The general public is now starting to hear about something that the healthcare community has been freaking out about for awhile now. We use the term “RAC Audits”; to the uninitiated, that stands for “recovery audit contractors”.
Their basic purpose is to go into hospitals and other types of healthcare facilities and determine if Medicare overpaid for procedures, or see if they agree with medical determination of diagnoses and treatments. Thus far, in three states, these audits have recovered more than $300 million dollars in three years, which is why it’s about to expand across the country; this has become a very lucrative business moreso than the audits the OIG performed on hospitals looking for fraud.
As usual, I see two sides of this issue, and therefore I have two different opinions on this. On the one hand, billing errors do happen, and there is billing fraud. There’s less fraud than errors, but the fear of being called on fraudulent billing is scary enough. However, being paid money that you’re not supposed to be getting and being made to give it back sounds fair on the surface. At least Medicare, to its credit, will sometimes go the other way; if they see they should have paid more money, they’ll pay it. Unfortunately, that doesn’t seem to occur as often, obviously judged by how much money has been recovered.
On the other hand, going back and reviewing medical records and determining that a physician could have done something different is another matter. Suddenly it comes down to interpretation, and doctors performing legitimate medical procedures being told on the back end that what they did, and how the diagnoses were coded based on what the physicians determined, opens up a Pandora’s box that just isn’t fair. The money being taken back doesn’t hurt the doctors; it hurts the hospitals. Medical records people are trained to code exactly what’s in the record, and inpatient claims are paid based on diagnosis code. Small changes of interpretation can affect hospital reimbursement drastically, and, since more hospitals are losing money than making money, these kinds of audits are going to end up putting patients at risk.
Hospitals can challenge legally, but financially, it’s not feasible most of the time. If a hospital fights these rulings it will cost a lot of money in legal fees, and they may lose anyway. As it pertains to fraud audits, if a hospital loses they have to pay 3 times the initial claim by the auditors; I haven’t heard what the figure is for these audits, but I will at some point. Either way, it’s hard to fight the government, or the government’s representatives, because they always have more money. Hospitals have appealed 11% of the claims against them; they’ve only won 5% on the back end.
I hope you can see the dilemma. Since most hospitals have a small positive budget margin, being hit with a large judgment could put good healthcare at risk. The story I read talked about a rehabilitation hospital that was hit with a $2.9 million dollar judgment and had to look for a buyer or close their doors. I’ve heard of hospitals hit with judgments of over $10 million dollars; that will take a chunk out of anyone. And Medicare doesn’t have to wait for you to pay them back; they just won’t pay you anything until they have all their money, so hospitals have no choice, even if they appeal. Still, if there are errors as it pertains to billing in general, I don’t have a big problem with it; I do have problems with coming in and changing diagnoses that may or may not be a judgment call. In my mind, that’s still what the OIG (Office of the Inspector General) is for.
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April 28th, 2008 at 10:09 am
I agree with your comments; however you have not addressed the most unfair issue around RAC audits. RAC contractors are paid on a percent of recovery. This gives them an incentive to deny claims for financial gain. HHS and gone out of it’s way to make sure that physicians cannot profit from improper referrals and arrangements in STARK rules. But yet they violate their own principle by hiring contractors to audit claims and give them an incentive to unfairly deny claims. Yes, hospitals can appeal, but many will go along with the denials because of slim margins and a fear of being unsuccessful in appeals.
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April 28th, 2008 at 10:39 pm
You’re right, Michael, I did leave that part out, and I did know about it.
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April 29th, 2008 at 5:48 pm
I understand the RAC Audits and the ROI. Several year’s ago, consulting firms conducting DRG audits were paid on a contingency fee basis and quickly changed their fees to hourly work. The Federal Government has a double standard. Why can’t these audit firms charge on a contingency fee basis? They submit the overpayments as well as under paid claims.
Another question: What impact does the RAC Audits have on physicians?
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April 30th, 2008 at 12:17 am
Physicians are also having to deal with RAC audits, Mike, and one of the oddest things is that there are a couple of cases where large consulting firms are also being fined because of some of the advice they’ve been giving hospitals. No one is going to be absolved from having to give money back, unfortunately.
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June 8th, 2008 at 11:47 pm
Mitch and Mike,
This is why getting together with an accediable HIS solutions co is the best thing. The amt they charge versus what the downside will be if not, will be staggering!!!!.
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June 9th, 2008 at 1:05 am
Thanks for the comment, Chris. I think you also make a good point, but I also believe this option isn’t for everyone. Large hospitals definitely need to weigh this one, but smaller hospitals may not be able to afford, nor need, these types of companies, if they’ve been able to keep good tabs on their billing and charging processes, which they’re actually better at than large facilities. It really points out why more hospitals need to have legitimate compliance committees or officers who can conduct audits and have at least a general understanding of the revenue cycle processes, instead of a bunch of lawyers who only know the legal aspects of compliance.
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June 13th, 2008 at 12:17 pm
Mitch,
I have been doing hospital audits for over 20 years.
At times it has been for the providers and at other times for the insurance companies.
Currently, I and some of the other nurse auditors have been looking to find hospitals who need assistance with preparing for the RAC audits.
Unfortunately, it is our experience that the hospitals wait until the last 30 days before doing anything.
Larger hospital corporations are also waiting but then hiring firms to help them out. Smaller hospitals think they have no recourse and do not look for the assistance that is out there.
The facilities need to know that there are independent auditors out there who will come to the facility and stay for 30-120 days (whatever the needs are) and prepare.
