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fsheeder100By: Frank Sheeder, Esq. and Lindsey F. Bartula, Esq.


There are some recent reports that quantify RAC activity for the first part of 2010. Results from the American Hospital Association’s (AHA’s) April 2010 RACTrac Survey indicate that for 653 responding hospitals, RACs denied a total of $2.47 million in Medicare claims during the first quarter of 2010.


AHA reported that out of the 653 total responding hospitals, 437, or approximately two-thirds, confirmed that they had been the target of RAC activity. Of these 437 hospitals, those in Region C had the highest number of facilities reporting RAC activity. Region B had the most activity among respondents, with three-fourths of them having had RAC requests. AHA reported that 87 percent of the $2.47 million in denied claims resulted from complex denials, with an average denied reimbursement amount of $6,542. The average dollar value for the less common automatic denials was $709. AHA reported that outpatient coding and billing were most commonly the target for the RACs’ automated reviews, while inpatient coding was the main target for the complex reviews.


A full 84 percent of responding hospitals reported that RAC activity impacted their organization during this period, with 49 percent reporting increased administrative costs. Among the 653 reporting hospitals, Region C had the most medical records requested during the first quarter of 2010, with over 4,500, or an average of 30 per reporting hospital.


Providers Prevail

The good news for providers is that in a June 2010 CMS report entitled “The Medicare Recovery Audit Contractor (RAC) Program: Update to the Evaluation of the 3-Year Demonstration,” found at https://www.cms.gov/RAC/Downloads/DemoAppealsUpdate61410.pdf, CMS reported that since the beginning of the three-year RAC demonstration project, Medicare providers won back 64 percent of the claim denials they appealed. With more emphasis on front-end compliance, coordination and education, however, providers could do even better. In fact, CMS reported that providers appealed only 12.7 percent of the 598,238 RAC overpayment determinations in the demonstration project, which may indicate that the RACs often properly denied claims in the first place.


All Eyes on Palomar


Some providers are beginning to challenge RAC activity on legal grounds. One case to watch is Palomar Medical Center v. Sebelius, in which Palomar Medical Center filed an objection to a magistrate judge’s ruling that a RAC’s decision to reopen a claim is not subject to appeal regardless of whether a good reason is given for the audit.


The hospital argues that the Medicare regulations do not divest administrative tribunals of jurisdiction to enforce the reopening regulations.  Palomar Medical Center filed the lawsuit on March 24, 2009 in federal court after appealing a RAC’s reopening of a 20-month-old Medicare claim. Providers should keep an eye on this case because it goes to the core of the RACs’ ability to reopen claims, and it will impact providers’ ability to challenge RAC actions.


As we help providers in the defense of RAC audits, we always set the stage for various legal challenges during the earliest phases of the process. Focusing on clinical issues is, of course, crucial.  But it is not enough. We believe that many providers are missing the opportunity to challenge RAC and subsequent review and appeal processes on legal grounds. To be effective in the long run, providers should understand, embrace and put forth the appropriate legal challenges.


About the Authors


Frank E. Sheeder, Esq., has defended clients against civil and criminal fraud allegations brought by the government and other hostile third-party litigants – especially whistleblowers – for more than 20 years. He focuses on complex healthcare litigation and regulatory compliance. He has appeared before multiple federal and state courts and represents clients opposite a multitude of federal and state agencies, whistleblowers, and other plaintiffs.



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