Data, Drivers & Decisions Impacting RAC Audits

 When it comes to the most aggressive region in the high-stakes Recovery Auditor Contractor program, the dubious distinction appears to go to Region C for having the most overpayment activity and least number of appeals. The Centers for Medicare and Medicaid Services (CMS) awarded the audit contract to Connolly Healthcare to ferret out improper payments throughout the largest RAC territory totaling 39 percent of the United States. The geographic long arm of Connolly reaches the Southeast plus Colorado, New Mexico, Oklahoma, Texas, Virginia, West Virginia, Puerto Rico and the U.S. Virgin Islands.

According to the latest RACTrac data, Region C has requested and been approved by CMS to review the largest number of issues, including significantly more medical necessity DRGs than any other. By region, it breaks out that A is approved for 93 issues including 52 medical necessity DRGs, B for 125 issues with 29 medical necessity DRGs, D for 95 issues and 50 medical necessity DRGs, and Region C has been approved for 260 issues and 150 medical necessity DRGs. 

“I think medical necessity is the area of greatest fear for hospitals because they can be full claims denials,” noted Karen Bowden, RHIA, senior vice president of Consulting, Craneware InSight (formerly ClaimTrust), a subsidiary of Craneware in Atlanta.

Craneware, a leader in automated revenue integrity solutions, acquired Murfreesboro-headquartered ClaimTrust two months ago. ClaimTrust had built an industry reputation on its proprietary, focused, web-based tools impacting key inflexion points in the revenue cycle. The company’s InSight Revenue Cycle Solution™ has become the centerpiece of the newly christened Craneware Insight. The expanded company, which serves more than 1,500 hospital clients, is maintaining the former ClaimTrust offices in Murfreesboro and Boston, where Bowden is based.

Throughout the country, Bowden said, RAC activity is picking up. In the fourth quarter of 2010, more than $86 million in claims denials were reported … more than double that of the  $42 million in denials from the third quarter. Leading the way is Region C with $33.7 million in Q4 denials (up from $20.8 million in Q3). Furthermore, Bowden said looking at the RACTrac data, it appears that a significant amount of the overpayment findings are beginning to come from medical necessity disputes.

“Through the third quarter of 2010, only 14 percent of hospitals reported they had medical necessity denials, and in the fourth quarter, that went to 57 percent … that’s nationwide,” she said. Bowden added, “And of the 33 percent of those reporting medical necessity denials through the fourth quarter of 2010, a third of them were for short stay admissions.”

Interestingly, while Region C has had the most activity in terms of denials, it has also been the region with the smallest percentage of appeals. RacTrac appeals data for Q4 2010 reveals a nationwide appeal rate of 23 percent led by Region B at 36 percent, Region A at 27 percent, Region D at 12 percent and Region C at 10 percent. “With $33 million dinged, that’s only $3.3 million appealed,” Bowden noted of Region C. “That’s a lot of money left on the table.”

With overpayment findings on coding issues, Bowden explained, providers often retain at least a portion of revenue, albeit at a down-coded rate. However with medical necessity issues, the potential is to walk away with zero reimbursement for services rendered. Bowden noted during the demonstration project, providers had the option to rebill these disputed amounts as an outpatient claim or ancillary service. “Now, Medicare has changed its billing file limit to one year,” she said, adding that by the time an audit occurs, many of the cases in question have already aged out.

With Region C’s appeal numbers, Bowden said there doesn’t appear to be much of a fight at this point. The consequences to the bottom line, however, are so severe that she said it’s a fight worth undertaking.

During the demonstration project, Connolly —who refused an interview request for this article — was the Massachusetts RAC, and Bowden managed appeals on behalf of nine area hospitals. “In our experience, we appealed over 90 percent of the denial cases in the demonstration project and won 93 percent of (those) cases,” she said. “The majority was medical necessity.” Ultimately, she oversaw the appeal of 357 denials. While most cases were resolved at the first or second level of appeal, Bowden said 139 cases (approximately 40 percent) wound up moving to the Administrative Law Judge (ALJ) level.

On the coding side, Bowden said a great emphasis has been placed on excisional debridement. “I am seeing that as being a prevalent issue among all the RACs at the present time.” She added, “We’ve been successful in overturning some of those on appeal. We have had some success in submitting a physician letter of clarification as a late entry to the documentation,” Bowden said.

The second area of coding denials has centered on sepsis being coded as a secondary … rather than principle … diagnosis, which pays at a higher rate. “As we’ve looked at some of these sepsis issues, we find many of them can’t be appealed. A lot of them were incorrect,” she stated.

On the medical necessity side, Bowden said the pattern that emerged from the demonstration project was that the RACs go after the highest ticket items first. The average medical necessity claim for the hospitals with which she worked during the demonstration project was $40,000. Prime targets during that period were chest pain, ICD placements, and coronary angioplasty. “So it’s the cardiac procedures … particularly one-day stays,” she noted. The disagreement is over billing these procedures as inpatient or outpatient, which have drastically different reimbursement profiles. She said using the community standard of care was an extremely successful defense in such cases during the demonstration project.

Certainly, there are a number of cases that cannot be appealed because the auditor is correct in their findings. “If you can’t appeal something, and you have a pattern of items you cannot appeal, it’s very telling,” Bowden said. “If you can’t defend your coding … or if you can’t defend your level of care assignment … you’ve got big issues that need to be studied and corrected.”

However, Bowden said she feared too many cases are not appealed because providers are simply overwhelmed. “These chart requests come in huge waves and then have tight timelines,” she noted. “I think the biggest problem (for) hospitals is having the knowledge about how to appeal. There is a lack of understanding about how to argue your case,” Bowden continued.

Internally, providers should take steps to limit their liability by improving processes. Data mining helps clarify how cases are coded, what percentage per DRG have been requested for review, how many claims were denied and what the ultimate outcome was upon appeal. When patterns of incorrect coding emerge, providers should take steps to ensure billing is corrected. Bowden said a DRG validator — a second reviewer — is helpful to catch mistakes before a bill ever goes out the door. A number of software solutions, such as those by Craneware InSight, also help identify red flags.

Once an overpayment demand is made, then the hospital must decide whether to bring in outside resources or mount a fight on their own. No matter what the decision, Bowden said providers who can defend their decision-making process should consider it a fight worth taking. The stakes are too high to simply allow millions of dollars to walk out the door, and many providers have been vindicated at all levels of appeal when a well-documented, thoughtful defense has been presented.

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