January/February 2020

Rappin’ About RACs
By Susan Chapman
For The Record
Vol. 32 No. 1 P. 22

Experts discuss the latest happenings, including a new topic and a change in philosophy. Is it enough to make the process more palatable for hospitals?

Piloted in 2003 and established in 2010, the Recovery Audit Contractor (RAC) program was designed to root out and reconcile improper Medicare payments, returning overpayments to the Medicare Trust Fund and underpayments to providers. In February 2014, “[d]ue to continued intense pressure from provider groups, who oppose the auditing of their Medicare billing, RAC audit capabilities were first significantly limited and then paused completely while the Medicare billing error rate remained at an all time [sic] high,” only to be resumed six months later in a more limited capacity.

“RAC has been highly controversial for the CMS [Centers for Medicare & Medicaid Services] and provider community,” explains Rick Gundling, FHFMA, CMA, senior vice president of health care financial practices at the Healthcare Financial Management Association. “In the past, RACs have used extrapolation for sampling. They pick up an error in one sample and extrapolate it. The providers are on the hook for that and have to go through the appeals process. The process has been stacked against the providers since the beginning.”

Current RAC Developments
Since its inception, the RAC program has undergone a number of modifications. “No one wants errors and waste in the claims system; however, part of the reason changes needed to be made was because providers had a point,” Gundling says. “In the appeals process, it’s in the providers’ favor an overwhelming majority of the time. The RAC has been overzealous, and there is no penalty for [them]. CMS now has more instruction on how sampling is done and how it’s applied. The previous process was a waste of resources for them, too.”

Jessica Gustafson, Esq, a founding shareholder at the Health Law Partners, concurs, explaining what she sees as one of the most significant changes. “A few years back, some responsibility was taken away from the RACs, and Quality Improvement Organizations are doing the first pass of the hospital inpatient status reviews,” she says. “If the hospital shows evidence of noncompliance, only at that time will the RAC auditors be handed the review.”

Perhaps even more noteworthy is a new RAC audit topic. CMS now allows the RAC, when looking at a hospital claim for certain services, to automatically deny the physician service per Medicare. This change impacts physicians, whereas in the past, only the hospital was affected. “It’s interesting because it’s been a point of discussion for many years of how to get the physicians to buy into compliance efforts,” Gustafson says. “This is a first step toward potentially having the physician be impacted if a hospital is under contracting scrutiny.”

Another notable modification is an apparent overall change in philosophy. “When we were all hit with RACs in the early part of this decade, they came in fast and furious. They were requesting tons of charts. Now their philosophy seems to be to work under the radar,” says Ronald Hirsch, MD, FACP, CHCQM, CHRI, vice president of the Regulations and Education Group at R1 Physician Advisory Services. “They used to come into a facility and it was a big commotion. Now, though, I’ve yet to hear hospitals complain about the process. RACs are requesting a few charts here and there from a large number of providers. They are going about their business without creating waves. They now have automated audits. They can just go in, take back money, and the process goes unnoticed.”

Hirsch explains that physicians are likely unaware of the funds being recouped from them because there is no accompanying chart request. Therefore, they don’t even realize they are being audited. “The billing staff gets a notice from the government that there was an overpayment, and that they should make the adjustment. As physicians, we are used to charging $300 and receiving $60. When the billing staff sees an adjustment, they just write it off, and the money is gone,” he says.

Ernie de los Santos, president and cofounder of Top Gun Audit School, has observed RACs focusing on clinical validation audits and physician signatures missing from treatment orders. “Physicians are supposed to sign the orders, but that gets lost in the rush of things. CMS has been lenient about who can make the order and enter it into the record. Nothing can happen in medicine without an order, which must come from a physician. The order can then be entered by somebody else, but a lot of times, the order goes into the record without a signature. That has typically gone through, but now the RACs are using it to deny a claim. It’s a technical denial. Some hospitals haven’t had a RAC audit in years and are now having them for those kinds of cases,” he says.

In other developments, de los Santos has noticed a reduction in the number of claims a RAC can review based on a facility’s denial record. “If the denial percentage isn’t that high, then they don’t raise the ADR [additional documentation request] limits, which is what the RACs ask for. Based on a provider’s denial rate under the RAC, up to 5% of their Medicare claims can be reviewed, but if they survive RAC audits with very few denials, that rate could be just 1% or even zero. This relieves some of the burden on the providers,” he says.

