Taking a Proactive Approach to Audit Defense

The prevalence of audits is soaring after the expiration of COVID-related regulatory relaxation.

Despite the strain that hospitals and health systems are facing with the COVID-19 pandemic, compliance audits for reimbursement are on the rise. The Centers for Medicare & Medicaid Services (CMS) suspended audits between March 30 and Aug. 3, 2020, but the suspension was lifted in 2021. During last year’s audit downtime, Recovery Audit Contractors (RACs) began to data-mine claims, resulting in an increase of medical records requests and overpayment demand letters sent to providers. Experts expect a continued increase in audit activity in the coming months, potentially to previously unseen levels. As such, providers need a well-designed, automated approach to respond proactively and effectively to RAC requests.

Rule Changes and Error Risks
The onset of COVID brought rapid changes to the regulations governing services such as telehealth, inpatient rehab, nursing home care, and more. The frequency of these changes has increased the likelihood for audit errors and misapplication of rules. Claims adjudicated within the first 60 days of the pandemic are at particular risk for errors. With rule changes occurring almost daily, auditors may face difficulty applying appropriate guidelines to the applicable time frame of the claim.

Things have been further complicated by federal work plans that have increased audits, evaluations, and inspections by the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG). Work plans bring a higher level of scrutiny to areas such as Patient-Driven Payment Model (PDPM) coding and supporting documentation, proper use of Skilled Nursing Facility (SNF) waivers, and appropriate access to and accounting for Provider Relief Funds. Another area of focus is billing patterns for Medicare telehealth services during the pandemic, with a close look at provider characteristics that could potentially pose a risk to the program.

An Increase in Audits
In conjunction with these activities, CMS has also been working to resolve provider complaints related to the backlog of Medicare appeals. In 2018, a federal court ruling in favor of the American Hospital Association (AHA) and its member hospitals established deadlines for CMS to reduce its backlog of Medicare appeals at the Administrative Law Judge (ALJ) level. The ruling was accompanied by a $182.3 million increase in funding, which enabled the hiring of an additional 70 ALJs dedicated to adjudicating appeals.

With the addition of ALJs, the Office of Medicare Hearing and Appeals (OMHA) estimates that the agency will be able to adjudicate more than 300,000 appeals annually, compared to its previous capacity of approximately 75,000 annually. Healthcare legal experts say this increased capacity creates a double-edged sword for providers. As of March 2021, CMS had already reduced its backlog by nearly 70 percent, tracking toward its goal of a 75-percent reduction by the end of the 2021 fiscal year (FY). With the backlog coming to an end, CMS will likely loosen restrictions previously placed on contractors to slow down audit activity, and providers could see a substantial increase in audits as a result.

A Proactive Approach
With the increased likelihood that providers will face a RAC audit, the benefit of having a well-defined process and proactive approach to audit responses is apparent. The approach should involve clear audit defense protocols, including thorough documentation of billing compliance. Playing an active role in the audit process helps providers identify any potential errors that may inadvertently be included in auditors’ methodologies and calculations, which will help prevent unfounded determinations and unwarranted recoupment demands.

Providers should pay close attention to all overpayment or audit letters, whether from government or commercial payors. When an Additional Documentation Request (ADR) is received, it is important that everyone involved in billing claims document its receipt and act quickly in response. By taking a proactive approach, collecting documentation of billing compliance and documenting auditors’ mistakes, providers may be able to address unfavorable determinations before RACs initiate the appeals process.

Data from the AHA shows that appealing RAC denials is often favorable for providers, with 27 percent of providers saying that RACs reversed a denial during the discussion period, before the formal appeals process began. Of the RAC denials that went through the formal appeals process, 62 percent were overturned.

While the results can be favorable for providers, the appeals process is often costly and time-consuming. Data from 2016 shows that 43 percent of hospitals spent more than $10,000 managing the RAC process, and another 24 percent spent more than $25,000. Proactively addressing RAC denials before they enter the appeals process can help providers reduce these costs.

The Importance of Documentation
According to CMS’s Comprehensive Error Rate Testing (CERT) Research and Statistics Data, the top reason for a RAC denial is a lack of documentation. This occurs when a provider fails to appropriately respond to an ADR, either by neglecting to respond or by stating that they do not have the documentation requested. The second-most common error category is insufficient documentation, meaning that the medical records provided for review are inadequate to support the services billed for payment.

Documentation is a critical lifeline for providers to win the battle against RAC denials. A clear workflow is needed to collect necessary documentation and ensure that all materials are included for the dates under review. This includes documents required for payment, such as a signed physician order, to show that billed services were actually provided and medically necessary.

Electronic Submission of Medical Documentation
CMS launched the Electronic Submission of Medical Documentation (esMD) initiative to assist providers in the submission and tracking of audit documentation. The process gives providers the ability to electronically receive and respond to documentation requests through electronic medical documentation requests, or eMDR. By digitally transmitting request and response data, providers can reduce the risk of losing audit notifications and ADRs, as well as show timely filing with digital proof of receipt by RACs and CMS.

Electronic filing is shown to improve payment response times for audited claims by eliminating time-consuming processes such as screen scraping, printing, faxing, and mailing paper records. The process also reduces the risk of paper copies being delayed, lost in transit, or delivered to the wrong location. A fully digital process helps ensure timely responses, resulting in fewer missed deadlines, fewer discrepancies about submission timelines, and ultimately, fewer denials.