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e-lamkinIf you think the RACs are gone, think again. The next wave is about to hit like a tsunami. We believe that the RAC auditors have been taking the easy path to money and flying under providers’ radars with automated reviews. As you read this article we hope you will understand why we believe the worst is yet to come.

Recently we have spoken to hospitals, physicians and cost report consultants who erroneously believe the Recovery Audit Contractor (RAC) program is not a threat and that the risk of recoupment basically has gone away. In one case we were told that RAC activity is not an issue because CMS only is looking at providers committing blatant fraud, not those making errors.

In truth, however, even simple errors are considered improper payments and could be considered fraud. In the past we have used the example of a faulty chargemaster creating a pattern of imbalance because inherent coding errors occur over and over. These types of simple provider errors are easily detectable during a RAC automated review.

The latest CMS Fee-For-Service newsletter should get everyone’s attention on this matter. It includes RAC results for the 2010 fiscal year through the third quarter of the 2011 fiscal year. The report shows that the RACs during that time have recouped $575.2 million.

According to Vicki Axsom-Brown’s Aug. 3 RACmonitor article, this figure represents a shortfall from the CMS goal. Now the RACs will have to make up $307.5 million in the fourth quarter to meet that goal.(2)

So, what is going on?

We believe many may not feel that the RACs are as active as they are because providers have not received as many record requests as they expected. This likely is due to a shift in RAC focus from complex to automated reviews (meaning reviews that take place without submission of a medical record). When the medical record requests slow down, a false sense of security may follow.

This is especially true considering that two RAC regions do not list medical necessity as a top RAC issue, something indicating fewer complex reviews. The RACs can run automated reviews at little additional cost, while complex reviews are much more daunting in terms of labor and CMS rules for the RACs to process.

This is significant because smaller recoupments, rather than total claim medical necessity denials, are adding up to big dollars. For facilities reporting their 2010 RAC data to AHA through the RACTrac program, the average recoupment for automated reviews was $399 per claim, and the average recoupment for complex reviews was $5,281 per claim.(3)

Hospitals and other providers may be nonchalant about small takebacks and may fail to appeal individual cases. This is borne out by the 2010 AHA RACTrac report indicating that hospitals with RAC activity only are appealing 23 percent of denied claims.(3)

In addition, the report indicates that recoupments for reporting facilities doubled from $42 million in the third quarter to $86 million in the fourth quarter.(3) Of this figure. 90 percent of the audits were automated, mostly for outpatient services.

So in summary, RACs are taking advantage of their ability to run automated reviews around the clock at a much lower cost than complex reviews (while still yielding big dollars). Just because you are not getting record requests, do not think that you are not being audited and are not at risk for recoupments from the RACs. Couple the RACs’ proficiency at automated reviews with new pressure from CMS for fourth-quarter results, and we predict providers will see more activity on complex reviews and medical record requests in addition to automated reviews.

Each provider needs a coordinated and comprehensive approach to ensure that finance and clinical departments are working together to mitigate RAC risk.

This includes organizing performance improvement committee structure to bring finance and clinical departments together formally for RAC and billing compliance accountability. By doing so, hospitals should experience fewer denials from all payer types and get a boost to their bottom lines.

We strongly recommend the implementation of some type of tracking database with reporting capability so even automated and small takebacks will be forwarded in aggregate to executive management and the governing board; remember that this is a compliance issue as well as a financial issue. You cannot change prior errors, but you can write your own future.

About the Author

Elizabeth Lamkin, MHA, is a partner in PACE Healthcare Consulting. Elizabeth has more than 20 years of C-suite level hospital executive management experience.  Most recently, she was the CEO/Market President for Tenet Healthcare’s Hilton Head Regional Healthcare. Elizabeth holds an undergraduate degree in Business Administration, Cum Laude and a Master’s in Healthcare Administration from the University of South Carolina.

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1.  Source: CMS, “Medicare Fee-for-Service Recovery Audit Program as of June 2011.” Retrieved Aug. 31 from http://www.cms.gov/Recovery-Audit-Program/Downloads/NatProg.pdf.

2.  Source: Axsom-Brown, V., “RACs Fall Short in Third Quarter by $82.5 Million,” RAC Monitor. Retrieved Aug. 7 from  www.racmonitor.com/news/3-feature-aritcles/624-racs-fall-short-in-third-quarter-by-825-million.html.

3.  Source: AHA, “Exploring the Impact of the RAC Program on Hospitals Nationwide: Results of AHA RACTrac Survey, Fourth Quarter 2010, Feb. 24, 2011.” Retrieved July 26 from http://www.aha.org/aha/content/2011/pdf/Q4-2010-RACTrac-results-chartpk.pdf.


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