THRIVING IN THE AGE OF THE RAC AUDIT

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1 THRIVING IN THE AGE OF THE RAC AUDIT JEREMY RITTIERODT, MSN, RN, CCM, CTT+ ACCOUNT EXECUTIVE, MCG In 1999, Sarasota Memorial, one of the largest public hospitals in the United States and the second-largest employer in Sarasota County, Florida, was astonished to learn that one out of every two of its inpatient days was avoidable. A chart review by a consulting team revealed that its delay rate the aggregate number of days patients were staying in the hospital unnecessarily in a given period divided by the total number of inpatient days was a whopping 49%. Patients were safe to move, says Greg Borden, Senior System Analyst. We just weren t moving them. Like other large hospitals, Sarasota Memorial opted to address the problem by focusing on the reduction of physician-related delays. To that end, it developed a robust integrated case management program that included evidence-based guidelines to support appropriate level of care decisions and a team of case managers to track compliance with medical necessity criteria. Supported by MCG, Sarasota Memorial s overall delay rate has fallen from 49% to 6.5% today, and its physician-related delay rate is a remarkably low 0.2%. The majority of remaining delays are systemrelated delays stemming from inadequate resources or limited options for transitioning patients to post-acute care. Sarasota Memorial s success rests on a culture of clinical discipline: discipline to review medical necessity against evidence-based guidelines, and discipline to document every decision carefully. We run a quarterly report of physicians with six or more physician-related delays, explains Borden. The first time we ran it, 75 physicians were on the report. When I ran it the other day, only three names came up. That level of discipline has not only improved patient care and bed capacity, but vastly reduced the hospital s exposure to audit-related financial risk. Challenge With a look-back period of three years, RACs are recouping Medicare payments for admissions and procedures deemed medically unnecessary. Between 2010 and the second quarter of 2012 alone, they reviewed a total of $5.3 billion in Medicare payments. Solution Two hospitals Sarasota Memorial in Sarasota County, Florida and Wenatchee Valley Medical Center in eastern Washington have developed robust integrated case management programs based on MCG s evidence-based decisionsupport products. Outcome Evidence-based decisions and thorough documentation have enabled these hospitals to limit most RAC activity to the initial discussion stage and effectively pursue the appeal of RAC denials.

2 The Dawn of the RAC As Sarasota Memorial has worked over the past decade to realize its goal of disciplined, evidence-based case management, healthcare in the United States has evolved considerably. The federal government has been waging a campaign to cease reimbursement for services deemed medically unnecessary, including prolonged hospital stays. By starting relatively early, Sarasota Memorial has put itself in a strong position to avoid and, if required, successfully appeal medical necessity denials. Recovery Audit Contractors (RACs) have been at the forefront of the CMS effort to rein in spending on inappropriate care. Inpatient admission and length of stay decisions have been primary targets of RAC audits, since these have a profound impact on healthcare spending. RAC audits differ from other CMS audits in two important ways: RACs retrospectively identify and recoup improper payments, with a look-back period of three years, and for each dollar of under- or overpayments identified, they receive a percentage as compensation. agencies, laboratory services, ambulance services, skilled nursing facilities, inpatient rehabilitation facilities, critical access hospitals, longterm acute care hospitals, ambulatory surgical centers, and other provider types have all been vulnerable to RAC audits. However, of these, RACs have primarily targeted inpatient hospitals. The demonstration project initially focused on California, Florida, and New York, which had the highest Medicare utilization rates. Massachusetts, South Carolina, and Arizona were added in All told, the demonstration project identified more than $1.03 billion in improper payments, including $980 million in overpayments and $37.8 million in underpayments. Of the $980 million in overpayments, RACs collected $828.3 million from inpatient hospital facilities. Sarasota Memorial s overall delay rate has fallen from 49% to 6.5% today, and its physicianrelated delay rate is a remarkably low 0.2%. Before 2003, federal law did not allow CMS to conduct retrospective audits. Section 306 of the 2003 Medicare Modernization Act authorized a threeyear demonstration project to use RACs to identify improper payments and recoup overpayments. During the program s demonstration period, from March 2005 to March 2008, RAC contingency fees ranged from 18 38%. RACs were initially responsible for post-payment review of Medicare A and B (fee-for-service) claims and for identifying all improper payments, including incorrect amounts, noncovered services, inaccurate codes, and duplicate billing. Inpatient and outpatient hospitals, home health Nurses station in the emergency room at Sarasota Memorial As part of the Tax Relief and Health Care Act of 2006, Congress made the RAC program permanent and expanded it to all 50 states, beginning in WP.02/13 Page 2

