In the coming months, you will be hearing more about The Centers for Medicare and Medicaid Services (CMS) using Recovery Audit Contractors (RACs)¹ for recovering “inappropriate payments” for Medicare services. CMS is expanding the use of RACs from a limited demonstration program in a few selected states to a national rollout that will be completed by 2010. This article is intended to provide you with some background as to what RACs are, what they are intended to do, and what actions you should consider to prepare for their upcoming national rollout.

Background

Although CMS has reported a declining error rate in paid claims over the past five years due to significant compliance efforts, a January 2008 report by the Office of Management and Budget (OMB) indicated that Medicare is still among the top three Federal programs with improper payments, totaling an estimated $10.8 billion in 2007.

The Medicare fee-for-service (FFS) paid claims error rate was estimated to be 10.1% in FY 2004 but had declined to 4.4% in FY 2006.³

As a result, The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) directed CMS to create a three-year RAC demonstration program to detect and correct improper payments in the Medicare FFS programs. The demonstration project ran from March 2005 to March 2008, and was initially limited to the three states with the highest per-capita Medicare population: California, New York, and Florida. Three additional states were subsequently added in 2007: Massachusetts, South Carolina, and Arizona.⁴

Program Methodology

RACs identify potential cases for review through proprietary analysis of the Medicare claims file.² Identification of potentially inappropriate payments results in an automated review and data collection process. Cases involving a likely error result in a request for the medical record and a complex review that may be performed by non-physician personnel.

Overall, claims may be denied due to improper coding, inaccurate assignment of medical necessity, insufficient documentation, duplication of charges, or billing for services already included in other payments. During the demonstration, the types of hospital services most likely to be identified for overpayment included wound debridement, surgical procedures in the wrong setting, respiratory system diagnosis with ventilator support, extensive OR procedures unrelated to the principal diagnosis, inpatient rehabilitation services following an orthopedic procedure, and heart failure admissions.

Congress directed CMS to utilize commercial contractors to administer the RAC program. As per the MMA, RACs are paid on a contingency fee basis. Medicare believes this compensation arrangement appropriately aligns incentives for the RACs, as they are also required to return any funds overturned on appeal. However, this payment methodology has been criticized as potentially creating an incentive to focus their reviews on high dollar value claims, particularly in the inpatient hospital setting,⁵ as well as overpayments rather than underpayments.⁶

Financial Impact of the Demonstration Project

CMS has identified nearly $1.03 billion in improper Medicare payments since the RAC program began in 2005.² Approximately 96% of the improper payments ($992.7 million) identified by the RACs were overpayments collected from health care providers; the remaining 4% ($37.8 million) were underpayments repaid to healthcare providers. Most overpayments occur when providers do not comply with Medicare’s coding or medical necessity policies.

Contested claim reviews were adjudicated through a multi-tiered appeal process. Approximately 14% of claims were contested, with 4.6% overturned on appeal at the time of publication of CMS’ Final Report on the demonstration project.

The RAC demonstration program has returned $693.6 million to the Medicare Trust Funds. Medicare has deemed the demonstration program a success, with a calculated cost of $.22 per dollar returned to the Medicare Trust Fund. In general, CMS estimates that the majority of hospitals had their revenue impacted by less than 2.5% by RACs.⁷

The RAC program has not been without criticism by hospitals, the American Hospital Association, physicians, specialty societies, and others due to its methodology and its impact on hospital finances and processes.⁸ Although legislation has been proposed to curtail the program, the success of this opposition may be marginal given the return of significant monies to the Medicare program.

National Rollout of RAC Program

Due to the success of the RAC demonstration project, a permanent program is now being implemented as per the 2006 Tax Relief and Health Care Act. CMS will gradually add additional states to the RAC program, with full implementation in all 50 states required by 2010. CMS will again contract with commercial entities to administer the program in each of four geographic regions9 (Figure 1).

Implications for EP Programs, Physicians, and Hospitals

According to numerous anecdotal reports, hospitals have been increasingly shifting patient admission status for cardiac device implant cases from the inpatient to outpatient setting. Appropriate assessment and documentation of the “medical necessity” for a specific level of care is still required for all cases, regardless of the site of service.

During the demonstration project, a number of implantable cardiac pacemaker and defibrillator cases have been reviewed and denied payment upon RAC review.¹⁰ These cases may represent a target for RAC review due, in part, to the historic utilization of inpatient admission (60-70% of system implants) for ICD cases, expansion of ICD indications to the less acute, primary prevention population that also typically involve a short length of hospital stay, and the high dollar value of ICD DRGs. Analysis of historic admission patterns from currently available Medicare data11 indicates that approximately 50% of all ICD system placements are billed as inpatients with a short 1-2 day length of stay. These are the types of cases that may be cited for performance in the wrong setting (inpatient vs. outpatient) due to inaccurate and/or insufficient documentation of medical necessity, incomplete or improper coding, etc.

The Heart Rhythm Society (HRS) cited their concern about the RAC program due to the RACs’ use of proprietary software and systems as well as their knowledge of Medicare’s rules and regulations to determine which areas to review.6 For example, the current Medicare National Coverage Decision (NCD) for ICDs¹² does not specify whether or not a patient undergoing an ICD procedure should be admitted into the hospital or placed in outpatient observation.

