June 2014

The RAC Trifecta of Trouble
By Elizabeth S. Roop
For The Record
Vol. 26 No. 6 P. 12

Three concerns leave many revenue cycle experts searching for answers.

Some would argue that confusion and uncertainty go hand in hand with the Centers for Medicare & Medicaid Services’ (CMS) Recovery Audit Contractor (RAC) program. There are numerous circumstances that baffle revenue cycle and coding leaders, but three issues in particular appear to stand out: Part B billing after Part A denial, outpatient therapy, and transparency.

Becky Reeves, a spokesperson for the American Coalition for Healthcare Claims Integrity, a nonprofit organization committed to achieving 100% accuracy in payment claims submitted to public and private sector health care payers, says the latest CMS RAC report to Congress—which found that in fiscal year 2012, RACs achieved a 95.5% accuracy score—identified the following as the three most common reasons for improper payments:

• payment made for services that do not meet Medicare’s coverage and medical necessity criteria;

• improperly coded services; and

• services where the documentation does not support the ordered services.

When it comes to outpatient therapy and Part B billing, many providers are challenged more by how the guidelines and mandates seem to be in a constant state of flux than they are by coding accuracy and documentation to support medical necessity.

“Confusion occurs when vast amounts of information changes while you are posting your medical bills,” says Margaret Klasa, director of medical content for Context4Healthcare, a developer of software and data products to help health care organizations reduce claim errors, inaccurate payments, and claim-handling costs. “Approved issues regarding billing and medical guidelines have to be read by the stakeholders, providers, coders, and billers. At times, some of the issues have resource articles appended to them, and they, too, have to be interpreted by the team to provide what is required for coverage and quality of care. An issue can have many resources that need to be interpreted. Then the medical chart has to be reviewed to verify that all the requirements have been met.”

Rebilling and the Two-Midnight Rule
An example of the vagaries of RAC rules can be seen in CMS Rule 1599, which covers rebilling to Medicare Part B when Part A claims are denied and the controversial two-midnight rule.

Under the rebilling provision, in cases where a Part A claim for inpatient services is denied because admission was deemed unreasonable or unnecessary, the CMS will allow payment of all provided services that would have been reasonable and necessary had the patient been treated on an outpatient basis. The exceptions are those services that specifically require an outpatient status, such as emergency department visits and observation services.

However, it is the so-called two-midnight rule that Klasa says is causing the most consternation for providers when it comes to RAC rules—enough so that the American Hospital Association, four integrated delivery systems, and four state hospital associations have filed suit in federal court contending that it is arbitrary and capricious. Specifically, Medicare will not reimburse hospitals under Part A for inpatient services if that treatment does not span two midnights because it considers such treatment to be outpatient and therefore payable under Part B.

Klasa notes that as part of the “doc fix” bill, enforcement of the two-midnight rule has been extended from October 2014 through March 2015. Until March 31, 2015, hospital inpatient admissions under the two-midnight rule will be subjected to only a limited number of prepayment claim reviews by Medicare administrative contractors (MACs). Thus, for inpatient claims with admission dates of October 1, 2013, through March 31, 2015, the RACs will not conduct prepayment reviews, and both the RACs and the MACs will not conduct postpayment reviews. Depending on the hospital, auditors will review 10 to 25 claims per facility.

“It seems that some of the risk is in the interpretation of the issue and the clinical guidelines. However, it has been proven that most of the confusion is on the RAC side, with the amount of appeals being overturned in favor of providers,” Klasa says, noting that a recent RACTrac report found that 47% of hospital denials are appealed, and nearly 70% of those are overturned. “This extreme backlog of appeals has resulted in a suspension of assignment of at least two years for appeals to the administrative law judge [and] wait times of at least an additional six months before a judge hears an appeal after assignment,” she adds.

To better manage documentation, coding, and billing compliance in these cases, Klasa says HIM first must understand how their particular RAC operates. “RAC issues are posted for all four RAC regions with states listed as well as if they are an automated, semiautomated, or complete review,” she says. “To help identify at-risk areas, a robust medical editing software like ClaimsEditor can be a smart investment. These tools can mitigate audit risks to both institutional and professional claims.”

For example, ClaimsEditor performs both pre- and postpayment reviews to analyze audit risks and edit against not only technical edits but also national and local coverage determination edits, utilization, and National Correct Coding Initiative edits on which most automated RAC issues are based.

Outpatient Therapy
In the outpatient therapy realm, problems stem largely from a lack of clear communication between RACs and providers. At issue are the reasons behind denials. The effects of poor correspondence are most noticeable during prepayment review.

According to Nancy J. Beckley, MS, MBA, CHC, president of Nancy Beckley & Associates, the current program of manual medical review of therapy over the $3,700 threshold “has created significant problems for outpatient therapy providers and threatens beneficiary access to therapy.”

Thresholds include $3,700 for physical therapy and speech language pathology, and a separate $3,700 threshold for occupational therapy. Beckley, whose firm provides compliance consulting, training, and education, notes that the CMS originally assigned manual medical review of therapy claims to MACs in 2012 when the program was initiated then reassigned the task to RACs in April 2013.

