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What seemingly is being overlooked, however, is the paradigm of how physicians and hospitals are reimbursed. The fact that hospitals are reimbursed by Medicare Part A and doctors by Medicare Part B, resulting in different reimbursement mechanisms, means that the financial incentive to document patient treatment information accurately, so that both parties’ reimbursements are aligned, is not evident.


The challenge hospitals face with the RAC audit as it relates to insufficient medical documentation is getting physicians to document clinical treatment given to patients accurately in order for the hospital to be reimbursed properly by Medicare.
As soon as a hospital receives a “demand letter” from its appointed RAC auditor, there is a 15-day window in which to respond. The demand letter lists all of the cases that will be reviewed. It would be prudent for a hospital’s “RAC task force” then to meet and to review medical records to identify if the denials are based on inaccurate coding or insufficient medical documentation. If it is deemed to be the latter, the physician’s help is needed to review the charts, ensuring that the documentation accurately reflects the services rendered to the patient.

Key to Successful Reimbursement

The key to the successful reimbursement alignment of these two parties is education, specifically in two ways:

Education sessions about RAC audits for the medical staff


Some hospitals already have begun holding physician education meetings covering the various aspects of a RAC audit. More importantly, emphasis is made on how insufficient documentation or improper coding will impact the hospital’s bottom line negatively. Dissemination of this information to the physicians needs to happen now in order to solicit their help that will be needed, if a RAC denial is based on insufficient medical documentation.

Get Physician Buy-In

As the title of this article suggests, the “two-pocket theory” applies when hospital’s and physician’s financial incentives are not aligned; doctors can be reimbursed for a RAC claim whereas the hospital might not. If the potential of take-backs from RAC denials happens, hospitals will suffer the hardships, affecting their financial performance. Communities also will suffer, with fewer community outreach programs.


In order to achieve optimum results all around, a hospital must be proactive by making it as easy as possible for a physician to review RAC demand letter claims so that he or she can provide the right supporting documentation the hospital requires in order to get paid. It is imperative for the hospital to make the review as “physician friendly” as possible by being accommodating to the physicians’ schedules. A little effort potentially can go a long, long way in minimizing the risk of RAC take-backs.


About the Author


Leo Paul. D’Orazio, MBA, FACHE, is Director of Healthcare Services Group, based in the New Brunswick, NJ, office of WithumSmith+Brown, Certified Public Accountants and Consultants. He has directed many consulting engagements for hospitals and physicians, home healthcare, mental health and addictive disease and outpatient treatment facilities, and is a Fellow in the American College of Healthcare Executives. Leo can be reached at 610-737-7962 or ldorazio@withum.com.




Mr. D’Orazio is the Managing Director Healthcare for Withum Smith + Brown

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