These changes are the result of a long process. In 2003, at the pilot’s inception, there were four RAC auditors that received between a 9% and 12.5% contingency fee on anything they found to be in error. “People called them bounty hunters, because RACs are judge and jury, and take your money away,” de los Santos says. “At first, that was rough. But Congress loved it because it brought in a lot of money for the Medicare Trust Fund. Then, they limited the number of records RACs could review, and that has been progressing down since then. Initially, RACs would deny claims and then tell the organizations that disagreed with them to just appeal the denials. The appeals process takes a very long time. The RACs were being a little bit overzealous; CMS became unhappy with them, and they’ve been limiting what they can do.”

Contingency fees are a bone of contention for Hirsch. “Looking at the issues that RACs have been approved to audit, I think they are reasonable for audits and recoupments but contingency fees are not necessarily the best way to do things. On a questionable case, knowing that they will receive a contingency fee, the RACs will deny the claim. They’re aware that if nothing happens, they will get their fees.

“A lot of the issues that the RACs are approved for, because they are automated, these are the things that Medicare should be doing,” he continues. “For example, why did the [Medicare Administrative Contractor (MAC)] pay a claim for a second cataract removal of the same eye? Why did the system not catch that? We’re paying for the shortcomings of another Medicare contractor. The contingency should come from the MAC because they let the mistake pass through in the first place. I understand the Medicare system is huge, and it’s difficult to track everything. Still, it’s important to take what we’ve learned and fix it.”

Gustafson says the initial super aggressive auditing resulted in a significant backlog in the appeals process. “For instance, at stage 3 of the appeals process, the hearing has to happen in 90 days, but it’s actually taking place in well over 1,000 days,” she says. “The RACs took the stance that every claim was to be denied, but then hospitals were appealing these aggressive denials and winning on appeal. The process was not sustainable and politically unpopular.”

While noting that the process was ripe for bad public relations, Hirsch says the changes have been noticeable. “It’s a savvy business move to avoid what happened the first time, the way [CMS] came in hot and heavy. There are changes to the appeals process because there was a furor over how it was. CMS realized it had made a mistake and decided to be stealth and still make their money,” he says.

Despite the headaches the RACs create for hospitals and physicians, they appear to be in place for the long haul, particularly because Congress seems pleased with their performance. Former Missouri Senator Claire McCaskill credited the RAC program “with extending the life of the Medicare program by two full years.”

“But hospitals and providers aren’t happy,” de los Santos says. “You can’t do this kind of auditing on taxes where you pay a contractor to find errors and that individual gets paid accordingly, but nobody’s been willing to take that to court. CMS is also not happy because they can’t give good answers to Congress. They’re supposed to give Congress a report on those programs every year. The last one they gave was in 2016. The excuse they offer is that it’s hard to get the numbers, but they have all the numbers. It’s really just bad press for CMS about what the RACs do and how they do it, which is deny claims, take the money back—along with their fee—and then make the facility and/or physician go through the appeals process, which can take years, in order to get it back.”

To the contrary, Hirsch believes that CMS is pleased with the programs. “They still love it. In President Trump’s recent executive order, one of the points was to reduce fraud and waste in the Medicare system. CMS sees financial results, overpayments being recouped, and they are happy about it. Because of the way many of the audit issues are now automated, they haven’t heard the complaints they used to hear previously, and that makes it even better,” he says.

Gustafson agrees with Hirsch, noting that CMS believes everything has improved as a result of the system that is currently in place, despite the backlog in appeals.

The Appeals Process
The Medicare appeals process—which is federal and uniform across the country, as opposed to Medicaid, which varies by state—is typically lengthy, as the experts have noted, and consists of five levels.

Level I
In this step, known as redetermination, the provider has 120 days in which to contact the MAC. At this stage, the provider can initiate an appeal and request for redetermination. The MAC has 60 days to complete this process, whether it agrees with the appeal or the denial. If it agrees with the denial, the appeal moves to Level II.

Level II
Providers have 180 days after the MAC decision to file the next level. This is sent to a qualified independent contractor (QIC), an entity that handles the reconsideration level of the appeal. The QIC has 60 days to make a decision. If the QIC doesn’t make a decision or denies the appeal, the appeal goes to the third level.

Level III
This is the first time the provider can go to an independent party, since both the MAC and the QIC are paid by Medicare. At this level, the provider goes before an administrative law judge (ALJ). ALJs, who work for Health and Human Services but not for CMS, are considered to be independent.