Each RAC posted manual medical review of therapy claims as approved CMS issues, although each posted differently, Beckley says. Prepayment reviews were to be performed in the 11 CMS RAC prepayment review states, and postpayment reviews were to be conducted in the remaining 39 states. Prepayment reviews were to be conducted within 10 days of receipt of all additional documentation request (ADR) information or the payment was to be made.

“The therapy industry anticipated, and was led to believe, that the reviews would give a detailed explanation for the denials, particularly for prepayment review,” she says. “This would allow providers to assist the beneficiary in making an informed decision on continuing therapy, including proper execution of the Advanced Beneficiary Notice of Noncoverage. Instead, the therapy industry has been getting little better than template denial reasons, quoting various passages from the Medicare benefits policy manual.”

Beckley agrees with many denials; for example, a claim in which the therapist failed to document properly even though the beneficiary needed the care. However, she says that many providers wonder if their ADR documents are even being read. Because of how little RACs are paid and the amount of time it takes to review a typical 50 to 100 pages of such documentation, RACs often lose money auditing therapy claims. In fact, many in the therapy industry suspect RACs are not actually reading the full documentation. Rather, they are just skimming and denying.

To illustrate the point, Beckley breaks down the process from audit to RAC fee payment as follows:

• A day of therapy is about $100 in total fee schedule reimbursement for an average visit of one hour.

• The ADR to support the claim carries costs for copying and postage, clerical staff labor, and the time it takes for clinical staff to create a cover letter to prove medical necessity.

• The RACs process the information and presumably assign a nurse or a therapist to review the documentation, which could be anywhere from 50 to 100 pages either of handwritten or EMR-generated documents.

If they determine there is a medical necessity denial, the RAC receives a bonus payment based on a contracted percentage. “Picking 10%, the RAC receives about $10 if they read the chart and deny based on medical necessity,” Beckley says. “If they do a thorough job and read all the ADR materials, the RAC is losing money even if they deny. The therapy industry is not confident that the transparency is there for this program, particularly since the reviews with a denial mean that a beneficiary will no longer likely be able to receive additional therapy for the current calendar year.”

The current process can lead to serious ramifications, she adds. “The end result is that therapy providers are becoming risk averse in treating patients wherein a single episode of care will exceed $3,700 or wherein a subsequent related or nonrelated episode of care will trigger the $3,700 RAC review,” Beckley says. “When the RAC work continues, all manual medical review of therapy claims will be done on a postpayment review basis, meaning that providers will get paid, then will receive an ADR. For the process to work effectively, there needs to be effective communication from the RACs on reasons for therapy denials, not merely quotations regarding lack of medical necessity based upon regulatory citations. The majority of therapy providers have never had their charts reviewed, even by their MACs, prior to manual medical review by the RACs.”

Transparency Concerns
Confusing or nonexistent communications between RACs and providers, coupled with delays in review requests and decisions, also give rise to concerns about RAC transparency. Eliminating the mystery of what’s going on behind closed doors would help ease providers’ concerns. For example, Beckley says a roundtable held during the original three-month manual medical review program in which MACs representing medical review department managers “provided tremendous information to the therapy industry.”

There are other opportunities to expand beyond the roundtable concept, she suggests. “In the interest of true transparency, it would be helpful to have a national webinar with RAC medical review staff illustrating therapy best practice as well as commenting on specific reasons for denial—a connect-the-dots exercise, so to speak,” Beckley says. “In the interest of transparency to maintain beneficiary access to outpatient therapy in a calendar year based on the $3,700 threshold for RAC review, all parties have an obligation.”

Reeves views the situation differently. She believes the RAC program is highly transparent, citing the Web portals that are used by every integrity contractor to communicate auditing status and results to providers. Prior to an audit, contractors post the issues up for review. Using the RAC findings as a point of reference, MACs encourage providers to evaluate vulnerable areas and adjust their billing practices accordingly.

“RACs are also committed to provider support and education,” Reeves says. “Per CMS policy, MACs serve as the primary educational resource for providers. To supplement this resource, recovery auditors provide CMS with their findings and billing trends, which inform CMS’ provider education efforts and help bring greater clarity to the auditing process overall.”

But there’s always room for improvement. In February, the CMS posted plans to make several changes to the RAC program in response to industry feedback. The revisions, which are scheduled to take effect when the next contract is awarded, include the following:

• a requirement that RACs wait 30 days before sending a claim to the MAC for adjustment, so providers will no longer have to choose between initiating a discussion or an appeal;

• a requirement that RACs confirm receipt of a discussion request within three days;

• a requirement that RACs wait until the second level of appeal is exhausted before receiving their contingency fee;

• the establishment of diversified ADR limits across different claim types; and

• a requirement that RACs adjust the ADR limits in accordance with a provider’s denial rate (ie, those with low rates will have lower ADR limits).

The agency wrote: “The CMS is confident that these changes will result in a more effective and efficient program, including improved accuracy, less provider burden, and more program transparency.”

Hospital financial experts would be thrilled if those results came to fruition because not only would they make the RAC process more transparent, but they also would help erase the pitfalls associated with rebilling and outpatient therapy.

— Elizabeth S. Roop is a Tampa, Florida-based freelance writer specializing in health care and HIT.