The Rise of RACs-How to Protect Yourself from Bounty Hunting

By Bruce Hallowell

The demonstration project RACs collected more than $990 million in overpayments as of July 2008. Now, providers are gearing up for the RAC program to become a permanent feature in the reimbursement landscape.

The Reactive Approach: Be Ready for the RAC

The “ready-to-react” strategy focuses on understanding the RAC audit rules and setting up the process for responding to requests and notification. It involves only departments that will be directly involved in RAC communications and addressing the findings from the audit, such as patient accounts, HIM, IS, legal, and compliance. The strategy uses a four-pronged approach, starting with education and ending by responding aggressively.

Educate staff. Education on the process, responsibilities, timeframes, scope, and requirements is crucial for successfully navigating an RAC audit. Immediate education should be centered on what to do during the audit and include those areas directly involved in the process. For instance, coders and filers should know which types of claims are eligible to be part of the audit, and which are not. If an audit is not imminent, education can be extended to supporting areas such as registration, case management, and care delivery to fill staff in on requirements and identify potential problems and fixes.

Assign roles and responsibilities. Every hospital needs to identify a liaison to be in charge of receiving communications and dealing directly with the auditors once notification of the audit is received. A special RAC response team should also be established and assigned to work with the liaison(s) to meet deadlines. It is important for this team to facilitate communication between departments in order to eliminate delays. HIM and medical records staff will be needed to pull records and develop a factual record as a foundation for challenges. Legal and financial staff can help prioritize the most important cases.

Document policies and procedures. Policies and procedures should be developed to address all notifications—requests for medical records and claims determinations--and the actions the hospital will take on each type. For example, when an RAC sends a notice of overpayment, the provider can either submit a rebuttal to the RAC or appeal the finding with the fiscal intermediary (FI) that processed the claim. The procedures identify when each option will be executed and who will be responsible. There should also be a process to monitor all interactions with the RAC, from monitoring remittances, to maintaining records of the RAC review requests, to logging all subsequent documentation and communications.

Defend and dispute. When the notifications and requests for records arrive, act immediately: Review, analyze and definitely dispute the notification of problems. Track every notification and milestone so no deadlines are missed (or money lost). Each disputed claim is additional work for the RAC and the FI, who also have resource constraints. And there is a growing track record of success. For example, a recent report from the Centers for Medicare & Medicaid Services (CMS) indicates that nearly 60 percent of the RAC determinations in New York State were overturned on appeal (The Medicare Recovery Audit Contractor Program: An Evaluation of the 3-Year Demonstration Program, CMS, June 2008).

The Proactive Approach: Be Your own RAC

While the reactive strategy addresses immediate issues and requirements, a proactive strategy is a far better long-term solution. By understanding the likely targeted areas and then conducting their own RAC assessment, hospitals can make corrections to claims and documentation before the auditors arrive. Beyond the immediate fixes, the results of an internal RAC-like audit can reveal opportunities for gains in operational efficiency and performance. The following steps briefly outline the work undertaken by proactive organizations in preparation for a RAC audit tomorrow, next month—whenever.

Do your homework. Education is again the number one tactic, but the emphasis this time is on educating the providers and support staff who are directly involved in admissions, care delivery, case management during the patient’s stay, and patient diagnosis coding post-discharge. These individuals are the ones responsible for prescribing, delivering, and monitoring care—and documenting what was done. They are valuable resources for diagnosing and fixing problems.

The other aspect of doing your homework is the areas mostly likely to be targeted by the RAC. One helpful resource here is the recently-released report commissioned by CMS that evaluates the three-year RAC demonstration program (The Medicare Recovery Audit Contractor Program: An Evaluation of the 3-Year Demonstration Program, CMS, June 2008). According to this report, overpayments (which make up more than 90 percent of the errors) are categorized as medically unnecessary, incorrectly coded, no/insufficient documentation, or other. During the three-year demonstration, the first two made up 75 percent of the overpayments. As such, these types of errors should be top priority during an internal audit and assessment.

