Hospital Client Alert H EALTH M ANAGEMENT A SSOCIATES. January 2009 RAC A UDITS. HMA Team. RAC Overview

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1 Hospital Client Alert January 2009 H EALTH M ANAGEMENT A SSOCIATES RAC A UDITS HMA Team Health Management Associates (HMA) has assembled an integrated team of financial, clinical, legal and administrative experts who will assist hospitals as they prepare for RAC audits. Our goal is to assist you in developing the necessary internal processes to identify RAC target areas, perform internal audits of those areas, assess your financial risk, and correct systemic problems before audits begin. Unlike most other RAC consulting firms, HMA does not simply focus on the Information Technology side of these audits, rather, HMA focuses on comprehensive RAC preparation. We help clients develop the internal processes needed to avoid financial risk and effectively respond to RAC requests. And because we firmly believe those organizations that perform internal audits and self report overpayments likely will be viewed as a less lucrative RAC target, we have focused our efforts on two fronts: 1) Helping clients fully understand the RAC process by providing RAC education to your executive leadership, an initial assessment of your RAC preparation and recommendations to improve your RAC audit readiness; and 2) Helping clients perform the detailed preparation needed to assess and respond to potential RAC issues by organizing internal and external resources and developing internal processes and competencies to mitigate financial risk, effectively respond to RAC audits and launch successful appeals when appropriate. Because of the financial incentive to target inadequately prepared organizations, we understand the importance of assembling your internal team of key individuals who are well versed in the RAC scope of work as well as the audit and appeals processes required to mitigate financial risk. Unlike other RAC solutions, our approach targets the entire RAC audit process from assessment to appeal and goes beyond to provide solutions for long term financial performance improvement. This comprehensive approach allows us to serve as a strategic partner in your RAC preparation. We understand, however, that a one size fits all RAC service is not the best solution because hospitals are at various stages of RAC preparation. Instead, we offer a variety of services that clients may choose based on their current needs. RAC Overview After collecting more than $900 million in overpayments and the return of almost $38 million in underpayments in the demonstration program i, Medicare is implementing the permanent Recovery Audit Contractor (RAC) program. Any provider or supplier that bills Medicare Parts A and B is subject to a RAC audit, including hospitals, critical access hospitals ii, physician practices, nursing homes, home health agencies, and durable medical equipment suppliers. As currently designed, the 1

2 RAC permanent program does not include the Medicare Advantage or Medicare prescription drug benefit programs. Each RAC will have exclusive jurisdiction in its region for the RAC audits of Medicare fee forservice claims that have not otherwise been reviewed by other Medicare contractors for improper payments. On October 6, Medicare released the names and RAC jurisdictions. HealthDataInsights Inc. (HDI), of Las Vegas, Nevada, is the RAC for Region D, (including Iowa, Montana, Wyoming, North Dakota, South Dakota, Utah and Arizona among others) and negotiated a 9.49 percent contingency fee with CMS. HDI participated in the demonstration project, so the ramp up period for Region D likely will be shorter and historical demonstration information for this firm does exist. iii According to CMS, RAC activity is not expected to begin in Iowa prior to August 1, Before audits begin, RACs will hold town hall meetings in each state with providers to discuss the process and answer questions. HMA encourages Region D providers to make RAC preparation a high priority by reviewing internal processes, implementing any necessary improvements to minimize the financial risk and developing an audit tracking and monitoring system. We can assist clients with RAC audit preparation by providing the latest information on the RAC audit and appeals process, insights from the demonstration project, coding and medical record documentation education, RAC task force development, internal process review, RAC audit tracking and financial risk forecasting. On November 6, 2008, CMS imposed an automatic stay in the RAC contract work as a result of protests filed by two unsuccessful bidders for the RAC program. The automatic stay stops work for all four RAC regional awards until a determination is made. The Government Accountability Office (GAO) has 100 days to issue its decision, which means a decision would be due for these protests in early February. The timing of this stay likely will not affect the RAC roll out in Iowa. Therefore, providers are encouraged to continue RAC preparation. Demonstration Lessons The three year demonstration program began in 2005 and ended in The program s mission was to reduce improper payments, detect and collect overpayments, identify underpayments, and implement systems to prevent future improper payments, but not to review claims that had already been reviewed by fiscal intermediaries, carriers, or other governmental agents. CMS was pleased with the program s results that produced a return on investment (ROI) of over 300 percent. 2

