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The Wait Is Over: RAC Medical Necessity Reviews Are Here
By Lori Brocato

After months of delay and seemingly endless pontification by industry experts, recovery audit contractor (RAC) reviews for medical necessity issues are finally here. There are no surprises in the list of approved medical necessity issues. However, there are some new traps to understand—and avoid.

Medical Necessity Issues Explained
August saw the first set of approved medical necessity issues posted by CGI, the Midwest RAC. Eighteen issues were posted and a few weeks later, HDI and Connolly also published their lists. As of mid-September, providers had already started receiving additional documentation request (ADR) letters marked “medical necessity.”

So far, the medical necessity issues closely follow those approved for other types of reviews. In other words, the same issues RACs have been reviewing throughout 2010 are now open game for medical necessity audits. The same type of broad diagnosis-related groups (DRGs) will be scrutinized for medical necessity such as Medicare severity (MS)-DRG 237, Major cardiovascular procedures or thoracic aneurism repair, not otherwise specified. If coding isn’t specific, there is a high probability that a RAC will review the case. Conversely, if a very specific code or MS-DRG is assigned, the documentation must be clear.

Outpatient surgical procedures performed as an inpatient or admitted postsurgery will also be targeted by RACs. Significant physician documentation must be in place to warrant inpatient admissions or reimbursement will be taken back.

Finally, there is a three-year look-back period, and the number of records that can be requested every 45 days is capped (consistent with the RAC program). RACs can deny the entire encounter and probably will if the clinical documentation doesn’t justify the admission.

Areas of Confusion Remain
While the issues to be reviewed for medical necessity are clear, the “how” of provider notification is a bit confusing, especially for providers in Region C. Some hospitals report that they were unaware the ADR was for a medical necessity review until the first finding letter was received from the RAC. According to the Centers for Medicare & Medicaid Services (CMS), RACs are required to notify providers of medical necessity and DRG validation in the record request letters. In addition, any record that has already been requested prior to the listing of the medical necessity issues cannot be reviewed for medical necessity unless the provider has received a written request stating that a medical necessity review will be performed.

And while RACs can review the same case for multiple issues (DRG validation and medical necessity), they won’t be able to technically deny payment twice. This type of “double dipping” is an issue that will likely become more prominent in coming months.

Effective Audit Management Is Best Way to Cope
Medical necessity was the top area for RAC recoupment during the demonstration project, so expect request volumes to be high—and the appeal process to be onerous. These reviews, alongside a plethora of copycat recovery auditors, are pushing providers to revisit their audit management programs.

Medicare Administrative Contractor, Medicaid Integrity Contractor, Comprehensive Error Rate Testing, Zone Program Integrity Contractor, and Quality Improvement Organzation are just a few of the new audit programs under way or on the horizon. Failure to prepare for this onslaught of activity is no longer an option for providers who expect to remain competitive and minimize financial risk. A proactive, systematic approach to audit management ensures that every audit request is managed efficiently and effectively within established time frames.

The value of investing in automated tools with tracking and trending capability aimed at identifying and mitigating financial risk is becoming clear. An organization’s fiscal health depends on the ability to improve financial performance by identifying audit patterns, determining the root causes of denials, and correcting potential areas of risk in advance. In the words of Lynne Byrd, MBA, BSMT (ASCP), vice president of revenue cycle for Archbold Medical Center in Thomasville, Ga., “The need for RAC analytics is heating up.”

But purchasing the software is only part of the solution. Related processes and procedures should also be put into place to support new technology. Perhaps medical necessity reviews will become the industry catalyst for turning RAC teams into formal audit management programs.

RAC Medical Necessity Reviews: Traps to Avoid, Tips to Help

— Lori Brocato is product manager at HealthPort.