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January 5, 2009

RAC Appeals: More Than Simple Math
By Lindsey Getz
For The Record
Vol. 21 No. 1 P. 14

The process can be a real head-scratcher; meaning healthcare organizations need to carefully calculate their options before determining a course of action.

By congressional mandate, the Centers for Medicare & Medicaid Services (CMS) will be employing recovery audit contractors (RACs) to review claims by physicians, hospitals, nursing homes, and other medical facilities in an attempt to identify “improper payments”. The program was mandated to be up and running nationwide by January 2010 after what was deemed a successful pilot program trialed in three states (Florida, California, and New York). Since the RAC program began, more than $1 billion has been recovered in improper payments. This includes anything encompassing an incorrect amount, a noncovered service (including those considered not medically necessary), incorrectly coded services, or duplicate services.

The fact that independently contracted auditors not affiliated with the government are now handling the process adds a new perspective to the operation. “While the process was previously done internally, as a government job, the RAC program brings in private companies to now handle the audit process,” says Rex A. Stanley, RN, CMM, CPC, CHBC, CHCC, PCS, CEO of UnicorMed. “Essentially, it has gone from having employees who really didn’t have any vested interest in recovering money—they were just doing their job—to RAC auditors who are incentivized to find errors because they receive part of the money recovered. They are in an ‘eat what you kill’ mode, and if they don’t find anything wrong, they don’t make any money.”

On top of that, few underpayments were found during the trial period, adding fuel to the fire. Of the more than $1 billion recovered, 96% was in overpayments. And the federal government believes that once the program is instituted nationwide, the amount of overpayments recovered will at least triple.

Once a RAC determines that a hospital or other practice has been overpaid, the facilities are required to reimburse Medicare, even if they plan to appeal. (According to CMS Transmittal 141, CR6183 dated September 12, 2008: When a valid first-level appeal request [redetermination] or a valid second-level [reconsideration] request is received from a provider on an overpayment … the Medicare contractor will cease recoupment or not begin recoupment at the normally scheduled time [41 days for first level and 76 days for second level]).

During this appeal process, the Medicare contractor cannot recoup or demand the debt; however, the debt continues to age. Once both levels of appeal are completed and if the CMS prevails, collection activities, including demand letters and internal recoupment, may resume within the time frames set forth. Note that practices are permitted to request a payment plan (subject to interest) should they struggle financially with the reimbursement. Because these are often large amounts of money, it is important for healthcare organizations to be familiar with the appeals process.

Appeal Steps
The appeal process under the RAC program is more complex and time consuming than the current process. “It will also likely be a little more expensive for the facility appealing,” says Michael D. Miscoe, JD, CPC, CHCC, CRA, president of Practice Masters, Inc. “It can involve statisticians, lawyers, and other experts, so the cost in defending your practice can add up quickly.”

According to Georgia de La Barre, MS, CHC, CPC-H, RMC, of corporate integrity for Ochsner Health System, before beginning the appeals process, practices should consider the following points:

Whether they have sufficient documentation to back up their claims. “Say, for example, someone on Medicare was prescribed a plan of inpatient physical therapy following knee replacement surgery,” says de La Barre. “Was the case reviewed to see if the patient’s condition required and met medical necessity for the inpatient stay? Or could the physical therapy have been done as an outpatient service?”

The amount in question vs. the cost of the appeal. de La Barre cites an example in which Medicare paid $3,400 each for 23 inpatient short stays ($78,200 total) that, after complex review, the RAC determined were not medically necessary at the inpatient level of care. To question that ruling could be quite expensive, she says. “The review would take [an] auditor about 16 hours per case,” says de La Barre, who also mentions the expense of preparing records, sending additional documentation, and tracking progress. “Also remember that your QA [quality assurance] auditor may determine after review that the RAC was correct, and you still must return the $78,200 on top of the cost of the review process.”

The resources that would be necessary in the appeal process. According to statistics from the pilot project, only 6.8% of claims were overturned on appeal to date. With that in mind, de La Barre says organizations must consider whether the case is worth expending the resources.

The implications of going forth with an appeal vs. not pursuing an appeal. If a facility decides not to appeal just because of the cost of review, is it admitting that it routinely handles this particular type of case incorrectly and thus opening itself up to a larger scale governmental audit? After all, de La Barre says, the RACs aren’t the only auditors that facilities need to be concerned about.

If the cards stack up, an appeal could be worth the time and money, but practices may quickly learn that it may not be effective to take action every single time, says de La Barre. Weigh the options carefully and review each denial as a separate entity, she adds.

Appeal Levels
There are five levels in the appeals process, the first being redetermination, explains Miscoe. Once a claim denial has been reviewed by the Medicare carrier, it may be appealed by a written request for a redetermination of the claim. This must happen within a 120-day period from the denial. Medicare carriers are then required to respond to a request for redetermination within 60 days of receipt. The practice will receive a review determination letter stating either the reasons for upholding the denial or including the proper payment owed after overturning the denial.

If the claim is not overturned during the redetermination phase and the provider is unhappy with the outcome, it may request that a reconsideration be filed within a period of 180 days. These requests must be made in writing on either a standard CMS form or the reconsideration request form that was included as part of the redetermination letter.