3 In an attempt to resolve complaints and issues that arose in the demonstration program, CMS extensively revised the RAC program. The key changes are shown in the CMS chart below: Table 10. Improvements Made to the RAC Permanent Program Issue Demonstration RACs Permanent RACs RAC medical director Not Required Mandatory Coding experts Optional Mandatory Credentials of reviewers provided upon request Not Required Mandatory Discussion with CMD regarding claim denials if requested Not Required Mandatory Minimum claim amount $10.00 aggregate claims $10.00 minimal claims (R)AC validation process Optional Limited External validation process Not Required Mandatory RAC must payback the contingency fee if the claim is overturned on appeal Only required to pay back if claim is overturned on the first level of appeals Required to pay back if claim is overturned at all levels of appeals Vulnerability reporting Limited Frequent and mandatory Standardized base notification of overpayment letters to providers Not Required Mandatory Look back period (from claim pmt date - date of medical record request) 4 years 3 years Maximum look back date None 10/1/2007 Allowed to review claims in current fiscal year? No Yes Limits on # of medical records requested Optional. Each RAC set own limit Mandatory. CMS will establish uniform limits Time frame for paying hospital medical record photocopying vouchers None Within 45 days of receipt of medical record MSP included Yes No Quality assurance/internal control audit No Mandatory Remote call monitoring Yes Yes Reason for review listed on request for records letters and Not Required overpayment letters Mandatory RAC claim status Web page Not Required By January 2010 Public disclosure of RAC contingency fees No Yes The Medicare RAC Demonstration Audit Process When providers are notified of an audit, they must endure an often burdensome process that includes dedicating resources to respond to medical record requests, review and defend claims in a timely manner, and evaluate denials for corrective action. CMS provided the RACs with a significant financial incentive to aggressively review and deny claims. RACs conduct both automated and complex reviews. An automated review involves the application of the RAC s software to the national claims history data furnished by CMS and may be used only when there is certainty that the service was not covered or was incorrectly coded, a duplicate payment, or otherwise an overpayment. These reviews do not require medical record submission. A complex review requires the review of copies of medical records. Providers should have a process to respond to record requests because if the RAC does not receive copies of medical records within 45 days of its request (date on the letter, not the date received), the RAC is authorized to find that the claim was overpaid. As a result, the provider may lose the right to appeal because of a technical denial. CMS has established a uniform limit of 10 percent of the average monthly Medicare claims (max of 200) requests per 45 days for inpatient hospitals (also SNF, IRF, Hospice) and one percent of the average monthly Medicare 3

4 services (max of 200) requests per 45 days for other Part A billers (outpatient hospitals, HH). Approximately 85 % of the overpayments collected in the demonstration were from inpatient hospitals. In addition, CMS prohibits a RAC from randomly selecting cases for which it requests copies of medical records. iv Instead, the RAC is to use data analysis to identify claims most likely to contain overpayments in a targeted review. v A RAC may not target solely high dollar claims, but must identify other information that leads the RAC to believe the claim contains an overpayment. RACs use complex data mining that correlates DRG, ICD9, length of stay and charges, looking for outliers. Approximately 85 percent of overpayments collected by RACs in the demonstration were from inpatient hospitals. RACs claim review strategy is to focus on high dollar improper payments, like inpatient hospital claims, to give them the highest return on their investment. CMS anticipates that the permanent RACs will adopt a similar strategy. Most overpayments involve situations in which the RACs assert providers incorrectly coded claims (36%), performed services that were not in a medically necessary setting (41%), or billed multiple times. In the demonstration, CMS waived the timely claim filing limits and allowed hospitals to resubmit claims for outpatient ancillary services in medically necessary setting situations. CMS is exploring whether it is possible to continue this waiver during the permanent program. Medicare Contractors Due to Medicare review confusion, CMS has promised further clarification regarding the roles of Medicare contractors. The table summarizes current contractor roles. Roles of Medicare Review Contractors Improper Payment Function Preventing future improper payments through pre pay review and provider education Detecting past improper payments Measuring improper payments Performing higher weighted DRG reviews and expedited coverage reviews The Medicare RAC Demonstration Contractor Performing Function Medicare claims processing contractors RACs CERT QIOs 4

