George Colman
Vincent Acquisto
Barbara Skier
To date, healthcare organizations in only a few states have experienced the financial impact of the RAC program, but soon, the program’s reach will span the United States.
At a Glance
- CMS’s changes to the recovery audit contractor (RAC) program may not be sufficient to resolve lingering concerns.
- With the national RAC program looming, providers should be alert to the challenges the program poses and start developing a strategy to address them.
- Filing appeals to challenge RAC determinations can be a lengthy process, requiring a substantial amount of organization and determination.
The federal government believes that the recovery audit contractors (RAC) program, which is scheduled to go national at or before the start of 2010, will recover about $3 billion in overpayments to providers. The Centers for Medicare and Medicaid Services (CMS) has tested the program in a demonstration project initially in three states: California, Florida, and New York. CMS has had time to take stock of the program and make adjustments in preparation for its ultimate expansion to a national program.
Yet questions remain: Are the changes to the program sufficient to adequately address all of the objections to the program? And when the program begins to take effect for all U.S. healthcare providers, how should providers prepare for it?
The RAC Review Process
A brief overview of the RAC program is provided in the (sidebar). Once the national program is under way, healthcare providers across the United States will begin to routinely experience the RAC review process. For those as yet unfamiliar with the process, here’s a quick look at how it works.
RACs perform two types of reviews: automatic reviews and complex medical reviews.
An automatic review is a computerized analysis of claims and coding practices. An example of the type of errors identified might be where the provider billed for two units of physical therapy evaluation (a non-time-based procedure may be billed only once).
By contrast, in a complex medical review, auditing personnel study the actual medical record or other documentation. Such a review could, for example, lead to a denial of payment for admission to an inpatient rehabilitation facility (IRF) as not medically necessary, or the recalculation of resource utilization group (RUG) score based on a documented resource use.
In either case, the review process comprises several basic steps: The RAC requests records from a facility, reviews the record and makes the determination, and then communicates with the facility by letter with the reasons. The RAC also communicates the determination to the fiscal intermediary (FI), which then adjusts reimbursement and documents the adjustment via a remittance advice.
Of course, the facility may rebut an unfavorable decision.
Areas of a RAC review vary between states. Frequent targets in California include diagnosis-related group (DRG) assignments for joint diagnoses, RUG categories, Part B billing, one-day stays, and IRF admissions.
Objections to the RAC Program
The RAC program has been subject to criticism for many reasons.
Some critics have questioned the RAC program’s emphasis on capturing overpayments. Although the program is also intended to identify underpayments, the amount of underpayments identified as of March 2008, $10.4 million, is far below the several hundreds of millions of dollars in overpayments that have been identified, giving the unmistakable impression that the program is steeply tilted in CMS’s favor versus providers.
Another common criticism is that contractors are paid on a contingency fee basis, which means that they have a financial incentive to find alleged errors. Some critics have expressed concern that such an incentive could tempt RACs to identify errors where none actually exist. Moreover, the contingency fees reflect an additional cost to the Medicare program and the nation’s healthcare system, even taking into account the monies that CMS hopes to recover through the program.
Critics of the RAC demonstration also have expressed concern that RAC medical reviews and collections were being performed by unqualified, unlicensed personnel in a manner inconsistent with Medicare rules and regulations. Hospital associations in many of the states have requested that the Office of Inspector General investigate the auditing practices of the different RACs.
Another common complaint is that letters informing providers of the RAC’s determination have tended not to be specific, often providing only a general statement that the admission or service does not meet Medicare criteria. The provider is thus forced to review its entire medical record to prepare an appeal. Providers are already concerned about the strain on their resources to respond to a high volume of RAC requests, notwithstanding the significant resource commitment required to meet an overpayment determination that the provider believes is unjustified.
