potential RAC candidates can be found within existing ranks of HIM, case management, compliance, and revenue cycle. These professionals are often searching for new career paths and high-profile venues for professional growth.

Hospital staff will be one of a hospital's strongest front lines of defense when the next wave of recovery projects and audit programs invade. Although much can be accomplished by having the appropriate systems to manage RAC reviews in place, the right staff are essential to ensuring that those systems fulfill the organization's needs and goals.

Lori Brocato is revenue cycle product manager, HealthPort, Alpharetta, Ga., and a member of HFMA's Georgia Chapter (Lori.Brocato@HealthPort.com).

Nancy Hirschl is president, Hirschl & Associates, Laguna Niguel, Calif. (nancy@hirschl.net).

Stanley Padfield is system director, HIM, and patient information privacy officer, Lee Memorial Health System, Fort Myers, Fla. (stanley.padfield@leememorial.org).

Calculating the Financial Risk of RACs

Questions to ask when assessing the financial risk of RAC audits include:

  • For the known RAC targets, do we have known deficiencies in coding or clinical documentation?
  • Have we already conducted internal or external audits in these areas?
  • Should additional education or staffing resources be applied to these specific areas?
  • By mining our existing data, can we find any hidden trends or anomalies?

RAC Team Roles

The American Health Information Management Association (AHIMA) identifies the following roles as critical to a successful RAC team ("Recovery Audit Contractor [RAC] Toolkit," 2009):

  • Senior leadership
  • Finance/revenue cycle
  • Clinical documentation management
  • HIM
  • Case management/care coordination
  • Corporate compliance
  • Business office (operations, Medicare specialist, and denials management)
  • IT support services
  • Clinical departments (as needed)
  • Legal medical management

Suppliers for RAC-Compatible Tools

The American Hospital Association (AHA) has identified six suppliers of RAC activity management tools as "RACTrac Compatible" (www.aha.org). Additionally, AHIMA recently published a list of data points that the RAC tracking tool should capture (Johnson, K., et al., "RAC Ready," Journal ofAHIMA, February 2009).

Publication Date: Friday, January 01, 2010

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