Level of Concern Rises as RACs are Back: Part II

Five areas of concern are noted by the author.

In the first part of this series, we examined audit risks associated with observation claims. We should review what other risk areas providers might expect and why, as Recovery Audit Contractors (RACs) ramp up reviews again.

According to Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma, the RACs must maintain a “95 percent accuracy rating” and less than “10 percent overturn rate” on appeal. At this point, CMS has more fully defined neither of those metrics. The agency has not indicated how the RACs’ failure to meet these metrics might impact providers, denials, or appeals.

Historically, RACs made denials of short-stay inpatient claims based on “medical necessity.” Many providers experienced large volumes of these often seemingly capricious denials that tied up reimbursement and flooded the appeals process for years. RACTrac followed these denials, noting that many providers did not appeal, but when they did, the overturn rate was up to 75 percent. The outcome of some of these early RAC denials likely remains unresolved due to the ongoing appeals backlog. CMS’s current RAC metrics appear aimed at limiting a recurrence of this massive backlog-and-overturn bonanza.

As noted in the first part of this series, if Verma’s claim is true, RACs cannot maintain a sustainable business with continuing significant overturns on appeal. Providers should expect RACs to issue denials based on documented, objective findings, or lack thereof, in the medical record.

Because of this, providers should immediately assess risk areas. Here’s a look at some of the key ones:

Diagnostic or therapeutic services with documentation requirements

  • Required documentation: this includes any condition of payment that has a specific, required documentation component. The result of any review of these claims is bimodal: the requisite documentation is either present or absent. Compliant documentation contains all necessary elements and demonstrates the requisite medical necessity. If the documentation is absent, providers should expect denials.
  • Documentation of shared decision-making for some procedures, such as TAVR (NCD 20.32), is an example of such a requirement. Records without documentation of “shared decision-making” are not eligible for reimbursement. Successful appeal seems unlikely unless the record was submitted incomplete.
  • Specific coverage exclusions: this includes any service that cannot be combined with another service. Examples of time-based exclusions include implantable cardioverter defibrillators (NCD 20.4). With few exceptions, the national coverage determination (NCD) precludes payment for most devices implanted within three months of CABG or PCI, or within 40 days of a myocardial infarction. Devices implanted within the excluded time periods are rarely eligible for reimbursement.
  • Some services with required documentation remain susceptible to interpretation. TAVR is a prime example. TAVR eligibility depends on documentation that the patient is not a candidate for traditional aortic valve replacement. The record must document the rationale for the clinical judgment. This raises the possibility of some dispute regarding the validity of the clinical judgment. It also makes it less likely that RACs would deny claims (unless the clinical judgment was grossly flawed), since overturn on appeal is might be more likely.
  • Specific coverage inclusions: this includes any service that must have documentation of prior or concurrent services. An example of this is use of “an FDA-approved or cleared embolic protection device” for placement of a carotid artery stent (NCD 20.7). Records that fail to demonstrate deployment of an “embolic protection device” are not eligible for reimbursement.

One-midnight inpatient surgical procedures
Inpatient admission for surgical procedures is subject to the requirements of the two-midnight rule. Unless the documentation demonstrates one of the limited exceptions, providers should expect denials. Providers have an excellent resource for evaluating risk for these claims in the Program for Evaluating Payment Patterns Electronic Report (PEPPER). One-midnight inpatient claims should all be reviewed prior to billing.

Observation services in the perioperative period
CMS does not offer reimbursement for observation services based on routine or standing orders in the peri-operative period. As noted in Part 1 of this series, effective documentation of legitimate observation requires demonstration of some decision-making related to the patient’s disposition. The record should demonstrate the need for observation services in the perioperative period and distinguish the need from prolonged post-operative recovery or inpatient care.

Inpatient care for traditionally outpatient services
Providers admit patients to the hospital for a wide range of services. The services often blur the distinction between inpatient and outpatient status. The two-midnight rule has, to some extent, clarified the definition of inpatient care. But the ability to admit patients requiring little or no hospital-level services continues to present a denial risk for providers. Some services that should be carefully reviewed for correct status include hyperbaric oxygen therapy (NCD 20.29), chemotherapy, radiation therapy, and interventional cardiac and radiology procedures.

Each of these services carries generally accepted indications for inpatient care. Some, such as hyperbaric oxygen, are governed by prescriptive NCD or contractor guidance. Providers should develop internal guidelines based on robust scientific and medical evidence. Providers should review all high-risk claims and sample intermediate and low-risk claims. An aggressive contemporaneous review helps estimate risk for denials and prepare appeal strategies.

NCD and LCD compliance
NCDs and local coverage determinations (LCDs) impose a wide range of documentation requirements and restrictions on providers. Many of these do not require medical decision-making and hence are prime targets for denial with limited appeal opportunity.

Newly proposed RAC performance standards may mean more predictable risk associated with RAC audits. That predictability may come at the cost of lower appealability for denials. Providers must identify high-risk claims and prepare mitigation and appeals strategies. Specific areas for concern include:

  • One-midnight surgical stays
  • Observation services, particularly those in the perioperative period
  • Services requiring specific documentation of patient eligibility
  • NCD and LCD compliance
  • Outpatient services provided as inpatient

Providers must analyze their own practices and prepare.


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John K. Hall, MD, JD, MBA, FCLM, FRCPC

John K. Hall, MD, JD, MBA, FCLM, FRCPC is a licensed physician in several jurisdictions and is admitted to the California bar. He is also the founder of The Aegis Firm, a healthcare consulting firm providing consultative and litigation support on a wide variety of criminal and civil matters related to healthcare. He lectures frequently on black-letter health law, mediation, medical staff relations, and medical ethics, as well as patient and physician rights. Dr. Hall hopes to help explain complex problems at the intersection of medicine and law and prepare providers to manage those problems.

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