Much confusion exists about the role of “InterQual” criteria in the RAC program, with many believing, quite incorrectly, that “somebody” (e.g., Medicare, QIOs, InterQual, etc.) now requires cardiac devices to be implanted on an outpatient basis. In fact, CMS does not mandate the use of any specific set of utilization review screening criteria such as InterQual, although they do require a utilization review process. The term “InterQual” specifically refers to a specific utilization review screening criteria product from the Payor division of McKesson.¹³ Unfortunately, some use this term more generically to refer to any screening criteria sets used to evaluate admission appropriateness, of which there are several others (e.g., Milliman Care Guidelines,¹⁴ MCAP Clinical Review Criteria¹⁵). Hospitals frequently use such “level of care criteria” as an objective tool to help make decisions regarding whether an individual's condition is severe enough or the services provided are intense enough to be admitted to a specific level of care, although CMS still maintains that a physician's judgment should be the determining factor in deciding the appropriate level of care for each patient.¹⁶ It should be noted that InterQual provides the following disclaimer regarding the intent of their Criteria: “The Criteria reflect clinical interpretations and analyses and cannot alone either resolve medical ambiguities or particular situations or provide the sole basis for definitive decisions. The Criteria are intended solely for use as screening guidelines with respect to the medical appropriateness of healthcare services and not for final clinical or payment determinations concerning the type or level of medical care provided, or proposed to be provided to a patient.”¹⁷

HRS has also expressed concern regarding the process for determination of the appropriate classification of patient status for the implantation of these types of cardiac devices. They have stated that it is very important to understand that “this determination is a clinical decision best made by the patient’s attending physician after careful consideration of multiple clinical factors including, but not limited to, the specific procedure planned, the urgency of the procedure, the hemodynamic stability of the patient, patient comorbidities and the likelihood and consequences of complications arising from the procedure.”¹⁸ HRS also states that “patients who are medically stable and who present for elective pacemaker and ablation procedures can often undergo their procedure in an accredited outpatient environment. Appropriate monitoring and observation of these patients should be performed.”¹⁸ They add that inpatient status is required only for “patients who require more intensive monitoring, intravenous hydration, medication titration and extended nursing or physician care. Patients with post procedure complications are often best managed as an inpatient status.”¹⁸

Preparing for the RACs

Complete, accurate, and timely documentation of the patient’s clinical condition is critical in order to ensure that patients receive the appropriate level of care in the setting that their clinical condition requires, and that the hospital receives the appropriate Medicare reimbursement for the level of care provided.¹⁰, ^19-23

Many hospitals are now in the early stages of preparation to be ready for the expansion of the RAC program to their region. Cohen25 suggests six steps to prepare for a RAC audit: 1) implement a RAC team, 2) monitor problematic areas, 3) focus on clinical documentation, 4) establish record management protocols, 5) plan a systematic appeal process for RACs, and 6) monitor governmental reports.

It is important for the hospital to encourage a high level of collaboration between their admitting and referring physicians (and their office staff) and hospital departments, such as the EP lab, Health Information Management, Case Management, Utilization Management, Quality, Compliance, and Legal in order to ensure that all necessary processes are in place to ensure compliance with appropriate Medicare guidelines and regulations. A review of the current admission practices for the EP lab with both hospital personnel and physicians may be very helpful. Often, physicians may not fully understand the differences between inpatient, outpatient, and observation status and the implications of their documentation, dictation, and ordering practices.

The hospital should also determine whether all necessary internal processes are in place in order to minimize the number and risk of denied claims. These processes might include: auditing for admission appropriateness, determining whether physician orders for admission match actual/documented patient clinical status, verifying whether Scheduling and Pre-admission areas have the latest “inpatient only” criteria, ensuring that Case Management is in place in the ED, and determining whether there is consistent review of all weekend and holiday admissions. You may want to consider an internal audit of previous case charts to determine whether your existing processes and procedures are sufficient to meet the current thresholds that Medicare and your other payers, as well as RACs, are using when reviewing cases for appropriateness.

If your hospital does receive inquiries from a RAC, it is essential that all your responses to their inquiries be timely and complete, and that there is a complete record of who has sent what information to whom, and that copies of all records and correspondence are retained by the hospital. Strict adherence to stated timelines and process is critical. Identification of a single point of contact at the hospital, called a “RAC coordinator,” has been identified as a best practice by some hospitals that were audited during the demonstration project.^19-23

Other Resources

It is important that your hospital’s RAC coordinator periodically monitor the CMS RAC website1 in order to be aware of any updates or changes to the RAC program. A number of other resources are also available to provide guidance regarding preparation for and response to RAC audits. Several documents to review would include “Levels of Care for Cardiac Device Implant Cases: A Case Management Perspective” from The Centers for Case Management²⁴ as well as the HRS Member Advisory on the Recovery Audit Contractor Program6 and their statement on “Hospitalization Criteria for Pacemaker and ICD Placement and EP/Ablations.”¹⁸

A number of healthcare associations (American Hospital Association and state hospital associations, Healthcare Financial Management Association, American Health Information Management Association, American Association of Professional Coders, Healthcare Compliance Association, etc.) and other professional services/ consulting organizations also offer resources such as articles, audio conferences, and seminars that may be helpful to further educate your organization regarding RACs.

Summary

Knowledge is power. While the concept of RACs may initially seem concerning to hospitals and physicians, understanding the role of the RACs and ensuring that your hospital has implemented proper processes and procedures to determine and document appropriate patient level of care should enable you to better cope with this new level of regulatory review.