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Recovery Audit Contractors Are Coming-Part II

Recovery Audit Contractors Are Coming-Part II

Health Care Law Note
(October 2008)

Recovery Audit Contractors, or "RACs," were created at the direction of Congress under Section 306 of the Medicare Modernization Act of 2003 for the purpose of detecting and correcting improper payments in the Medicare Fee for Service program.  Initially a demonstration project covering three states (California, New York, and Florida) and lasting three years, the success of the project has resulted in a permanent, nationwide recovery program scheduled to be in place by January 1, 2010.  CMS recently posted the identities of the four companies selected to serve as RACs in four geographic areas across the country.  Georgia, North Carolina, and South Carolina are in Region C, which will be served by Connolly Consulting Associates, Inc. of Wilton, Connecticut.  Additionally, although South Carolina has been participating in the RAC program since 2007, RAC audits are projected to commence in Georgia and North Carolina no earlier than August 1, 2009.  CMS indicates that the RACs will hold town hall-type meetings in each state with health care providers and CMS staff in October and November, 2008; such meetings are intended to educate and inform providers about the program.

In Part I of this newsletter, we discussed the purpose of RAC audits and specific solutions for preparing for such audits.  In Part II, we address the RAC audits within the larger context of the increased federal and state scrutiny of improper or insufficient clinical documentation to support (a) payment by Medicare or Medicaid, (b) compliance with state licensure requirements, and (c) compliance with the Medicare Conditions of Participation ("CoPs").  Preparation for RAC audits, in our view, will be most successful if providers simultaneously develop an overall revenue integrity program to ensure appropriate documentation for all billings.

One example of a CoP compliance issue that clearly will be reviewed within the RAC audit process is utilization review of inpatient versus outpatient stays.  42 C.F.R. § 482.30 states that each Medicare hospital must have in effect a utilization review ("UR") plan that reviews services furnished to Medicare and Medicaid beneficiaries by the hospital and its medical staff.  This UR plan must review medical necessity of admission, length of stay, and services furnished.  Providers should be aware that this is not the same review that hospitals conduct in order to comply with quality assessment and performance reviews under a separate CoP that is set forth at 42 C.F.R. § 482.21.

Any "change in patient status from inpatient to outpatient [must be] made prior to discharge or release, while the beneficiary is still a patient of the hospital."  Medicare Claims Processing Manual Ch. 1, § 50.3. Accordingly, all UR admission reviews must be completed before the patient is discharged if the patient's status is to be changed without jeopardizing reimbursement for lacking medical necessity.  Further complicating matters is the requirement of 42 C.F.R. § 411.406(e), which provides "that a provider that furnishes services that are not reasonable and necessary is considered to have known that the services were not covered [and therefore is denied reimbursement] if it is clear that the provider could have been expected to have known that the services were excluded from coverage . . ." (emphasis added).  In our view, the only way a provider could not be expected to know that payment for services would be denied would be if its UR admission review process certified medical necessity for ALL Medicare and Medicaid beneficiaries.

Inpatient admission UR is only one of many CoPs for which noncompliance has direct reimbursement consequences.  The CoP on clinical documentation, 42 C.F.R. § 482.24(c), governs the completion of medical records, the use of verbal orders, and the authentication of record entries, all of which can be (and have been) the basis for retrospective denial of reimbursement.  Many CoPs also have corresponding state licensure provisions that, if not followed, can result in revocation or suspension of the provider's license-a fate that is much more devastating than the mere recoupment of Medicare or Medicaid dollars.  Finally, the recent federal initiative on the use of present on admission indicators is, we believe, indicative of the real reason for the implementation of RAC audits, which is the consistent lack of appropriate and sufficient clinical documentation among providers across the health care industry to support reimbursement by Medicare and other federal health care programs.

In response to the implementation of the RAC program, we think the most effective course of action is for providers to prepare a RAC audit response solution at the same time they prepare, and as an integral part of, a clinical documentation effectiveness solution.  Use the time between now and the RAC implementation date in your state to discover where the organization has gaps in its CoP compliance related to clinical documentation, close those gaps, and then assess whether those compliance gaps resulted in inappropriate reimbursement (which will require a repayment) or insufficient reimbursement (which might create an opportunity for rebilling at a higher reimbursement level).  In either case, at the conclusion of this process, each provider's revenue will have greater integrity-in other words, the organization will be more likely to keep more of what it originally billed and collected-because the RAC contractor (or other federal or state enforcement actors) will not have a reason to pursue recoupment.

* The authors gratefully acknowledge Laura Pait, RHIA for her assistance in the preparation of this article.

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