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 more so 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.