Complete an internal audit and risk assessment. The next step is to assess your exposure. Quantifying risks eliminates surprises, reduces uncertainty, and provides a more accurate picture of the organization’s starting point for making changes. Conducting an internal RAC-like audit and completing the appropriate risk assessments help to delineate the full scope of the problem. An internal audit also engages the entire organization in planning action steps.

In keeping with standard audit practices, the review should not be done by the same people who originally coded the claims. Instead, skilled coders from internal audit, compliance, and quality control—or outside coding experts—should be used in order to provide the independence and objectivity needed to uncover problems without bias.

The goal is to review 100 percent of claims. Once you have completed the initial audit, you should schedule audits of new billing at least once a quarter to ensure compliance.

Take corrective actions. One of the major benefits of conducting an internal audit proactively is that it gives an organization more time to fix errors. The point is to analyze the results of the assessments and audit to determine both short-term and long-term plans for correcting problems and implementing people, process, and technology changes.

The most urgent change is to correct overpayment claims and resubmit them before the RAC arrives. Many cases will require relatively minor action, such as going back and filling in blank spaces on forms, correcting minor coding problems, and ensuring that all of the relevant documentation has been included in the medical record. If time and resources permit, the internal audit team can consider asking for a partial payment or ask other payers if they would agree to pay the claim if it were theirs (Foley & Lardner LLP and PricewaterhouseCoopers LLP, The Recovery Audit Contractor Initiative: What You Need to Know and What You Can Do to Prepare for RAC in Massachusetts, Presentation to the Massachusetts Health Information Management Association, May 2007).

At this stage, the internal audit project team can begin to identify the long-term changes that need to be made to clinical systems, financial systems, and underlying processes to prevent recurrence of errors. These changes will help ensure that the root causes of improper payments, not just the claims themselves, are corrected before more errors accumulate.

Changes to the clinical documentation system can include additional data fields to capture everything needed to substantiate conditions that are present on admission and record (in data format) all of the diagnostic and care delivery services provided. Alerts to remind care providers and support staff about missing documentation or services will further improve the hospital’s likelihood of faring well during a RAC audit.

There may be similar changes in the revenue cycle system prior to and post-discharge to fully capture the necessary patient condition and diagnosis data. Business decision support alerts built into the application can also identify potential claims problems before they are submitted. The audit team, consisting of internal experts, is charged with the task of identifying what is wrong and working with the various departments to correct the problems.

Typical audit questions that hospitals should be able to address include the following:

• Are patients being registered correctly, especially when they have Medicare as a secondary payer?
• Are Medicare secondary payer questionnaires completed correctly?
• Does the hospital staff issue advanced beneficiary notices appropriately?
• Do the payments fully reflect the services that are included in the medical record?
• Is there a process for auditing the chargemaster? What is it and how often is it done?
• Is there a process for tracking all charges from service rendered (source system) to inclusion on the patient’s bill?
• Is there a process for crediting unused medications and/or supplies back to the patient account?
• Is there a person responsible for verifying that payments received are correct based on the claims submitted?

For all of the above questions, the audit function should verify that checks and balances are in place to make sure the work is done accurately and completely.

Establish an ongoing performance program. Key to long-term financial performance is an ever-vigilant program that monitors progress against the current plan and makes changes based on new internal and external influencing factors, such as:

• IT systems implementation (for example, meeting current and proposed documentation requirements and incorporating the latest knowledge-based alerts and reminders)
• Federal and state regulations
• Additional areas for RAC and other payer audits

Implementation and monitoring of payer pay-for-performance requirements addressing these new factors are no longer just within the boundaries of the revenue cycle, because they also involve care delivery and documentation and quality improvement. Gone are the days of siloed committees charged with auditing and improving the chargemaster, the Medicare questionnaire process, or charge capture tracking. Effective performance management depends on a thorough understanding of all of these facets and the ability to affect change quickly and effectively.

Every hospital is different, but all hospitals need an audit function to ensure that processes are implemented properly and an ongoing performance program, including a senior-level governance structure, to oversee the audit function and authorize changes across the enterprise.