5 Appeals Process During the demonstration program, only 19.6 percent of providers appealed, 35 percent of those appeals were decided in the provider s favor. 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. Deadlines are crucial to avoid technical denials that may be costly. After the initial decision, providers have a right to appeal according to the customary Medicare appeals process. This includes five potential stages: a redetermination to the Carrier or Fiscal Intermediary (FI); a reconsideration submitted to a Qualified Independent Contractor (QIO); an appeal to an Administrative Law Judge (ALJ); an appeal to the Medicare Appeals Council (MAC); and finally an appeal to Federal district court. Each level of appeal carries with it certain guidelines that must be adhered to; failure to follow them could result in the inability to continue the appeals process. In the appeals decision, providers should consider: benefit versus the cost of appeal; resources required; quality of the medical records, charts, and other documentation; implications of challenging or not challenging denials; availability of clinical support; and need to retain legal counsel. After RAC determination, Medicare overpayments are offset against future payments and may create a financial burden during the appeals process. A provider does have the option of requesting a payment plan, subject to interest, if it cannot financially bear an offset. Strategic Planning HMA recommends that providers immediately begin to develop a strategy for RAC audits. Providers can take several proactive steps to mitigate their risk: seek board support in RAC planning; form a multidisciplinary task force to coordinate the RAC preparation process; conduct a self audit and submit adjusted bills when overbilling is discovered (a RAC may perceive a lower ROI and hospitals avoid penalties and interest payments); identify missed revenue; evaluate corrected claims (coding errors are easily fixed, but inadequate or incorrect documentation are cultural and generally require education); consider forming a claims denial team to tackle RAC issues and commercial denials; review historical RAC audits and other reports and assess documentation and coding for common RAC targets (i.e. high volume Medicare procedures or short stays); perform financial forecasts and reserve estimates; devise a process to respond to RAC medical records requests; dedicate a separate post office box for RAC correspondence; create a process to track RAC requests and the status of appeals; and provide coders and medical staff proper training and education on Medicare documentation requirements. 5

6 By January 1, 2010, RAC will be nationwide. In the future, Medicaid and commercial payers also are expected to use RAC audits. Virtually every hospital will face a Medicare audit. HMA recommends providers pay close attention to RAC denials. Administrative appeals have strict timelines and require the submission of all supporting documentation early in the appeal process. We can assist your organization as you prepare for RAC. If you have RAC questions or concerns, we are happy to answer them and discuss your needs. To schedule an educational seminar, contact a RAC advisor listed below. RAC Advisors Doug Elwell 8888 Keystone Crossing, Suite 1300 Indianapolis, Indiana Telephone: (317) delwell@healthmanagement.com Tammy Murray, JD, MBA, RN 8888 Keystone Crossing, Suite1300 Indianapolis, Indiana Telephone: (317) tmurray@healthmanagement.com Mary Roos, MS, RN 180 N. LaSalle, Suite 2305 Chicago, Illinois Telephone: (312) mroos@healthmanagement.com Ann Zerr, M.D Keystone Crossing, Suite 1300 Indianapolis, Indiana Telephone: (317) azerr@healthmanagement.com i The Medicare Modernization Act (MMA) of 2003 directed CMS to conduct a three year demonstration program focused on recovery audits in a handful of states, principally California, New York, and Florida. Each jurisdiction was expanded by one state in the summer of 2007 to include Massachusetts, South Carolina, and Arizona. ii Even though, CAHs are not paid on a DRG or ABC basis. LTC hospitals eventually will be included in RAC. iii CMS strategy for the Medicare Administrative Contractors (MACs) transition may further delay the ramp up period. iv Section 935 of the MMA prohibits the use of random claim selection for any purpose other than to establish an error rate. v Targeted review is a CMS term of art. 6