Revenue Cycle Management Practice

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1 Revenue Cycle Management Practice W h i t e p a p e r By William Malm, ND, RN Practice Director, Revenue Cycle Management, HCPro, Inc. Recovery audit contractors Recovery Audit Contractors Strategic planning to combat the effects of the RAC program Background Medicare Fee for Service (FFS) (i.e., the original Medicare program) is a growing program with more than 1 billion claims processed each year. Errors in claims submitted by healthcare providers for services provided to Medicare beneficiaries can account for billions of dollars in improper payments each year. The Improper Medicare FFS Payments Report for 2007 estimates that 3.9% of Medicare dollars did not comply with one or more Medicare coverage, coding, billing, or payment rules. This equates to $10.8 billion in Medicare FFS over- and underpayments. 1 CMS developed the Recovery Audit Contractor (RAC) demonstration program as part of its efforts to ensure accurate payments. The original demonstration project (March 2005 March 2008) had two objectives: to detect and correct improper payments. The RAC program has the following mission statement: The RAC program s mission is to reduce Medicare improper payments through efficient detection and collection of overpayments, the identification of underpayments and the implementation of actions that will prevent future improper payments. 2 The RAC program is a contingency fee based program, meaning contractors receive a percentage of what they find in over-/underpayments. The demonstration project used three contractors, one each for California, Florida, and New York. The contractors were given four years of claims, beginning with October 1, In 2006, $54.1 million dollars were returned to the program claim and Medicare secondary payer (MSP) RACs in California, Florida, and New York. The RACs use public information from the Office of Inspector General (OIG) and the General Accounting Office (GAO) to target their improper payment audits. During the demonstration, all reviewed claims were limited to Medicare FFS and could not include any claim previously reviewed by a Medicare contractor or under an integrity investigation or agreement. In 2006, $54.1 million dollars were returned to the program claim and Medicare secondary payer (MSP) RACs in California, Florida, and New York. recovery audit contractors May 2008

2 Recovery audit contractors may 2008 The jurisdiction of the RACs expanded in summer 2007 to include Massachusetts, South Carolina, and Arizona. The success of this demonstration program also caused Congress to mandate the RAC program to become permanent, through the Tax Relief Act of The RAC program is being developed in four regions and will be expanded nationwide no later than January 1, RAC overview The RAC program is being developed in four regions and will be expanded nationwide no later than January 1, The regions will roll out first by state and then by claim type. The permanent RAC program has come under intense attack by members of the provider communities, hospital associations, and even senators. Senators Lois Capps (D-CA) and Devin Nunes (R-CA) have sponsored HR 4105, along with 33 cosponsors from three states, to place a one-year moratorium on the RAC program. The proposal would also require a GAO study of the RAC program. Additionally, some hospital associations believe CMS does not have the authority to recoup monies 31 days after notification. The associations also claim that, in many cases, the program uses a different standard for medical necessity reviews. Ultimately, these concerns may result in future litigation. Transmittal 322, Change Request 5873, complicates this matter. The transmittal states the following: For overpayments such as but not limited to post-pay medical review where extrapolation process includes funds not associated with a specific claim has been determined to exist current processes shall be followed to send a demand letter to the provider explaining the review and if applicable the statistical sampling methodology that was followed. The extent to which this will affect facilities is yet to be determined, but it does add another layer of difficulty to managing and defending against contingency-based auditors. During the time in which each of these matters play out, there is one sure thing: The RACs are rolling out. There has been intense pressure on CMS to change some of the concerns about the demonstration project and, to some degree, CMS has made some of these changes. The following list illustrates some significant changes between the demonstration project and the permanent program: The lookback period changed from four years to three years, and the maximum lookback date is now set as October 1, Certified coding experts were optional under the demonstration project but are mandatory under the permanent program. Under the demonstration project, the RAC only needed to pay back the contingency fee if the claim was overturned at the first level. However, under the permanent RAC, the payback of the contingency fee would be at all levels.