And still other concerns have been voiced. Key questions include: What impact will denials have on monies received from patients and secondary insurance for copays and deductibles? Will those amounts need to be adjusted and refunded? To what extent will past claims be subject to new standards? And will the increase in denials resulting from the program lead to reduced access for medically appropriate care and treatment for patients?
Remedial Measures
These objections have not fallen completely on deaf ears. Steps have been taken by states, the federal government, and CMS to improve the program. Here’s a look at some activities and developments.
The California experience. In California, CMS has investigated concerns about the RAC charged, under a three-year contract, with reviewing Medicare payments to California providers. After several months of investigation, at the urging of U.S. Reps. Lois Capps (D-Calif.) and Devin Nunes (R-Calif.) and in response to concerns expressed by the California Hospital Association, CMS halted the RAC program during October 2007 to review the program. At the time, the program had already cost IRFs in California an estimated $105 million in denied reimbursement (see sidebar). CMS requested no more repayments and allowed no medical record requests while the process was reviewed.
CMS hired a company to conduct a validation review of some cases audited by the California RAC. The RAC agreed to forgo its commission on cases that are currently being overturned, and indeed, under its contract, it would be required to return its commission on cases overturned in the first two steps of the appeals process. (In subsequent changes to the program, CMS now requires a RAC to forfeit its commission on cases overturned at any time in the appeals process.)
Beyond the temporary halt to the program, the California Hospital Association requested that CMS address its underlying concerns of the program—in particular, the questions of whether qualified staff were being used to review issues of medical necessity and whether standards or guidelines are being established to allow for a more appropriate audit process and procedure on claims.
The national response. California Reps. Capps and Nunes introduced a bill into Congress, the Medicare Recovery Audit Contractor Program Moratorium Act of 2007 (H.R. 4105), which would place a one-year halt on the RAC program while CMS and the government accountability office conduct in-depth studies of the demonstration project. This bill has 42 cosponsors and potential for Senate support and/or a companion bill.
Hospitals affected by the RAC program have been asked by their respective hospital associations to contact their congressional representatives and request that changes be made to the program to reduce its financial impact on healthcare providers.
CMS’s response. CMS has responded to some concerns even in advance of the legislation presented in Congress. The following changes have been implemented:
- As previously noted, there will be no contingency fee when a denial is overturned at any level of appeal.
- Each RAC is now required to have a medical director.
- No claims with a payment date prior to Oct. 1, 2007, will be reviewed regardless of the actual start date for the RAC in a particular state.
- The look-back period for review will be limited to three years.
- Expansion of the RAC program will be staggered in particular regions and states.
- The number of medical records a RAC can request in a particular month will be limited to an as-yet-to-be determined number.
- A web-based application will be required to be in place by Jan.1, 2010.
How Providers Should Prepare
Healthcare providers should immediately begin to develop a strategy for preparing for the RAC program in their states. That strategy will require the creation of policies and procedures for addressing all RAC-related notifications. Procedures will be required for notifying clinical and reimbursement staff of requests for medical records and of the determinations, to monitor remittances for reimbursement and adjustment, and to maintain records of RAC review requests and all subsequent documentation and communications.
Dedicated staff will be needed to oversee these processes and perform various RAC-related tasks. These staff should come from the clinical-medical area, to handle questions of medical necessity, and from the financial area, to assess impact on overpayment and underpayment decisions. At least one compliance officer also should be included.
Providers’ records of RAC review requests and ensuing activity should include, in the very least, the following:
- Number of claims requested
- Number of denied claims
- Date of reimbursement or recoupment by CMS
- The amount of reimbursement recouped
- All communications between the facility and RAC
- Status of appeals
- Complete timelines
In some ways, it is difficult for healthcare providers to fully prepare for the RAC program because experience with the test program, the administrative law process, the follow-up secondary appeals, and litigation in the U.S. District Courts is as yet still limited. Nonetheless, as a consequence of the RAC program’s auditing activities, providers should reassess their operations, admission policies, referrals of patients to rehabilitation, and overall provider services to minimize their vulnerability to RAC reviews due to procedural and documentation deficiencies.
