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On and on

He just keeps on trying

And he smiles when he feels like crying

On and on, on and on, on and on

Stephen Bishop, 1994

ED. NOTE: RACmonitor was launched on Thursday, Dec. 4, 2008. In the second of a two-part series, RACmonitor publisher Chuck Buck relates how RACmonitorEnews held a mirror up to the changes taking place in the CMS Recovery Audit Contractor program.

“Put the RACs Out of Business…”

This certainly was a surprising statement coming from a CMS speaker during the national RAC Summit held in Washington, D.C. during the first week of March 2009. Dennis Jones, the director of compliance services for CBIZ KA Consulting, was covering the event for RACmonitorEnews. Dennis would text us sound bytes from RAC representatives addressing attendees, and in turn we posted them in real time on the home page. After the conference, we duly noted: 

Speaking at the RAC Summit in Washington last week, the RACs were reluctant to say that the initial requests would consist of solely automated recoupments as was reported in the RAC Demonstration Final Report of June 2008. Instead, it was stated somewhat ambiguously that the RACs would initially focus on “established black and white issues to begin with” and that it was to be expected that automated recoupments would be a major part of this. 

Contributing editor Linda Fotheringill, Esq., co-founder of Washington & West, LLC, also filed a report from the summit for RACmonitorEnews. Wrote Fotheringill… 

A goal to put the RACs out of business was the headline behind a message from George G. Mills, Jr., director of provider compliance for the Centers for Medicare & Medicaid Services’ Office of Financial Management, who spoke to industry professionals at the RAC Summit last week.

Mills made the declaration as he was pinch-hitting for Timothy B. Hill, chief financial officer and director of CMS, who was attending the White House’s Health Care Summit on the same day.

“My goal as director of provider compliance is to strive for the day where we eliminate mistaken payments so that we do not have need for RACs,” said Mills. “Ideally, we would want no errors, but until that day comes, recovery auditors are one of the tools CMS uses to reduce and identify improper payments.”

Mills said CMS also will use data produced by RAC programs to identify vulnerabilities and undertake corrective actions. Corrective actions, he said, could include outreach, education, and clarification of policies, edits, system changes or policy changes.

First Lawsuit Filed Against the RACs

Just as the dust began to settle following the national RAC Summit, less than 30 days later word about a lawsuit filed against the RACs came to us at RACmonitor. 

Ronald S. Connolly, principal in the law firm of Powers Pyles Sutter & Verville, filed this report for RACmonitorEnews on April 5, 2009.

In the first case of its kind, the powers of Recovery Audit Contractors and Administrative Law Judges regarding the reopening of hospital claims are central issues in a complaint filed in federal district court on behalf of a San Diego hospital that is making its way through the legal process.

Palomar Pomerado Health (d/b/a Palomar Medical Center) filed the complaint, challenging the procedures used by RACs to reopen Medicare claims. The complaint was filed on March 24, 2009, in the Southern District of California with the support of the Fund for Access to Inpatient Rehabilitation (the “FAIR” Fund), a common legal defense fund comprised primarily of inpatient rehabilitation hospitals and units.

This suit alleges that the Centers for Medicare and Medicaid Services (CMS) unlawfully reopened a claim by Palomar Medical Center without showing “good cause” for the reopening as required by Medicare regulations. Palomar Medical Center also disputes CMS’s contention that Medicare Administrative Law Judges (ALJs) may not review whether contractors, such as RACs, have complied with federal regulations when reopening claims.

The complaint addresses two related issues that arose from practices of PRG-Schultz in its capacity as a RAC under CMS’s demonstration project in 2006 and 2007.

First, the complaint alleges that PRG Schultz did not have “good cause” for reopening the hospital’s claim as required by CMS regulations.

Second, the complaint challenges the Medicare Appeals Council’s decision that ALJs do not have jurisdiction to decide whether Medicare contractors have complied with the reopening regulations.