3 Where Hospitals Currently Stand RAC audits place a heavy burden on an organization s financial resources. According to the American Hospital Association (AHA), when a medical record is requested for a complex denial, the average dollar value of the claim in question is more than $9,500. The cost of managing documentation requests and appeals presents an additional financial burden. CMS has established a cap of 400 documentation requests per hospital every 45 days; however, certain large providers can be subject to as many as 600 requests in the same period. Multi-facility organizations can have a separate cap for each facility, depending on geography. Small facilities with limited Medicare volumes are not exempt from RAC documentation requests. Hospitals typically use revenues from reimbursements upon receipt, so the three-year look-back period presents another challenge. Any funds a RAC ties up or recoups can have a significant impact on hospital operations. To date, most hospitals have been fairly reticent about their experience with RAC audits, so the true impact is not entirely clear. This may stem from concern that high volumes of denials could create a public perception of poor care, or hospitals may simply be reluctant to release information competitors could use against them. Either way, RAC audits are creating challenges for providers. In a survey of 2,266 hospitals 39% of all registered hospitals in the United States the AHA found that, between 2010 and the second quarter of 2012, $5.3 billion in Medicare payments were evaluated by RACs, or roughly $2.3 million per facility. While large hospital systems may be able to absorb some of the losses associated with these audits, small hospitals could be forced to reduce services or staff. Recurring losses from denials, the cost of record requests and appeals, and interest charges could, in a worst case scenario, even lead to an organization s financial insolvency. There is every indication that the federal government intends to continue and expand the RAC program. In 2010, by executive order, President Obama set three goals for curbing improper payments: reducing payment errors by $50 billion, halving the Medicare error rate, and recovering $2 billion in improper payments. To that end, CMS has introduced a prepayment review demonstration program in 11 states, allowing RACs to review for medical necessity prior to reimbursement. Of these states, seven have large populations of fraud- and error-prone providers 1 and four have high volumes of claims for short inpatient hospital stays. 2 The Recovery Audit Prepayment Review demonstration project will initially focus on MS-DRG 312 (Syncope and Collapse). At two-month intervals following its implementation, more diagnoses will be added: Stage 1 MS-DRG 069 (Transient Ischemia) MS-DRG 377 (GI Hemorrhage with MCC) Stage 2 MS-DRG 378 (GI Hemorrhage with CC MS-DRG 379 (GI Hemorrhage without CC/MCC) Stage 3 MS-DRG 637 (Diabetes with MCC) MS-DRG 638 (Diabetes with CC) MS-DRG 639 (Diabetes without CC/MCC) 1 Florida, California, Michigan, Texas, New York, Louisiana, and Illinois 2 Pennsylvania, Ohio, and North Carolinaa, All told, the demonstration project identified more than $1.03 billion in improper payments, including $980 million in overpayments and $37.8 million in underpayments. In a survey of 2,266 hospitals 39% of all registered hospitals in the United States the AHA found that, between 2010 and the second quarter of 2012, $5.3 billion in Medicare payments were evaluated by RACs, or roughly $2.3 million per facility. WP.02/13 Page 3

4 If it follows the pattern of past demonstration projects, CMS will eventually roll out the prepayment program to the rest of the country. Moreover, as RACs begin looking at specific diagnoses for prepayment review in 11 states, they may begin scrutinizing them in standard RAC audits in the other 39 states. Another CMS demonstration project, launched January 1, 2012, is letting 380 participating hospitals rebill denied Part A services as Part B services, eligible for 90% of the Part B reimbursement. Historically CMS has not allowed the rebilling of patients at a lower level of care following discharge. A hospital has had to make sure that documentation in the medical record supports the level of care to which a patient is assigned, or it will lose its entire reimbursement. While the Part A to Part B Rebilling Demonstration offers hospitals an option they have long sought, it is not without risk. Hospitals that select this option waive their appeal rights and cannot bill beneficiaries for co-pays or additional out-of-pocket costs. Evidence-Based Decisions and Documentation The complex nature of the RAC appeals process and the significant revenue at stake underlines the need for careful and convincing documentation of admission and treatment decisions. Sarasota Memorial s integrated case management system, the brainchild of its medical director, Dr. Frank Burns, has been integral to its RAC audit defense. Dr. Burns and his team began by auditing the hospital s records to identify missing documentation and creating a tighter protocol, introducing MCG content to physician staff and training case managers. The evidence-based care guidelines enable our physicians to make informed decisions, says Colleen Ryan, Manager of Integrated Case Management. Everyone knows what we re planning as far as the disposition on a patient and how many days we need to get that accomplished. In rural eastern Washington, Wenatchee Valley Medical Center built a similarly robust guidelines-based process to support physician decisions. Its administrators and board of directors did not know what to expect several years ago as they began to prepare for RAC audits. They did not have a dedicated system for reviewing, documenting, and defending every admission decision, but the hospital believed it would need one. The Center s medical director, Dr. Stuart Freed, created a utilization review team consisting of two registered nurses, who follow a rigorous protocol for reviewing, documenting, and obtaining physician approval on all hospital admissions. The review system, one of the few that provides nurses with this level of admissions authority, was endorsed by Wenatchee Valley Medical Center s physicians and staff, as well as its board of directors. The review process begins when a physician determines a patient needs to be treated in the hospital setting, and it includes all patients, no matter the funding source. The utilization team determines whether a patient s procedure is on the Medicare Inpatient Only Procedures List (HCPCS Codes paid only as inpatient procedures). If not, the utilization team determines whether to assign the patient to inpatient or observation status. There is a lot of gray area if we try to rely only on Medicare guidelines, explains Laurie Bergman, R.N., M.N., WP.02/13 Page 4