Ultimately, providers should fully understand the RAC appeals process so they can quickly and confidently launch an appeal of any RAC determination that appears to be unjustified and in error.
RAC to MAC: The Appeals Process
In considering appeals, providers should consider:
- The benefit versus the cost of the appeal
- The resources that would be required
- The quality of the medical records, charts, and other documentation
- The implications of challenging or not challenging the denials
- The availability of clinical support and input
- Whether legal counsel should be retained
The question of challenging or not challenging the denials warrants additional comment here. Not challenging a RAC’s determination could have a negative impact on a facility’s policies and procedures by giving credence to the RAC and causing the facility to institute changes in its patient care. The result could even be an increase in error rates, subjecting the facility to more medical audits.
A provider also has the option of requesting a payment plan, subject to interest, if it cannot financially bear a take-back or denial.
Providers can appeal the decision through a normal FI appeal process. During the process, the appeal may be to different persons or organizations, such as the FI, a qualified independent contractor (QIC), an administrative law judge, and the Medicare appeals counsel (MAC).
Filing rules. The filing rules, which are the elementary principles in the appeals process, basically state that filing deadlines begin from the date of the receipt of the RAC’s notice of its decision (presumed in law to be five days after the date of notice) and/or the date of the take-back. This date is referred to as the initial determination.
Appeals are deemed filed when they are received by the reviewing party.
The initial rebuttal. The provider has the option of submitting an initial rebuttal of a RAC’s determination that CMS should deny a claim and recover monies paid for the delivery of healthcare services. If the provider decides to submit this rebuttal, it must do so within 15 days of the initial determination. However, no such rebuttal is required to proceed to a next level of appeal, and results from initial rebuttals to date suggest that this step may even be a waste of the provider’s time and resources. Probably the most compelling reason to submit an initial rebuttal is to gain additional time for considering whether to move on to the first step in the formal appeals process—a “first level” appeal.
First level appeal. A first level appeal is also referred to as a redetermination. This appeal must be filed with the FI within 120 days of receipt of the initial determination. On the appeal, a provider should raise all issues and submit all relevant documents. The FI has 60 days to decide whether the RAC’s finding should be sustained or modified. Experience to date is that the initial determination usually is sustained after this level of appeal.
Appeal to the QIC. After receiving a decision of the FI, the provider has 180 days to file an appeal with the QIC. All issues need to be raised in this appeal and supported by all available evidence. Documents and evidence not submitted in this appeal will not be considered in any subsequent appeal, except at the discretion of other tribunals.
In an appeal before the QIC, no appearance by provider staff, clinical personnel, or legal counsel is necessary. The QIC has 60 days to make a decision. This level of appeal has rarely resulted in a reversal of the prior decisions.
Appeal to an administrative law judge. Sixty days after receipt of the QIC’s reconsideration decision, the provider may appeal to an administrative law judge in writing or via a face-to-face hearing or teleconference. This is the most formal appeal, short of a court proceeding, in the appellate process, and there has been at least one notable administrative law judge decision in San Diego in which prior denials were overturned.
The administrative law judge hearing is limited to the documentary evidence that was presented at the QIC level. Absent good cause, only the documents submitted at the initial appeal will be considered. Oral testimony is important at this level, and the administrative law judge may request that CMS or the FI participate as either a party or nonparty.
Generally, the hearing will be set within 90 days. Discovery, the legal term for the process of inquiring and gaining information about the appeal from the documentation presented, is permitted only if CMS or the FI participates as a party.
Providers should keep in mind that all cases involving the same issues may be consolidated for the hearing.
Appeal to the MAC. Sixty days after receipt of the administrative law judge’s decision, which may be 90 days after the actual hearing, the provider may submit an appeal to the MAC. The MAC may review the administrative law judge ‘s decision on its own motion, or at the request of CMS. This review is called a review de novo when appealed by a party. A de novo appeal by the MAC is a proceeding, as if a hearing before an administrative law judge had never taken place.
