The long-delayed expansion of the Medicare Recovery Audit Contractor (RAC) program is now getting underway, with audits expected to begin in May 2009. Hospitals, rehabilitation facilities and other providers face a double-barreled threat: The possibility of Medicare fee clawbacks on the one hand, and additional compliance costs on the other.
Auditors operating on a contingency fee basis will examine Medicare claims going back up to three years (although not before October 1, 2007). Improper payments must be returned immediately and can be recovered only after an appeals process – at a cost of as much as $2,000 per appeal. Providers must also try to refund deductibles, co-payments or other fees collected from Medicare patients. The revenue risk to providers is clear.
So how can providers avoid both revenue losses and huge expenses defending against audits and denied claims? Providers must adopt a proactive approach that identifies potential weaknesses, takes steps to address them and simultaneously leverages those steps to improve the revenue cycle and extract operational efficiencies.
Here are 10 steps that providers should take to shore up their Medicare claims process, defend against RAC denials and improve operations:
1. Organize an interdisciplinary RAC oversight team: Staff across the organization with resources that impact Medicare claims. RAC Committee should include professionals from Health Information Management, Case Management, Compliance, and Physician leadership.
2. Focus on the pre-billing phase: Medicare claims problems are always easier and cheaper to avoid than to fix. Careful attention must be paid to diagnosis, documentation and coding practices. Now is the time to evaluate processes associated with known RAC risk areas, whether it is coding, clinical documentation, or medical necessity decisions.
3. Review how Medicare guidance functions in treatment: Identifying cases in which established processes may not comply with Medicare guidance, especially in areas targeted by RACs such as medical necessity, can help avoid future problems.
4. Identify procedural shortcomings: The RAC demonstration project found recurring errors such as improper coding and lack of documentation; these areas can benefit from greater attention and the use of existing software.
5. Respond to RAC requests in a timely fashion: Failure to respond to a RAC’s request for medical records within 45 days can result in a claim automatically being designated an improper payment.
6. Ensure underpayments are identified: Nearly all (96 percent) of the improper payments in the demonstration project were overpayments, yet there is evidence that underpayments are also substantial. Providers should evaluate and correct common sources of underpayments, which are often due to charge capture issues.
7. Appeal RAC claims denials: Appeals can be expensive and, in the demonstration project, had a low success rate. Yet aggressive appeals in targeted areas may result in denials being overturned. Reviewing successful appeals can provide a roadmap.
8. Reserve adequately against denials: Finance officers should work with legal counsel and revenue cycle managers to assess current established Medicare reserves on the hospital balance sheet and determine based upon the hospitals’ RAC audit results whether reserves are adequate or need to be increased.
9. Monitor the RAC program as it develops: The RAC program, once widely deployed, will likely evolve to reflect experience and regulatory changes. CMS will issue updates, as will industry associations.
10. Leverage changes made for RAC: The internal team should look for ways in which changes made for RAC compliance can generate synergies. For example, coding improvements may help ease the transition to the ICD-10 coding system.
These strategies can help providers correct potential problems, avoid possible denied claims and minimize the need for a costly rapid-response effort down the road.
John K. Dugan is a partner at PricewaterhouseCoopers LLP.