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The surprise is approval for RACs to audit admissions to inpatient psychiatric hospitals for medical necessity for inpatient psychiatric care.

As we all know, all the Recovery Audit Contractors (RACs) are going full steam ahead with all their approved issues. And new issues are being added to the list on a semi-regular basis.

But getting to the lists and finding the new issues is not always easy, nor do most of us have time to do it on a regular basis. To be fully informed, one should not only review details about your own RAC, but all the others as well.

Surprisingly, and perhaps with a thought of “it’s about time,” there are many emergent issues related to physician professional fee billing. The hope is that with this scrutiny, physicians will no longer look at us as the boy who cried wolf, warning them over and over about the RACs.

I chose three new issues to review in this article. First, the RACs have been approved to audit admissions to inpatient psychiatric hospitals for medical necessity for inpatient psychiatric care. I am far from an expert on the requirements for inpatient psychiatric care, but I’ll remind you that inpatient psych is not exempt from the two-midnight rule – so as with your medical patients, you may want to review all one-day psych admissions prior to billing as a first step to avoid denials. This comes as a surprise to many; I have heard many times that “our psych hospital doesn’t have observation.” But the fact that a hospital “does not have observation” is of no concern to Medicare. If a patient is thought to only require one midnight of inpatient psychiatric care or it is unclear of the expected length of stay, the use of observation is appropriate.

The second recently approved issue is same-day readmissions billed with condition code B4. The Centers for Medicare & Medicaid Service (CMS) requires hospitals to combine admissions if an inpatient is discharged and then readmitted on the same day for a related reason. But if the patient is readmitted on the same day for an unrelated reason, the hospital can use the condition code B4 to indicate to CMS that this second admission is appropriate for payment. Since this issue was approved for RAC review, and because every approved issue must be shown to be appropriate for audit, it appears that hospitals somewhere were improperly using B4 on claims that should have been combined.

The regulations governing readmissions are often misunderstood. The only readmissions that CMS requires a hospital to combine with the first admission are those occurring on the same calendar day for the same reason. When you readmit a patient within 30 days, you get another full inpatient admission payment, but that readmission counts to your readmission reduction program penalty for the next three years. If the patient returns to the hospital on the next calendar day (or the patient’s admission order is not written until after midnight), you technically don’t have to combine the admissions. But common sense says you should review these, and if they were avoidable due to hospital or physician factors, you should combine them. It should also be noted that many Medicare Advantage plans have a very different view of readmissions, so you should consult your contract to determine how to handle those.

Finally, RACs have been approved to perform automated reviews for duplicate claims by facilities for which a service was rendered and paid multiple times on the same date of service, for the same beneficiary. I agree that a facility absolutely should not get paid multiple times for the same service, but why in the world would CMS agree to pay the RACs a contingency fee on every claim to do something their own computers should be able to do in a few seconds? For that matter, what was CMS even doing paying the second claim for the exact same service they already paid for? And for that matter, why is CMS even allowing the RACs to perform audits on any automated issues? It seems reasonable to pay the RAC a finder’s fee for realizing that these claims were slipping through CMS’s edits but it’s not very fiscally responsible to pay a contingency fee on every single duplicate claim the RACs find.

Keep on reading RACmonitor.com and listening to Monitor Mondays, and I’ll do my best to keep you updated.


Ronald Hirsch, MD, FACP, CHCQM, CHRI

Ronald Hirsch, MD, is vice president of the Regulations and Education Group at R1 Physician Advisory Services. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute-care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic. He is a member of the Advisory Board of the American College of Physician Advisors, a member of the American Case Management Association, and a Fellow of the American College of Physicians. Dr. Hirsch is a member of the RACmonitor editorial board and is regular panelist on Monitor Mondays. The opinions expressed are those of the author and do not necessarily reflect the views, policies, or opinions of R1 RCM, Inc. or R1 Physician Advisory Services (R1 PAS).

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