Dissecting RAC Featured

8:00pm EDT September 25, 2009

Although many Americans are focused on the key points of the proposed health care reform legislation, health care providers are instead focusing on existing legislation that could negatively impact their cash flow.

As a result of the Medicare Prescription Drug Improvement and Modernization Act of 2003, Recovery Audit Contractors (RACs) will audit historical claims to identify improper payments previously paid by Medicare. RACs are paid on a contingency fee basis according to identified overpayments, which will be charged back to the provider in accordance with the legislation.

The RAC process places hospitals under an intense level of scrutiny that will force changes in the way services are documented for reimbursement purposes.

“The main issue is not that the hospitals are requesting reimbursement for services they did not provide,” says Sheldon P. Mandelbaum, MBA, senior manager at Cendrowski Corporate Advisors. “The increasing complexities of documenting and translating those services have created an environment ripe for clerical errors to occur.”

Smart Business learned more from Mandelbaum about how hospitals should respond to and manage the RAC process.

What should hospitals do to respond effectively to RACs?

Hospitals need to develop and empower a team of internal experts to oversee all aspects of the RAC audit process. This team will have to educate senior management and the board on the potential impact to the organization while applying continuous improvement methods to identify root causes of errors.

They will also have to manage the audit process, responding to audit requests and appealing adverse findings where appropriate. Finally, this team will serve as the catalyst to bring necessary refinements to existing processes across all hospital departments, increasing the level of compliance and reducing the potential financial impact.

What causes improper payments?

Many of the causes are directly related to the complex rules and regulations that health care providers must follow to document and explain the type of care that was given and why it was provided. For example, if the physician’s record is not detailed enough, written in a certain way or doesn’t contain the correct verbiage, the hospital could be asked to return the payment, even though there is no doubt the patient received good quality care with good outcomes.

Another area of complexity is the translation of the medical record into coding methodologies required to submit a claim form to Medicare. The claim form summarizes the services provided and is submitted to obtain reimbursement. This is ripe for clerical error because of the vast numerical configurations and the very detailed schemes required to describe the service and the medical necessity for the service with a high level of specificity.

How can hospitals better understand their risks?

Hospitals will have to estimate the potential magnitude of identified overpayments and plan for these in their cash budgeting and forecasting. They also need to modify their operating budgets for the additional costs required to properly respond to and manage the RAC audit activity.

To estimate exposure, hospitals can review the findings of previous audits, as well as the initial findings of the internal risk exposure audit, to identify areas needing improvement. Some hospitals perform in-depth data analysis against their own data files to seek out potential errors. They can create process maps to chart the flow of data to identify where breakdowns occur and why. Hospitals will then be able to determine if the improvement opportunity is related to technology, people or processes, and then prioritize accordingly.

How can hospitals leverage their existing compliance programs?

Although hospitals have compliance programs already in place, an even higher level of review will be required to blunt the impact of the RAC audits. The program should include increased awareness across the revenue cycle as well as advanced educational programs and aid for the medical staff.

The need to establish strong processes across the patient encounter will assure higher levels of data accuracy. Additional internal review methodologies can be initiated for known exposure areas so that if errors are present, they are corrected on a prospective basis. Finally, programs that will systematically and regularly monitor the process to mitigate future risk should be created.

What steps should a hospital take to manage the actual audit?

Managing the audit process will be very time-consuming and resource intensive. An audit management plan must be created to track each audit request to be able to effectively respond within the strict time frame protocols. Each request will have to be categorized, and a catalog of potential sources of documentation that may be required to properly respond and defend the audit should be established.

Hospitals will need to develop strategies and detailed action plans to determine what audit findings will be appealed and when identified overpayments will be repaid. Hospitals may consider engaging outside counsel and consultants to help clarify the process and the protocols of this lengthy and difficult process.

Sheldon P. Mandelbaum, MBA, is a senior manager at Cendrowski Corporate Advisors. Reach him at (866) 717-1607 or spm@cendsel.com.