3 May 2008 Recovery audit contractors RACs must have a medical director under the permanent program. Credentials of reviewers must be provided under the permanent program. The external validation process is mandatory under the permanent program. 3 CMS found that improper payments can occur under several circumstances. RAC focus areas CMS found that improper payments can occur under several circumstances, including the following: When medical necessity criteria were not met When a claim was incorrectly coded When the provider failed to submit enough documentation or the claim was insufficiently documented When another type of error was made by the FI or Medicare Administrative Contractor (MAC) (e.g., system errors resulting in duplicate payment or use of incorrect fee base). RACs focus on overpayments resulting from the provider s failure to meet statutory, regulatory, or directives as published within source authority, such as medical necessity. The RAC scope of work states the following: The RAC shall adhere to Section 935 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which prohibits the use of random claim selection for any purpose other than to establish an error rate. Therefore, the RAC shall not use random review in order to identify cases for which it will order medical records from the provider. Instead, the RAC shall utilize data analysis techniques in order to identify Corrective action Auto-deny edit or Provider type Problem area Type of problem Outpatient hospital, Inpatient rehab Medically unnecessary: rehab, SNF Services could have been provided in a less acute setting Provider education Issue a MLN Matters article Encourage FIs to educate hospitals about coding rules auto-rtp edit Not possible Prepay review FIs will consider prepay review in ERRP Outpatient hospital, rehab, SNF Neulasta Incorrect coding: Wrong number of units billed Issue a MLN Matters article Encourage FIs to educate Evaluating FIs will conduct data analysis hospitals about coding rules Outpatient hospital, rehab, SNF Speech therapy Incorrect coding: Wrong number of units billed Issue a MLN Matters article Encourage FIs to educate Evaluating FIs will conduct data analysis hospitals about coding rules Source: Melanie Combs, RN, RAC technical advisor and CMS representative.

4 Recovery audit contractors may 2008 those claims most likely to contain overpayments. This process is called targeted review. The RAC may not target a claim solely because it is a high dollar claim but may target a claim because it is high dollar AND contains other information that leads the RAC to believe it is likely to contain an overpayment. Despite this scope of work, the demonstration project outcome showed a high degree of success from data mining one-day stays, observation, and units-ofservice issues previously identified by the OIG. Despite this scope of work, the demonstration project outcome showed a high degree of success from data mining one-day stays, observation, and units-of-service issues previously identified by the OIG. Some of the identified errors and CMS response to errors are detailed in the tables below, taken from a presentation by Melanie Combs, RN, a RAC technical advisor and CMS representative. As the tables in this paper demonstrate (see pp. 3 4), there is a clear focus by CMS not only to recoup the erroneous payments but to have a work plan to prevent or at least minimize the cause of the erroneous payment long term. Many of these concerns are recognizable, such as the units of service on a high dollar pharmaceutical, such as Neulasta. We have seen recent changes with erythropoietin-stimulating agents Epogen and Darbepoetin. Again, these will likely be subject to the audit process because they represent sources of error. The Medicare transfer provisions have been around for several years and, therefore, the discharge to home concern has been well documented. Provider type Problem area Type of problem Inpatient hospital Debridement Incorrect coding: Procedure code on claim did not match procedure described in medical record (which caused an incorrect DRG) Inpatient hospital Respiratory failure Incorrect coding: Principle diagnosis on claim did not match the principle diagnosis in the medical record (which caused an incorrect DRG) Provider education Issue a MLN Matters article Encourage QIOs to educate hospitals about coding rules Issue a MLN Matters article Encourage QIOs to educate hospitals about coding rules Corrective action Auto-deny edit or auto-rtp edit Prepay review Not possible? Not possible? Inpatient hospital Discharge to home Incorrect coding: Claim indicates discharge to home or other facility but the medical record indicates beneficiary was discharged to another hospital (which caused a second stay to be fully paid instead of bundled into the first stay) Issue a MLN Matters article Encourage QIOs to educate hospitals about coding rules Evaluating? Source: Melanie Combs, RN, RAC technical advisor and CMS representative.