Should the outcome of the consideration phase also be unsatisfactory, the provider may move to the third level of the appeals process and take its case before an administrative law judge (ALJ). In this case, ALJs are attorneys who work for Health and Human Services. The practice may appeal to the ALJ in writing, a teleconference, or a face-to-face hearing held at the Office of Medicare Hearings and Appeals, which has satellite locations nationwide.

Claims rarely make it beyond the ALJ phase, though if the claim is unsatisfactorily overturned again, the practice does have the option of taking the case before the Medicare Appeals Council. The council may either modify or reverse an ALJ’s ruling or may return the case to the ALJ for a second hearing. The fifth and final level of the appeals process involves filing a suit in a federal district court.

Preparing and Preventing
To avoid the appeals process or other concerns, practices should begin developing a strategy that includes the creation of policies and procedures for addressing the RAC program once it’s implemented. “We’re in the process at our hospital of writing policies and procedures regarding how to handle medical record requests and creating an efficient procedure for tracking and handling RAC denials and appeals,” says de La Barre. “But budgeting is a different issue. How do you budget for the unknown? Until RAC hits your state, it will be difficult to know exactly what resources you will need.”

The rollout for the start of the program is staggered, and states should use that extra time to prepare as best they can. “Any state that was not in the pilot program is at an advantage,” says de La Barre. “We can learn from their mistakes and take that extra time to be prepared. It has meant improving our processes and our documentation.”

It may also mean adding new staff members or training existing personnel. Whatever the case, staff should be assembled and trained to oversee any RAC-related tasks. “Besides having enough people to gather the medical records, you also need the personnel to do the review and decide whether or not to appeal when an overpayment decision is made by RAC,” says de La Barre. “The appeal process is costly, so you have to not only have the resources in place but the personnel, too. That means having the staff to check and double check everything that the RAC auditors are looking at.”

“It’s really important that the first thing practices do is form a multidisciplinary team,” agrees Colette Palmer, product marketing director at MedPlus, Inc. “There are big issues involved, and they impact almost everyone involved in patient care. Form a team and make sure you have the appropriate people on it. This should include staff that has clinical and medical expertise, financial skills, and at least one compliance officer.”

Technology can also play a role in adjusting to the RAC program and making the appeals process smoother. “The rules and regulations are almost impossible for people to keep up with, especially when you implement a new program like RAC,” says Stanley. “But software can help them stay on top of things and prevent errors.”

For instance, 35% of the improper payments were a result of incorrect coding, a situation that can be alleviated with help from software. “With a product like the Alpha II Coding System, HIM professionals can ensure they are coming up with the right code,” says Stanley. “A lot of times, what a doctor writes, says, and thinks is not necessarily what matches up with the code book, so we have a lot of natural medical language in our software that can ensure the right code is entered.”

Another Unicor product called ClaimStaker provides claim-editing software for improved accuracy and preventing errors. “The product reviews the claim and edits it for known problems,” explains Stanley. “There are a lot of formatting problems that could happen in developing a claim, and this product can help prevent those errors.”

It’s also important to note that the appeal process must be handled correctly so as to not risk jeopardizing the case. For example, after the second level of the appeal process, no additional documentation or evidence can be introduced for consideration. There is also a stringent timeline in place for all steps of the appeal process, meaning that any necessary documentation should be readily available. Insufficient documentation was the reason behind 8% of improper payments in the first place, so getting it right in the appeals process is crucial. This is another area where technology can come into play.

“From the time the practice gets that very first letter from the auditor stating there was an improper payment to the final stages of an appeal, the records will be easy to locate and disclose if they are using a product like ChartMaxx,” says Palmer. Quick retrieval of documents can be especially helpful after that first demand letter. If medical records are requested by the RAC but not supplied within 45 days, the RAC is permitted by default to automatically label it an overpayment.

“With a system like ours, you don’t have to worry about not locating a record or missing the time frame,” adds Palmer. “All those nightmare scenarios that practices are worrying about can be prevented.”

The largest source (approximately 40%) of improper payments was as a result of services being deemed medically unnecessary. This may also be the top gray area in the system. In fact, it can be as complex as the RAC determining a certain procedure may have been medically necessary, but it didn’t have to be performed in a hospital. The RAC may determine it could have been performed in an outpatient surgery center.

In these cases, a physician who understands the appropriate rules that determine whether a service is medically necessary is vital in the appeal process. These rules can be confusing, and a physician is likely to understand them much better than a RAC. And if the services were deemed medically necessary and covered in the past, there is a strong case for overturning an overpayment decision.

Technology can also play a role in medical necessity cases. “Our database is based purely on services that are medically necessary,” says Stanley. “It’s compiled by physicians.”
The bottom line is that the RAC is on its way to implementation, and that means doing your best to be as prepared as possible. “At some point, you’re going to have to deal with the RAC program,” says Stanley. “Your best defense is ensuring that your claims are as accurate as possible before they even go out the door for the very first time.”

— Lindsey Getz is a freelance writer based in Royersford, Pa.