No appearance is required before the MAC, and the MAC may adopt, reverse, modify, or remand the case back to the administrative law judge. The appeal at this stage is limited to the record as presented before the administrative law judge and the possible submission, upon request, of a brief supporting the position of the appellant. The MAC’s decision will be received in all likelihood within 60 days following its review, although this time frame is not specified.
Further legal recourse. Sixty days after the receipt of the MAC decision, the provider, if still dissatisfied with the outcome, may file a legal proceeding in the U.S. District Court in the district in which the provider resides, questioning the
decision of MAC and the findings of the administrative law judge. The evidence presented at the U.S. District Court is limited to the administrative record only.
Factors and Arguments to Consider on Appeal
In considering an appeal, many factors come into play: There are strict deadlines that cannot be missed, and documentation to support the provider’s position on appeal must be secured in an appropriate filing or documentation retrieval system.
Clinical arguments should be specific and indexed to particular patients. Specific portions of the medical record referred to should be clearly organized and tabbed so they can be easily identified for presentation. The provider’s response should address, specifically, the reasons for the denial and emphasize why the provider believes that the services were medically necessary.
A number of arguments have been put forth on appeals that could be compelling to the entity hearing the appeal.
The claim or service was, indeed, medically necessary. The appeal should document that service was ordered by a physician who understands the appropriate rules governing the determinations that the services are medically necessary. These rules are often unclear, and the RAC is not likely to understand them nearly as well as the physician does. Moreover, if a physician has determined that a service is medically necessary, he or she likely would not know or have reason to know that the claim would not be covered. Often, providers are justified to question the qualifications of the RAC reviewer who made the determination that the service was not medically necessary.
Past experience has indicated that the service is covered. If the services were deemed medically necessary and covered in the past, the provider can make a compelling case that the services should not now be denied if they had never been audited and disallowed previously. The provider also may be able to point to other providers within the same community that are using the same standards.
The RAC legislation and program have inherent shortcomings. On appeal, a provider has every right to argue the legal issues underlying the RAC program. The financial incentive that RACs enjoy to receive a contingency payment based on the amount of dollars or cases that they recoup remains a controversial point of the program. The FI, QIC, or other entity hearing the appeal may find this point compelling in the provider’s favor.
The provider also should ask that the entity hearing the appeal examine whether the RAC’s assessment included a physician review and whether the RAC applied its own screening criteria and rules, without any CMS oversight or monitoring. Such a review could expose the RAC’s inexperience and the defectiveness of the contractor’s review.
A Murky Future?
Ordinarily, establishing an audit process is a legitimate means for the government to examine the provider community. However, it is critically important that such a program be established with appropriate standards and guidelines, and not be conducted by inexperienced contractors with skilled workers who are not given a financial incentive to find errors. The RAC program, it could be argued, has not enjoyed an excellent track record in this respect, and many concerns about the program remain for the future.
At this time, it is not clear what the outcomes will be for the overall appeals processes of providers already affected by the program. No final determinations have been issued in a U.S. District Court, although there have been many hearings before administrative law judges, and the California Hospital Association has reported an 88 percent overturn of the RAC denials.
For most of the provider community, beyond making what preparations can be made today, many of the challenges that the RAC program poses lie ahead in an uncertain future.
George Colman, JD,
is a partner, Stephenson, Acquisto &
Colman, Burbank, Calif., and a member of HFMA’s Southern California Chapter.
Vincent Acquisto, JD,
is a partner, Stephenson, Acquisto &
Colman, Burbank, Calif., and a member of HFMA’s Northern California Chapter.
Barbara Skier, JD,
is a senior associate attorney/nurse, Stephenson, Acquisto & Colman,
Burbank, Calif.