Level IV
If the ALJ concurs with the denial, then the provider can submit the appeal to the Medicare Appeals Council, a component of the Departmental Appeals Board or DAB, which consists of a small set of judges who review ALJ decisions. It has 90 days to make a decision from the time it receives the appeal. The council can remand the appeal back to the ALJ or deny it.

Level V
The final level is a judicial review in front of a federal district court, which is generally very expensive. Up until this point in the process, there was no need for attorneys, but at Level V, attorneys are required.

“With the new RAC contracts, in the first 30 days, providers have the right to request a discussion on complex views. That’s an added step,” Hirsch points out. “For the automated process, providers have the same appeal rights, but they don’t always realize the recoupment is happening and don’t know they could be appealing. On top of that, the ALJ backlog is huge. You can get through the first two levels, but after that, you’re waiting years. In the meantime, the money is gone.”

Like Gustafson and Hirsch, de los Santos makes note of the mountainous backlog. “The ALJ is supposed to make a decision and have a hearing with the provider within 90 days of receiving the request. That time period has grown to over three years, with approximately 800,000 appeals in a backlog at one point, and currently about 400,000 cases still waiting to be heard. At one point, it would take more than six weeks for the appeal letters just to be opened, and then they didn’t have enough judges. It’s woefully inadequate,” he says.

According to de los Santos, the system needs more ALJs and a plan to end the backlog, noting that one judge can handle only about 1,000 cases per year. “They got funding to hire a bunch of new judges in the past year or two, which doubles the number, which was about 60, but that is still not enough. CMS has been ordered by a federal court to reduce the backlog by 2022, but it remains to be seen if it can accomplish that,” de los Santos says.

On the positive side, a recent report shows that CMS is actually ahead of schedule in reducing the backlog. Originally required to reduce the FY 2018 backlog of more than 400,000 cases by 19% by the close of FY 2019, Health and Human Services has in fact reduced the pile-up by 25% through the third quarter.

Improving the Overall Process
Currently, if a RAC issues a denial-demand letter and the denial moves past the discussion period, the provider can enter the appeals process. However, on the 41st day after the RAC issues the denial-demand letter—which is before the appeals process can officially begin—CMS can recoup the money from the provider.

“At first, the RACs were being paid immediately from the money that was taken back,” de los Santos explains. “And CMS didn’t put enough language into the RAC contract as to how they would take back money from the RAC if the provider won the appeal. Consequently, they had trouble getting the money back from the RACs. They’ve since changed that. Now, they also won’t pay the RAC until the appeal gets through the second level or the time expires for them to go further in the appeals process. There have been cases where a facility has been driven into bankruptcy because of this lengthy process.”

Gustafson believes for there to be improvements in the audit process, statutory changes are necessary. “It wouldn’t be easy. The pay structure incentivizes RACs to deny claims, which is how you end up with these overly aggressive positions the RACs take,” she says. “Adjusting the look-back periods from three years to six months for patient status reviews and taking this task away from the RACs in the first place, for instance, have made improvements. But it would take a statutory change to revise the payment structure.”

Hirsch believes the process could be improved if facilities designated someone to monitor what is being audited. “Every time an auditor requests a chart for review, someone in the facility should be looking into what the audit covers,” he says. “If you do this, you can figure out where you have potential weaknesses in your hospital. It’s important to keep track of the charts that are being requested in order to figure out what the issue was.”

Hirsch cites the case of a hospital that received a request for documentation of defibrillator implants. “They immediately pulled the charts to see what the vulnerability was. They found out that they did not have the proper steps in place to satisfy the NCD [national coverage determination] requirements for defibrillators. They went back to the NCD process to ensure the correct internal processes were in place. The facility may lose on appeal, but they will be protected in the future. If RACs see a denial on a high-dollar item, they will ask for more charts. So, preparing yourself makes perfect sense,” he explains.

Hirsch also recommends that facilities find a qualified person to handle appeals and take advantage of the discussion period, which could prevent denials.

de los Santos recommends hospitals consider a physician adviser, an individual who understands medicine and also the regulatory world—coding, billing, audits, and RAC nuances. “The person needn’t be full-time,” he explains. “One physician adviser for every 250 beds in a hospital is all that is necessary. These advisers can stand one foot with the doctors and one with the appeals and denials department.”

— Susan Chapman is a Los Angeles–based freelance writer.