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The first five years of the Recovery Audit Contractor (RAC) audit program created nightmares for many in the provider community. Deadlines were routinely missed at every step of the way. The appeal backlog at the Administrative Law Judge (ALJ) level exceeded three years and does not seem to be getting any better. The Centers for Medicare and Medicaid Services (CMS) introduced the two-midnight rule in 2013 to try to clarify the inpatient admission status decision but auditing of compliance with the rule had a disastrous roll-out, with the Medicare Administrative Contractors (MACs) unable to handle the task and the duties assigned to the Quality Improvement Organizations (QIOs). Recently CMS announced another change to the audit process using a “targeted” approach. It is not hard to see why many view the RAC process as one-sided and inherently biased against providers. But with the new RAC contracts commencing in 2017, CMS has taken several steps to try to level the playing field a bit. 

First, CMS will be monitoring the overturn rate on level 1 appeals reviewed by the MAC. CMS set a 10 percent overturn rate as an acceptable level and then used the carrot and stick approach. If the RAC’s overturn rate is less than 10 percent, the contingency fee will increase. If the RAC exceeds a 10 percent overturn rate, CMS will “take necessary action, including progressive reduction in additional documentation request (ADR) limits, requiring a Corrective Action Plan, or even modification or termination of the contract.”

The RAC contracts also have a provision which “penalizes” the RACs for auditing providers whose denial rate is 9 percent or below by reducing the additional documentation request (ADR) limit for those hospitals to 0.25 from a 0.5 percent baseline and forbidding auditing for 3 cycles on providers whose denial rate is 3 percent or below. But that adjustment only occurs if the RAC agrees to a reduced six-month look back period.

Another major step taken by CMS was to add a new contractor, the RAC Validation Contractor (RVC), whose duty is “to review RAC claim determinations on Medicare claims that were paid under part A or B of title XVIII of the Social Security Act, and to ensure that the RACs are not unnecessarily denying Medicare claims that were properly paid.”

The plan is for CMS to provide the RVC with 1,000 randomly selected claims from each RAC with the claim type proportional to the types audited by the RAC from providers. (It is not specified whether CMS will be contracting with yet another agency to prepare the sample for the RVC.) The RVC will not only be reviewed the decision made by the RAC but also all correspondence sent from the RAC to the provider, any references used by the RAC to approve or deny the claim, such as Coding Clinic references, the language used by the RAC to either approve or deny the claim and any liability determinations which may have been addressed in the determination.

As with RAC denials where the provider can appeal an adverse determination, the RACs are given the opportunity to dispute an RVC “denial.” The RACs are given 30 days to file a dispute and then the RVC has only 10 days to submit a response to the dispute. If the RVC determines that the RAC was indeed correct, the RVC must not only reverse their denial but must also submit a corrective action plan to the CMS outlining how they plan to prevent future inappropriate denials. If the RVC stands by their original denial, the case then goes to CMS who makes a final determination.

Notably absent from this process is the provider; if a claim was denied by the RAC, reviewed by the RVC and the RVC determines that the RAC denial was inappropriate, there is no provision for the RAC denial itself to be automatically overturned. The provider still must go through the formal appeal process and in fact the provider will never be notified that the RVC determined that the RAC denial was inappropriate. Also absent is any formal plan for corrective actions required by the RACs for high rates of RVC denials nor any changes to their contingency fees; CMS will receive reports from the RVC on RAC performance but what is done with that information is left to CMS.

The RVC will also be used by CMS for two other duties. They will be tasked with occasional special studies to review “topics of interest” to CMS and will review new issues that the RAC has proposed to CMS to be added to the list of approved issues. The new issue proposal process itself requires the RAC to produce a “package” outlining the proposed issue, their planned edit guidelines, their review guidelines for complex reviews, the claim selection criteria and their references. The RVC will determine if each new issue package is ready to be presented to the CMS Review Plan Team for consideration. And finally, it seems no audit agency can be contracted by CMS without a plan to audit that agency so the RVC will be required to perform a quality assurance audit on 30% of the claims audited by its own staff for accuracy.

What is the bottom line for providers? It is mildly reassuring to know that CMS is going to be auditing the RACs but I think most providers would prefer a more open process with RAC accuracy rates published. It is also disheartening to realize that even when the RAC denial is determined to be improper the provider must continue through the appeal process to try to get it overturned. 

If CMS were truly leveling the field, any of these RVC denials would automatically reverse the RAC denial.

But perhaps that is asking for a bit too much too soon. 


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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