5 head of the Center s utilization team. From the beginning, our goal has been to have clearly documented reasons for our admissions decisions and strong evidence to back them up. For Bergman and the team of physicians at Wenatchee Valley Medical Center, MCG s evidence-based best practices have provided a common language for admissions decisions. If we have a question about a doctor s decision, the ability to show them not only the care guideline but also the source material it s based on allows us to have a very productive conversation, said Bergman. The doctors nearly always agree with the guideline, because nobody has the time to stay up on all the current scientific literature. Evidence- Based Case Management Produces Results For any case management program, patient outcomes are the first measure of success. By managing and building relationships with primary care and post-acute facilities, Sarasota Memorial has been able to move patients to post-acute care more quickly and safely without seeing an uptick in readmissions, which remain low. says Bergman. To date, her team has had most of its medical-necessity RAC denials dismissed during the initial discussion period. Medical necessity denials are the most expensive, moreover. They represent a high percentage of RAC denials overall, and they are usually the more costly ones. There are small dollar RAC denials for billing errors, and they can be as little as $24, explains Borden, but each inpatient medical necessity denial can cost us thousands. Making a long-term investment in integrated case management has yielded tremendous results for Sarasota Memorial. During the RAC project demonstration period, U.S. hospitals overall appealed 22.5% of overpayment determinations with a 7.6% success rate. Over the same period, Sarasota Memorial appealed 36% of its overpayment determinations with a 91% success rate, saving it millions of dollars. If we have a question about a doctor s decision, the ability to show them not only the care guideline but also the source material it s based on allows us to have a very productive conversation. The second measure of success is the degree to which a case management team can establish medical necessity during an audit. For both Sarasota Memorial and Wenatchee Valley Medical Center, the care guidelines have been particularly persuasive with RAC auditors. It has been extremely useful to point to the guideline we used to support our decision, because they clearly respect this evidence, When it opened its doors November 2, 1925, Sarasota Hospital had only 32 beds and was operated by the Sarasota County Welfare Association Sarasota Memorial s integrated case management program has also helped head off the majority of RAC denials at the initial discussion stage. To date, the hospital has had about 2,600 RAC cases initiated through requests for WP.02/13 Page 5