Medicare regulations permit Medicare contractors to reopen and review claims within one year of payment for any reason, thus ensuring that the Medicare program has an opportunity to audit claims for compliance with Medicare regulations.

Between one and four years after payment, a contractor must show “good cause” for doing so, as defined in the regulations.  PRG-Schultz regularly reopened claims up to four years after payment without any showing of good cause. The complaint alleges that this was impermissible and that the reopening of this claim was invalid.

Hospitals were very successful in administrative appeals on this issue. ALJs have held that thousands of RAC claims were unlawfully reopened.

However, in February 2008, the Medicare Appeals Council (the council) ruled that ALJs do not have jurisdiction over this issue. While ALJs have continued to rule in favor of hospitals and other providers on this issue, the council has consistently overturned those decisions. The complaint alleges that the council has misinterpreted the regulations and that ALJs do have authority to review whether contractors have lawfully reopened claims.

“Our hospital, like many other Medicare providers, has endured heavy burdens as a result of the RAC’s violations of the reopening procedures,” said Janine Sarti, general counsel of Palomar Pomerado Hospital. “Although we stand behind the medical necessity of the care provided to this patient, we have chosen to appeal this case based on procedural grounds to help define the Medicare rules that we and all providers will be subject to in the future when being audited by the RACs and other Medicare contractors. It is our intent that hospitals that are in the same situation as PPH are not shortchanged for services provided in good faith. This is a groundbreaking suit, and (we) will hope other hospitals will benefit from this litigation.”

It is perfectly reasonable to expect CMS and its contractors to adhere to the regulations when auditing claims. These are regulations that CMS itself drafted and published, and they provide important due-process protections for hospitals and other Medicare providers. Without these protections, providers have absolutely no finality during the first four years of payment, and perhaps even after this if no right to administrative review exists. If the actions of CMS and PRG Schultz are allowed to stand, providers will not be able to rely upon their Medicare revenues for years after treating Medicare beneficiaries, creating uncertainty and potential financial turmoil, which can only negatively impact patient care.

On Aug. 5 of this year, RACmonitor contributing editor Carla Engle, MBA, reported on the outcome of the case.  We ran the story as a special bulletin.  Reported Engle:

A California provider’s challenge to the RAC initiative ceased to gain ground in U.S. District Court as the hospital’s summary judgment motion was denied and the Department of Health and Human Services motion for summary judgment was granted last week. 

The case, Palomar Medical Center v. Sebelius, filed a May 26, 2010 objection to a magistrate judge’s earlier recommendation that HHS is correct in determining that a decision to reopen a claim is not subject to appeal regardless of whether “good cause” is given for the audit, and now that decision has been denied, granting the summary judgment to HHS in Judge Roger Benitez’s order on July 28, 2010. 

As RACmonitor reported in April of last year, Palomar Medical Center, in Escondido, Calif., was the first provider to file a lawsuit challenging the RACs. The provider filed suit against HHS last year in the U.S. District Court of the Southern District of California after several steps through the Medicare appeal process based on a RAC decision to reopen a Medicare claim 20 months after the initial payment. 

Engle went on to write: 

“Medicare providers should be very concerned about this decision,” says Ronald S. Connelly, principal of Powers Pyles Sutter & Verville, PC, representing the hospital in the case.  “The court held that providers have absolutely no recourse when a Medicare contractor does not follow the timeframes and rules for reopening old claims. The court held that neither ALJs nor federal courts may review whether Medicare contractors are abiding by the regulations for reopening claims.” 


Complex Reviews: Waiting for the Other Shoe to Drop 

One of the lingering questions during the latter part of 2009 and the first quarter of 2010 was this: when would the RACs post complex reviews?