5 May 2008 Recovery audit contractors Strategies for success The RAC will test your facility s staffing requirements and, in many cases, your patience. With CMS taking the money back after only a 31-day notice, this will also test your cash flow. With an effective revenue cycle management process, a clean chargemaster, and effective auditing and monitoring within your facility, these concerns can be easily identified and corrected before a RAC is able to take back prior reimbursement. The key to a successful strategy is to create a plan that provides resources based on identified inconsistencies within a facility s compliance program. When these concerns are identified, resources should be deployed to meet the challenge. Each facility has a limited pot of money and personnel to work with, and successful facilities will join forces with hospital associations and professional organizations to defend themselves against erroneous RAC findings. Each facility has a limited pot of money and personnel to work with, and successful facilities will join forces with hospital associations and professional organizations to defend themselves against erroneous RAC findings. The following are some strategies facilities can use to be successful: 1. Create a dynamic team to address the RAC process. a. Team members should represent all facets of the revenue cycle. Specifically, include patient access representatives, chargemaster coordinators/analysts, physician advisors, revenue integrity auditors, denial management personnel, and members of the clinical staff, compliance staff, inpatient and outpatient coding staff, case management staff, utilization review staff, and patient financial services/billing staff. b. Include information systems and/or decision support staff members. The identification and corrective actions will be performed most effectively through an automated data mining technique. 2. Diagram the patient flow, document flow, and identify all tasks and tools. a. Patient access. Because a form of the RAC focuses on MSP, it is imperative that patient access staff members review this process. Clear policies and procedures based on regulatory guidance need to be reviewed and/or established to ensure compliance. Facilities should train patient access staff members on the MSP and perform competency testing. b. Case management/physician advisors. This group plays a leadership role in the overall RAC process. Case management and physician advisor staff members can be instrumental in reducing the number of inappropriate admissions to the wrong patient status. For example, a patient does not meet InterQual criteria and the physician advisor reviews the case and finds that an observation status would be more appropriate. Therefore, the patient is placed correctly in observation before an inappropriate admission to inpatient status

6 Recovery audit contractors may 2008 Evaluating all the assets, strengths, and weaknesses in your revenue cycle will be crucial to formulating a seamless process to ensure issues are identified and corrected before the RAC identifies them. can occur. Policies and procedures can be very beneficial in this regard. Additionally, the expertise of case managers is key to assisting the physician with information that he or she needs to make a status determination. c. Charge capture. Diagram and review this element of the process. Charge capture is usually a front-end or revenue producing department function. As such, it generally revolves around the order entry function or charge entry function of the patient accounting system. This can be an area for unit-of-service errors, wrong charge/wrong patient scenarios, and other items likely to be detected through sophisticated data mining by the RAC software. Charge reconciliation tasks should be a focus when examining this revenue cycle component. d. Coding processes. This facet of the revenue cycle exhibits one of the highest concentrations of targeted concerns through inappropriate coding. This will affect the inpatient claims with concerns from the discharge status, deviations from the American Hospital Association s Coding Clinic guidelines for comorbidities, inaccurate procedural coding, and more. Additionally, for ambulatory surgery center and outpatient services, there is a comingling of soft coding (coding done by a coding professional) and hard coding (coding performed automatically through the chargemaster), which can complicate this analysis. In any case, the human and chargemaster functions must be clearly analyzed to ensure identified problems are corrected. Additionally, chargemaster software may become valuable in this area because many products can provide excellent data mining reports based on medical necessity errors. e. Billing processes. This area has diverse tasks. It is important to focus on ensuring that any pre-claim edit violations are recorded, investigated, and, if necessary, corrected. Additionally, if the facility uses proprietary claim scrubbing software, investigate what capabilities are present for data mining and compare your specific facility to the whole of the RAC s findings. Any recoupment, denials, line item denials, and medical necessity concerns found by the intermediary or MAC must be tracked to ensure corrective action. f. Appeals processes. This is another area in which coding staff members, compliance staff members, and the physician advisor/case manager can be critical to successfully appealing a determination. The process has specific time limitations, forms to be used, and specific remittance requirements. Along with your hospital association, these tasks will be a necessary part of the overall process. Evaluating all the assets, strengths, and weaknesses in your revenue cycle will be crucial to formulating a seamless process to ensure issues are identified and corrected before the RAC identifies them. Additionally, processes for data mining and early detection can assist with RAC appeal work. Despite most facilities best efforts, there will inevitably be occasion for an appeal.