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June 14th, 2008 at 8:21 pm
Unfortunately Renae, more often than not in the healthcare industry administrators tend to be more reactive than proactive to almost everything. One can look at how they all missed just how important outpatient services were going to be when they were living high off the hog on inpatient money back in the 80’s. Many were also behind the 8-ball when HIPAA came, and there are still many hospitals that don’t have compliance as a part of their operation. I’m not sure how you’re advertising your services, but if you’re anything like me, you’re mostly banging against walls that will only fall when it’s too late for them.
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August 27th, 2008 at 9:52 pm
hey
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August 27th, 2008 at 10:14 pm
I am medical director of rehabilitation at a large community hospital in California. We were hit with 400 RAC audits starting about 2 years ago representing 6 million dollars in payments. The RAC auditor denied 99% of the cases even though we had been providing rehabilitation to elderly patients with lower extremity joint replacements for over 20 years without objection from Medicare. The patients received excellent care and with uniformly excellent results. The RAC audits do not dispute the necessity of the care, they just feel that all these patients should be shipped out to nursing homes instead. It turns out that the RAC auditors did not even look at the charts (and do not even claim to have done so!)
They received a kickback of 25% ofall recovered funds, even if the denial is overturned on appeal. We received a virtually identical form letter on all 396 denials. Nice work if you can get it! So far we have gotten over half the cases overturned after review by a genuinely impartial third party or administrative law judge and are still working our way through the remainder. And it turns out that there is very strong evidence that the audits were illegal.
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August 28th, 2008 at 3:05 am
There is a small error in the reports of contingency fees in regard to the RAC audits.
The auditors are (usually) not being paid on contingency…..but the company that HIRES the RAC audits is paid contingency. Currently, there are 3 firms doing the RACS. Only ONE pays the nurses on contingency.
As for appeals, this is why the hospitals and facilities need to at least contract a nurse to handle them and make the recommendations for how to avoid the problems. Many times, it is not the CARE that was given, but the DOCUMENTATION in the record does not reflect the level of care for a specific DRG. THAT is where RAC is finding the dollars.
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August 29th, 2008 at 9:37 pm
Thanks for sharing this information, Thomas. I could see if they reviewed the records and found that they weren’t as meticulous as Medicare wishes them to be, but to arbitrarily toss out everything based on what they believe you should do is unacceptable, and I’m glad you’ve been able to recover some of the damages.
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August 29th, 2008 at 9:40 pm
Hi Renae,
In Pennsylvania, hospitals have started receiving all sorts of literature from their state insurance authority about upcoming RAC audits, but hospitals are either ignoring it or panicking because they’re unsure what to do. That’s pretty much what the original hospitals did before those same types of audits came. It’s hard to prepare for something when one is unsure just how much authority these people have, or what they might be looking for. But I also know there are companies who are now saying they can offer protection and assistance to hospitals before RAC audits occur. I’m not sure how valid those claims are, but I figure any help can’t hurt.
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October 16th, 2008 at 10:03 am
Mitch,
I am a first time responder to your blog… My company provides RAC-Risk Assessments to help minimize and curtail RAC audits for all providers.
These assessments provide an in-depth analysis of the high vulnerabilities identified through the RAC Initiative.
There were some great comments, however, I just wanted to clarify a couple of the comments on the contingency fees of CMS’ RAC auditors and the actual number of RACs.
First of all, four (4) RACs were selected by CMS, not three (3)…
Secondly, the RACs receive the following contingency fees. Each RAC receives a different amount based on their assigned region.
We surmise that the differential of rates are based on the anticipated overpayment amounts based on previous collections during the initiative phase of the program.
Although CMS states that they were selected based on their RAC Inititive results and their low-bid during the RFP process.
The following list identifies the RAC, their region of responsibility and the agreed upon collection percentages:
Diversified Collection Services, Inc. (Region A) - 12.45%
CGI Technologies and Solutions, Inc. (Region B) - 12.50%
Connolly Consulting Associates, Inc. (Region C) - 9%
HealthDataInsights, Inc. (Region D) - 9.49%
According to the CMS, the RACs will be paid a contingency fee based on the amount of improper payments they correct for both overpayments and underpayments.
I hope that this helps. Please contact me for any additional questions.
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October 16th, 2008 at 11:09 am
@Tory Smith, Hi Tory, thanks for your comments. At the time the article was written, CMS hadn’t settled on who would be contracted for doing the audits; I don’t think that news came out until the middle of September or so, from what I remember. And yes, there will be differences based on region, but the truth is that it’s still going to amount to a big chunk of money, and at this juncture there’s a lot more supposition that drives rewards rather than plain, hard facts. Still, I guess it’s that way for a lot of audits in many areas of business; just seems to be more punitive to hospitals in these economic times.
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October 29th, 2008 at 7:53 pm
Hi Mitch,
Nice thread going! We have a blog going that our clients asked for, concerning our experiences with RACs. Our auditors (who are certified coders & coding trainers) are often hired by the DOJ to do audits and have been directly involved some famous cases. Hospital systems now hire us to help them prepare for the coming RAC attacks. Our blog offers information in “bite-size” posts, which seems to be popular.
The reason I’m writing is to add something to what was said above — RACs almost exclusively look for documentation errors. They tend to look for these first, and any fraud cases will fall out of that. But the big thing is the documentation by the MD.
The oft-quoted guideline for coders/billers is this: “Not Documented = Not Done.” There are no exceptions. Take a look at a recent post we did: “Excising Debridements” and you’ll see what I mean.
Hope your blog keeps this going!
Ernie de los Santos´s last blog post..Losing FTEs
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October 29th, 2008 at 8:03 pm
Thanks for your contribution Ernie, and you’re absolutely right on documentation. When I’m consulting with hospitals, I’m always amazed as the reaction of staff when I tell them just how much they have to document what’s going on, especially times. If it’s not in the record, it didn’t happen.
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