Ernie de los Santos, the chief information officer for eduTrax,® had been monitoring the postings of all four RACs. Routinely, he would report on their postings on Monitor Monday, which debuted on Jan. 11 of this year. We were among the first to break the news. de los Santos filed this report on Jan. 8 for RACmonitorEnews:

Health Data Insights (HDI) has posted 66 new approved issues for review on their website. The posting took place late Wednesday, Jan. 6. HDI is the CMS Recovery Audit Contractor (RAC) for several states in the western U.S. The issues posted by HDI are all for MS-DRG coding and DRG validation, but medical necessity is specifically excluded from review at this time. The list of MS-DRGs included in the issues represent both medical and surgical cases, and totals 530 of the 747 existing MS-DRGs, or over 70 percent of all DRGs.

Confusion Reins

In his reporting, de los Santos noticed something curious about how the issues were listed, grouped and identified. He would continue to report on this “confusion” throughout the year. He wrote:

Taken together, the four RACs are now approved for over 570 DRG Validation issues. However, the HDI list appears to overlap with the list recently posted by Connolly Healthcare, one of the other three RACs, leaving 530 as a true total nationwide.

The same 530 MS-DRGs listed by HDI were also approved for a second type of review: DRG Validation for Underpayment. HDI is the first RAC to list any issues for review for underpayment. HDI’s list of approved issues groups multiple MS-DRGs together, in groups that have no medical counterpart. That is, the grouping of MS-DRGs is usually accomplished via the Major Diagnostic Categories (MDCs). MDCs are 25 mutually exclusive groups of ICD-9-CM diagnosis codes, which correspond to a single organ system or “cause” and are in general associated with a particular medical specialty. HDI, however, has grouped MS-DRGs coming from disparate MDCs.

The groupings by HDI appear to be done in order to list as many together in one “issue” as possible, sometimes including over 50 MS-DRGs. One of the issues posted is entitled “DRG Validation-MDC 04 Respiratory, Underpayment,” and includes all 42 MS-DRGs in that MDC as being approved for review and DRG Validation.

The list posted by HDI is a departure from what the other RACs have been doing on their lists, particularly Connolly Healthcare, the RAC for Region C, which is the only other RAC to post any issues approved for complex review. 

RACAlerts: Additional Documentation Request Limits

Since the launch of RACmonitorEnews, we have posted RACalerts — breaking news— or in some cases, developing stories about the RACs. The subject matter of one such alert created considerable anguish, we learned: it detailed the expansion of RAC record requests. The following appeared on the home page on Tuesday, Feb. 2, 2010:

RAC ALERT: The Centers for Medicare & Medicaid Services (CMS) modified its FY2010 Additional Documentation Request (ADR) limits, expanding the scope of the rule to include all institutional providers.

The update was posted on the CMS website on Friday (Jan. 28, 2010.) Previously, the rule applied to ADRs for DRG Validation issues only, as posted by CMS on Dec. 1, 2009, and would have only applied to Medicare Part A providers. CMS also indicated that more changes are to come, with rules applying to physicians and other types of providers, including DME suppliers.

The December posting indicated that there would be two “caps” made on RAC ADRs during FY2010. Through March 2010, the cap would remain at 200 ADRs per 45 days for all providers/suppliers. 


However, from April through September 2010, providers/suppliers who bill in excess of 100,000 claims to Medicare, across all claims processing contractors, would have a cap of 300 ADRs per 45 days.

These limits would apply per “campus” instead of per NPI (National Provider Identifier). The definition of a campus is CMS’s new method of calculating limits, and is based on providers’ Tax ID Numbers plus the first three numbers of the ZIP code where those provider entities are physically located.

This most recent posting does not change any of the above limits or definitions, but does expand the rule to apply to all claim types, not just DRG Validations.

Closing the Window on the 72-Hour Rule

Other than the uncertainty as to when the RACs would post medical necessity issues, no other issue kept providers in animated suspense as did the unresolved 3-Day Payment Window subject which continued to be identified at the time as the 72-Hour Rule.

We continued reporting on the issue as it made its way through the legislative process. Here, from Dennis Jones, was his dispatch as it appeared in our June 6, 2010 edition of RACmonitorEnews. 