6 records. Based on the strength of its evidence-based documentation, 1,600 of these never reached the denial stage. The other 1,000 record requests are in varying stages of review or appeal. RAC auditors and hospitals do not always agree on what clinical evidence is the most compelling, or how to interpret that evidence, but basing medical necessity discussions on the evidence does promote better understanding. Even if we can t get a denial overturned, we do at least make the RAC rethink its position, says Borden. Sometimes we discover ways to make better judgments on our side and reeducate our case managers accordingly. The Ingredients of an Effective RAC Strategy Managing patient record requests and appealing denials requires the support of many roles. Hospitals can outsource these responsibilities, fulfill them in-house, or vary the approach by role. Hospitals that manage denials internally usually have an appeals coordinator, denials specialist, case manager, or other designated person to determine whether each denial warrants an appeal. Staff reviewing charts decide whether the documentation of a patient s stay supports the level of care billed and then weigh that determination against the reasons for denial and projected cost to appeal. Quick decisions to appeal are key. If a hospital submits an appeal within 30 days of receiving a demand letter, the RAC will delay recoupment until a decision is rendered or a deadline is missed. Overpayments collected through recoupment are subject to an interest rate set by the U.S. Department of the Treasury (currently 10.5%). Hospitals can avoid the interest charge by repaying the alleged overpayment within 30 days of receiving the demand letter. If the hospital successfully appeals the denial, that payment will be reimbursed. If a hospital does not respond, recoupment begins on the 41st day after the date on the demand letter. During recoupment, CMS reduces future reimbursements by the amount the hospital allegedly owes, beginning with the oldest debt. Interest charges are paid before principal. The recoupment process can at times lead to a situation where a hospital is paying interest for an extended period and not receiving any payments from CMS. Today s audit-heavy healthcare landscape may appear bleak, but there is much a hospital can do to limit its liability. The first step is knowing who is performing its RAC audits. As part of the RAC Statement of Work, RACs must regularly report on all issues that could pose financial risk to audited organizations. By identifying issues its RAC will target, a hospital can develop processes to mitigate the related risks. Most of the time, medical necessity denials stem from hospitals assigning patients to the inpatient level of care without sufficient justification. Effective documentation addresses this problem by articulating the rationale for the level of care a patient has received, explaining the need for continued hospitalization with an emphasis on the clinical milestones patients must meet to be ready for discharge. Hospitals that mitigate the impact of RAC audits successfully have coordinated case management programs with buy-in from multiple organizational levels. Establishing medical necessity is always the primary challenge. A hospital admits the majority of its patients through its emergency department. Putting case managers in the emergency During the RAC project demonstration period, U.S. hospitals overall appealed 22.5% of overpayment determinations with a 7.6% success rate. Over the same period, Sarasota Memorial appealed 36% of its overpayment determinations with a 91% success rate, saving it millions of dollars. Ingredients of an Effective RAC Strategy Establish clear indications for admission and procedures Completely and accurately document all clinical decisions Measure patient progress against optimal care pathways Track and report on variances from optimal care Identify and prepare for issues RACs are targeting Respond promptly to RAC demand letters Place case managers in the emergency department, seven days a week Use internal audits to prepare for RAC audits WP.02/13 Page 6

7 department to coordinate with emergency physicians and bring evidence-based criteria to bear on clinical decision-making is key to reducing denials. Supplementing an emergency department s social worker with a case manager can also help reduce inappropriate admissions, prepare patients for discharge, and improve patient satisfaction while decreasing costs. nursing leadership to educate staff on current regulations and contracts, address avoidable delays, and make sure that everyone understands medical necessity. Physician advisors can also provide leadership in denials management and process improvement for the hospital. Acute care physicians also need to understand how to differentiate between levels of care and apply evidence-based criteria. Many emergency departments still contract with independent providers who have their own metrics, which may include moving patients out of the emergency department within a certain time frame. Whether on staff or contract, all physicians in the emergency department should follow the same criteria for admission and level of care assignment. In effective case management environments, physicians work alongside case managers to track the ongoing status of admitted patients to facilitate early discharge-planning. Case managers document decisions against evidence-based milestones on a daily basis to confirm that patients are progressing and to flag variances. Staffing the emergency department with case managers seven days a week ensures that appropriate care is not delayed over the weekend. Variance documentation includes reports that the director of case management and physician advisor can use to develop corrective actions. As regulations evolve, physician advisors can help build a healthy relationship between case managers and providers, ensuring that patients receive appropriate, cost-effective care and that the hospital proactively minimizes the risk of RAC denials. Ideally, physician advisors will work with physicians, case managers, and Wenatchee Valley Clinic opened in 1940 Internal audits can highlight deficiencies and enable process improvements prior to RAC audits. They can also bring together staff who need to work together during actual audit situations, allowing them to identify additional resource requirements. A typical team responsible for RAC preparation and defense might include staff from hospital leadership, finance, health information management, corporate compliance/legal, denials management, case management, clinical documentation, and nursing. A RAC audit team establishes processes for staying up to date on rules and regulations, creating departmental policies and procedures, and educating (continued on page 9) WP.02/13 Page 7