7 May 2008 Recovery audit contractors There must be a decision as to who will receive the RAC request and how it will be logged into the facility in order to meet the 30/45-day requirement for provision of the medical records. 3. Design an internal process. a. The requirements of the RAC should be dovetailed into the diagrammed process. For example, there must be a decision as to who will receive the RAC request and how it will be logged into the facility in order to meet the 30/45-day requirement for provision of the medical records. b. The facility should keep a database of all identified concerns and work with the RAC committee or revenue cycle committee to ensure corrective action is taken and post-correction auditing is scheduled. The overall process should lend itself to enhanced compliance and a possible reduction in RAC recoupments. It cannot correct retrospective concerns unless a voluntary self-disclosure is undertaken. However, an effective process can reduce future findings by the contractor. The RAC appeal process Facilities must also determine how to approach the appeal process. This section will describe a process to follow for a recoupment finding. There are five steps to the appeal as follows: 1. Level 1 Redetermination a. Carried out by the FI/MAC b. Uses form CMS c. Must be submitted no later than 120 days from the date of initial determination of overpayment by the RAC d. Review must be completed within 60 days of notification 2. Level 2 Reconsideration a. Carried out by the Qualified Independent Contractor (QIC) b. Uses form CMS c. Request is sent directly to the QIC, not the FI or MAC d. Must be submitted within 180 days of the date of the redetermination (Level 1) decision e. Review must be complete within 60 days 3. Level 3 Administrative law judge a. Filed with the entity specified in the QIC reconsideration notice b. Must be filed within 60 days of the date of the QIC s reconsideration notice c. The review must be completed within 90 days 4. Level 4 Medicare appeal council a. Carried out by an independent agency within the U.S. Department of Health and Human Services b. Must be submitted within 60 days of the decision by an administrative law judge c. Agency has 90 days to complete the review 5. Level 5 Federal court review a. Uses the federal district courts b. Must be filed within 60 days of the decision by the Medicare Appeals Council

8 Recovery audit contractors may 2008 Conclusion The RACs are evolving daily, and hospital processes must continue to develop in order to address individual adverse recoupments. Some successful strategies include reaching out to your local and state hospital associations and sharing successes and failures among the hospitals within your state. RACs could be an important opportunity to enhance compliance and streamline billing concerns. RACs require focused attention and delegated resources to be successful. More importantly, RACs could be an important opportunity to enhance compliance and streamline billing concerns. Because RACs will also address the physician environment, this is a great opportunity to work with the medical staff members to improve their overall documentation to ensure claims are duly supported. Finally, a well-documented flow process with written procedures and corrective action plans will ultimately make the facility process a success. Each facility should inventory its approach. Use the following resources for more information: CMS: American Hospital Association: n Resources 1. CMS RAC Status Document FY 2007: Status Report on the Use of Recovery Audit Contractors (RACs) In the Medicare Program. 2. CMS presentation: Medicare Recovery Audit Contractors (RACs): FY 2006 Findings, Corrective Actions, and Expansion Plans. 3. CMS RAC Status Document FY Note: If you have a question about the RAC program, send an to William Malm at 05/08 SR2708

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