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Now that all RACs have received approval of these issues, the RAC ball is considered to be in play, with the RACs entering full-swing mode. Therefore, it is time to check your RAC audit program and make sure it too is in full-swing mode.


If your RAC program does not include a methodology for a focused audit on medical necessity and other complex issues, or if your program is missing a way to calculate a reserve estimate, now is the time to engage your organization in such activity. A RAC focused complex coding audit can help you estimate financial risk and identify key areas for improvement so you can avoid costly denials in the future.


Types of RAC Reviews:


Automated reviews were the first type of issues to be approved by CMS and enacted by the RACs in 2009. The American Hospital Association (AHA) reported in its first quarter 2010 RACTrac Results that automated reviews represented 13 percent of monetary activity reported. (1) Automated reviews are those that are performed through the use of data mining to review and analyze data submitted for payment on claims. From the submitted data the RACs can find discrepancies in payments without reviewing additional details in the medical record.  The types of errors found are eligibility errors, duplicate claims, quantity issues and other similar administrative errors in billing or coding.


Complex reviews, on the other hand, require that a person physically examine the contents of the medical record and cross-reference them with coding rules and guidelines to determine if an improper payment has been made. For example, for coding debridement, the depth, instrumentation, procedural specificity and other descriptive information are required to substantiate a certain level of coding. One cannot discern whether the coding and subsequent payment are accurate without looking at the contents of the medical record. For complex reviews, the chart is needed to verify payment accuracy.


A quick review and snapshot of the RAC demonstration results:


Overpayments Collected by Error Type (Net of Appeals):




These reported overpayments were for complex reviews only. The point of reviewing this demonstration data and the definition of automated versus complex reviews is that since medical necessity-related issues accounted for 40 percent of the total complex overpayments collected during the demonstration period, it is reasonable to expect that the momentum of the RACs’ recouping efforts will increase with these newly added medical necessity topics. These recently approved issues increase the potential for facility charges being assessed for additional recoupment of payments.


Some facilities have accrued reserves for expected negative RAC audit outcomes, while others have not. Whatever your financial strategy for paying RAC denials, with the RAC targets expanded to include these new medical necessity issues, if you have not already done so now is the time to assess the compliance strength of your coding, processes, and payments; to estimate risk; and to prepare a solid RAC audit defense.


The real solution for avoiding recoupment of payments is to implement a plan with knowledge, confidence and understanding.  Understand the root causes for payment denials and fix issues at the source. If you are uncertain about the causes, a focused RAC audit may be the cure. An audit focused on medical necessity and/or coding can provide insight into your process accuracy, help evaluate risk and provide solutions to stop future payment denials.





(1) http://www.aha.org/aha/content/2010/pdf/Q1RACTracResults.pdf


(2) CMS, The Medicare RAC Program:  An Evaluation of the 3 Year Demonstration, June 2008 http://www.cms.gov/RAC/Downloads/RAC_Demonstration_Evaluation_Report.pdf





There is no one single best way to select a sample of charts for auditing. At a minimum, when conducting a focused complex chart audit, take a page out of the demonstration period’s book. Don’t just review the issues currently approved by CMS. Catalogue the DRG issues reported during the demonstration period. Categorize them by propensity for a particular error type, such as coding or medical necessity. Then, take your specific facility’s nuances into account. Choose which charts to review by issue, ignoring those for which you already know the fix and have implemented it. Consider defining specific audit objectives to address the complex issues that may have been called into question. Then, put focus on a corrective action plan for fixing areas of deficiency.


Whatever method you choose to select your sample of charts, use a methodical approach to your auditing. Begin to measure and quantify risk, then manage risk for resolution. Track the issues audited and calculate the charge volumes and reimbursement amounts of the charts reviewed. Using this information, extrapolate an estimate of your total risk.


It is recognized that finding deficient and erroneous charts can feel like finding a needle in a haystack, but creating a list of areas of risk, developing a plan for review and attack, and quantifying the number of charts and amount of risk is a valuable exercise.


A focused RAC audit can take several forms. Quantifying and measuring the scope of what is being audited is important so you can measure what is to be managed. Having this information and evaluating audit results to uncover root causes for errors so you can address them will help you develop an effective strategy against RAC denials, including those related to medical necessity.


About the Author


Veronica Hoy, MBA, is vice president of SOURCECORP HealthSERVE Consulting, Inc. Veronica has been an operating executive for 10 years, focusing on providing strategic leadership and direction to healthcare professionals and organizations. She has over 20 years of healthcare experience in business process outsourcing, accounts receivable management, coding, billing, release of information, consulting, and systems implementation.


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