There is no such thing as a “sure bet.”

The Creating American Jobs and Closing Tax Loopholes Act, which was introduced to the House of Representatives on May 21 and passed on May 28, was described as a popular bill on the fast track.

The bill included the establishment, revision or extension of more than 50 populist issues, including extension of unemployment insurance benefits, elimination of cuts in physician reimbursement, extension of COBRA benefit subsidies, college tuition assistance funding, corporate tax deduction restrictions, small business incentives and property tax breaks.

Notably for hospitals, way back in section 525 the bill also included provisions that effectively kill the unbundling and billing/rebilling of outpatient services within 72 hours of an inpatient admission.

Note that I speak of the bill in the past tense.

After some Byzantine legislative moves, the type that seem to be more common these days, the Creating American Jobs and Closing Tax Loopholes Act did not even come up for an official vote. Acknowledging that “the numbers just weren’t there,” Senate Majority Leader Harry Reid withdrew the bill and called for a general vote on the general issue of legislation that will increase the already monumental federal deficit.

Certainly, it is not the prospect of hospitals’ unbundling and billing/rebilling of outpatient services within 72 hours of an inpatient admission that has killed the bill. The Clarification of 3-Day Payment Window is one of the few aspects of the bill that would not have either increased the deficit or forced a tax increase.

Window Shut 

On June 25, 2010, President Obama signed into law the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (HR 3962). Among other provisions, the law clarified Medicare’s policy for payment of services provided in hospital outpatient departments on either the day of, or during the three days prior to, an inpatient admission.

We asked Randy Wiitala, BS, MT (ASCP), a senior healthcare consultant for Medical Learning, Inc., to author a two-part series to set the record straight, which he did with the first article appearing as a special bulletin on July 13, 2010. Wiitala wrote in Part I: 

With all that’s been said and done, it’s prudent for providers to re-familiarize themselves with the current CMS requirements related to the three-day payment window. For hospitals paid under the Medicare inpatient prospective payment system (IPPS), diagnostic services provided to a Medicare beneficiary by the admitting hospital, or by an entity wholly owned or operated by the hospital, within three days before the admission date are deemed to be inpatient services and are included in the inpatient diagnosis-related group (DRG) payment. 


Medicare has defined “diagnostic” as all charges on a claim with the following UB-04 revenue codes and Healthcare Common Procedure Coding System (HCPCS) and Current Procedural Terminology (CPT) codes associated with that claim line.

Guidance from the Centers for Medicare & Medicaid Services (CMS) states that each service provided in the ER needs to be identified, and the proper billing requirements must be followed. The ER visit alone does not automatically place all services under the non-diagnostic services umbrella.

In Part II of this discussion, Wiitala focused on non-diagnostic or therapeutic services. In our July 15 special edition, Wiitala gave readers helpful insight:

Non-diagnostic or therapeutic servicesare deemed to be inpatient services, and therefore are included in the inpatient payment as long as: 

– They arerelated to a patient’s hospital admission; and

– The hospital or an entity wholly owned or operated by the hospital provides the services to the patient during the three days immediately preceding the patient’s admissiondate.

The term “related to” is defined as an exact match of all digits of the principal diagnosis code on the inpatient claim and the outpatient claim. 

The key here is to determine whether the non-diagnostic service is related to, or not related to, the inpatient admission. If there is an exact match of the principal diagnosis for the non-diagnostic services, then the three-day payment window provision does apply such that the outpatient services are deemed to be inpatient services and are included in the inpatient payment. If there is not an exact match, hospitals may submit a separate outpatient claim for services only if they are not related to the admission.

And so it goes. 

Or as a San Diego-born Stephen Bishop laments, “on and on, it just keeps going on and on.”




Chuck Buck

Chuck Buck is the publisher of RACmonitor and is the program host and executive producer of Monitor Monday.

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