8 Gauging the Stress of a RAC Appeal Hospitals must weigh the potential benefit of each appeal against the stress of the RAC appeals process. Cases with poor documentation require more administrative resources, take longer to appeal, and create greater financial uncertainty. Low 1 2 Redetermination To avoid automatic recoupment on Day 41, hospital must request a redetermination within about 30 days of the date on the denial letter Hospital must submit documentation supporting the redetermination request within about 120 days Medicare Administrative Contractor (MAC) has about 60 days to issue a determination Reconsideration Hospital has about 180 days from the date of the redetermination to issue a written appeal for reconsideration A Qualified Independent Contractor (QIC) reviews the appeal and has about 60 days to issue a decision 3 4 Administrative Law Judge (ALJ) Hearing Hospital has about 60 days from the date of the reconsideration decision to file a written request for an ALJ hearing (minimum amount: $130) ALJ hearings are not typically conducted in person; hospital may request a determination without a hearing The ALJ has about 90 days to return a decision Administrative Review by the Medicare Appeals Council Hospital has about 60 days from the receipt of the ALJ decision to request an administrative review by the Medicare Appeals Council The Medicare Appeals Council has about 90 days to issue a determination 5 Judicial Review in Federal District Court Hospital has about 60 days from the receipt of the Medicare Appeals Council decision to request a hearing (minimum amount: $1,350) No time limit for the court s determination High WP.02/13 Page 8

9 staff. When denial letters arrive, it reviews relevant cases to determine whether an appeal is appropriate and cost-efficient. If an appeal is warranted, it monitors and tracks it, analyzing the results to identify successful strategies for future appeals. Establishing an organizational commitment to compliance and defining key roles and responsibilities are challenging but necessary steps in mitigating the potential impact of RAC audits. Hospitals may need to make more upfront investments in staff time and money to reduce the work of denials management down the line. Breaking down departmental barriers and fostering dialogue about medical necessity makes everyone better stewards of healthcare while minimizing the financial risks of RAC audits. The L. Martin Mares Building at the Wenatchee Valley Medical Center, named after one of the hospital s founders About the Author Jeremy Rittierodt has more than 10 years of experience in the hospital setting. Before joining MCG, he held leadership and clinical positions in acute care and case management at Swedish Medical Center in Seattle, Washington. He has managed workflow changes, developed patient education programs, and taught best practice case management documentation and processes. Jeremy has also worked as part of a team that successfully implemented an electronic medical records (EMR) system across multiple hospitals. Jeremy holds Bachelor s degrees in Molecular Biology and Nursing from the University of Wyoming and a Master of Science degree in Nursing Administration from Seattle Pacific University. WP.02/13 Page 9

10 Bibliography American Hospital Association. Exploring the Impact of the RAC Program on Hospitals Nationwide Results of AHA RACTrac Survey, 1st Quarter May 10, Retrieved from American Hospital Association. Exploring the Impact of the RAC Program on Hospitals Nationwide Results of AHA RACTrac Survey, 2nd Quarter Aug 22, Retrieved from American Hospital Association. Fast Facts on US Hospitals. Jan 3, Retrieved from fast-facts.shtml American Medical Association. Fact Sheet Recovery Audit Contractors (RACs). (n.d.). Retrieved from ama1/pub/upload/mm/399/rac-fact-sheet.pdf Bristow, DP and Herrick, CA. Emergency Department Case Management: The Dyad Team of Nurse Case Manager and Social Worker Improve Discharge Planning and Patient and Staff Satisfaction While Decreasing Inappropriate Admissions and Costs: A Literature Review. Nov/Dec Lippincott s Case Managment, 7(6): Centers for Medicare & Medicaid Services. Fact Sheets: CMS Announces New Demonstrations to Help Curb Improper Medicare, Medicaid Payments. Nov 15, Retrieved from https://www.cms.gov/apps/media/press/factsheet.asp?counter=4176&intnumperpa ge=10&checkdate=&checkkey=&srchtype=1&numdays=3500&%20srchopt=0&srchdata=&keywordtype=all&chknewstype=6&intpa ge=&showall=&pyear=&year=&desc=&cboorder=date Centers for Medicare & Medicaid Services. Medicare Fee-for-Service Recovery Audit Program Additional Documentation Limits for Medicare Providers Retrieved from Recovery-Audit-Program/Downloads/Providers_ADRLimit_Update pdf Centers for Medicare & Medicaid Services. Statement of Work for the Recovery Audit Program. Sep 1, Retrieved from pdf FedBizOpps.gov. Recovery Audit Contractor (RAC) Solicitation Number: RFP-CMS Retrieved from https://www.fbo. gov/index?s=opportunity&mode=form&id=5c8c7d4b00249ba579d4d77d64bd0aea&tab=core&_cview=1&cck=1&au=&ck= RAC Monitor. CMS Demonstration Programs for Part A-to-Part B Rebilling, Pre-Payment Review Come with Significant Implications for Hospitals and Other Providers Undergoing RAC Audits. Nov 28, Retrieved from U.S. Department of Health & Human Services. Interest Rates on Overdue and Delinquent Debts. Dec 31, Retrieved from WP.02/13 Page 10

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