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leodorazio120dsBy Leo Paul D’Orazio, MBA, FACHE


The impending Recovery Audit Contractors (RAC) program is certainly an issue that is keeping hospital CEOs and CFOs up at night.


Regardless of reports of delays, a review is certainly imminent. The three-year demonstration program’s review of patient Medicare claims, in addition to preparing and training staff for the upcoming RAC audit, is a daunting proposition. Practical strategies are required for multi-disciplinary integration, defensive audits focusing on exposure areas, and ideas for ongoing education and prevention are necessary steps that must be taken immediately.


Preparing for the Review

In preparation of this review, and for the benefit of your facility in general, it is necessary that you conduct your own internal audit of patient record documentation and billing coding practices to ensure accuracy and minimize risk of RAC recoveries. A hospital may want to organize a RAC committee that would be responsible for reviewing samples of data on claims, admissions, documentation and coding, in order to identify common errors. All findings should be shared with your compliance officers, legal counsel and external auditor/accountant in order to address these issues and assess and mitigate risk of improper payments.


Once the RAC program is underway at your facility, there is software available which uses the three-year demonstration project data to assist you with target tracking of your audit. Such workflow management tools can expeditiously pull the information required, help identify errors and track the documentation necessary to correct the coding and documentation deficiencies that could lead to RAC take-backs.


Properly Reserve for Potential RAC Take-Backs

One important issue that should not be overlooked is the need to reserve funds for potential RAC take-backs. Properly identifying RAC liability on the books should be recorded as “a reduction in net patient revenue.”


In today’s economy, hospitals around the nation are under an enormous amount of financial pressure. The Washington Post recently published a story on how hospitals across the nation, which employ 5 million+ people, are “reporting that donations and investment returns are down, patient visits are flat and profitable diagnostic procedures and elective surgeries are declining as people with inadequate insurance delay care.” If your hospital is entertaining a major renovation or expansion project, then you need to know what your potential RAC liability may be.


Similar to seeing the downturn in your stock investments for non-operating revenue, the hospital may potentially see the same impact on its financial performance going forward if corrective action is not taken on potential RAC take-backs. Again, we recommend that you consult with your external auditor or accounting firm to decide how best to prepare for your RAC audit.


About the Author

Leo P. D’Orazio, MBA, FACHE, is Managing Director of Health Care Services, based in the New Brunswick, NJ, office of WithumSmith+Brown, Certified Public Accountants and Consultants. With corporate headquarters based in Princeton, the firm has additional offices in Cherry Hill, Somerville, Morristown, Red Bank and Toms River, NJ; Newtown and Philadelphia, PA; New York City, NY; Silver Spring, MD; Aspen, CO; and West Palm Beach, FL. If you have further questions about the RAC program, please contact Leo at 732-828-1614 or ldorazio@withum.com.


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

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