Financial Consultants of Alaska & Washington

• 62% of total surveyed hospitals reported automated review activity, while as many as 77% of those hospitals reported complex medical review audit activity
• Complex Medical Record Reviews are fully in process in all four RAC regions
• As of third quarter of 2010, CMS has approved 91% of RAC audit requests
• 76% of the approved audit requests represent complex audits, the majority (92%) of those request are DRG validation audits
• Total $423 million in Medicare payments audited by RAC 2nd quarter 2010
• $19.2 million in Medicare payments (12,505) were denied through the 2nd quarter of 2010, of which 74% were technical claims filing errors detected under the automated review process
• 78% of all denied claims audited under automated review were for outpatient services
• Average of $311 per claim was reported to be denied under automated review outpatient
• Conversely, $15.5 million (80%+) of total denied claims were attributed to complex medical record review audits, 94% of these denials were for inpatient services
• Average of $5600 per claim was reported to be denied under complex review inpatient
• A total 1892 (16%) denied payments exceeding $5 million were appealed by 39% of the audited hospitals, with a majority of complex review audits being challenged
• 13% of appealed claims were successfully overturned (two-thirds in Region D alone), with the vast majority of the total appealed claims (1571) still pending a decision which is expected to significantly increase the overturn rate
• CMS reports that 64% of all RAC denied claims that completed the appeals process at all levels were overturned in favor of the provider. During this period (73% appeal success rate reported for Region D).

Most Common Reasons (by $$) Reported for Automated RAC Review Denials:

• 66% - Outpatient Billing Error and/or Coding Error
• 9% - Duplicate Payment Error
• 5% - Incorrect Discharge Status
• 4% - Inpatient Coding (MS-DRG) Error
• 15% - Other

Most Common Reasons (by $$) Reported for Complex Medical Review Denials:

• 86% - Inpatient Coding (MS-DRG) Error
• 4% - No/Insufficient Documentation in Medical Record
• 3% - Incorrect APC or other Outpatient Coding Error
• 6% - Other

CMS APPROVES NEW RAC AUDIT ISSUES FOR REGION D

As of October 2010, Health Data Insights announced the following new audit issues approved by CMS:

• Minor Surgery and Other Treatment Billed as an Inpatient Stay - Claims billed for minor surgical or other treatment are identified for medical records review based on risk of improper payment for inpatient care when outpatient care was provided

In addition to these new high risk target areas, RACs are expected to increase complex medical review of the following:

• Incorrect Service Units billed
• Respiratory System Diagnosis with Ventilator Support
• Medically Unnecessary Cardiac Pacemaker Implantation/ Cardiac procedure performed in Inpatient Setting instead of Outpatient
• Heart Failure & Shock – Criteria for Inpatient Care not met

Physician Pharmaceutical Injectables – Incorrect Procedure Codes and/or Number of Units billed

RAC Audits

• In 2006, 3 RACs hired to perform Claim Review Functions (Claim RAC).
• In 2006, 3 RACs hired to perform Medicare Secondary Payor (MSP) functions.
• In 2006, 4.4% of Medicare dollars did not comply with Medicare coverage, coding, billing, or payment rules, resulting in excess of $12 billion in Medicare overpayments.
• In 2006, $303 million was linked to inpatient claims.
• The Improper Medicare Payment Report 2007 estimated that 3.9% of Medicare dollars paid did not comply with one or more Medicare coverage, coding, billing or payment rules. This equals $10.8 billion in Medicare overpayments.
• In 2006, Program safeguard contractors were established nationwide across all provider types. These very specialized fraud fighters perform data analysis to identify problems with fraud. Congress mandated the RAC program to detect and correct improper payments.
• The RAC auditors are required to use clinical staff, have a medical director, and are paid on a contingency fee, in the range of 20% of their recoveries.
• Medicare receives over 1.2 billion claims per year.
• Originally the RAC audits were a demonstration with 3 states: California, New York, and Florida.
• Now includes Critical Access Hospitals, except for the DRG coding.
• RAC auditors will not re-bill if they discover lost charges that were never billed for.
• RAC auditors that discover underpayments on a claim will adjust for the higher coding.
• Arizona, North Carolina, and Massachusetts have been added. Nine other states are projected to be added in 2008, with Washington, Oregon and Alaska being included in early 2009.
• By the end of 2007, $239.6 billion in claims were reviewed, for the period of October 2001 to September 30th 2006, resulting in $371.5 million recovered.
• If requested patient charts are not turned over within 45 days, the entire amount of the Medicare payment is taken back, and the Hospital is denied any appeal rights.
• Both Medicare and Medicaid have notified providers that they must write a letter notifying the intermediary, Medicare / Medicaid, who the Point of Contact (POC) person is for Fraud Audit requests and information.
• For many facilities, the information is being sent to the Medical Records or Billing departments, rather than the CFO, CEO, or Compliance Officer.
• Have a Response Plan and Response Team put together before the audit begins.
• All employees need to understand the Response Plan.
• Critical Access facilities are included in the current Recovery Fraud Audits. One of the areas being focused on in CAH hospitals is observation.
• For small rural facilities and CAHs with fewer than 100 employees, overpayments collected on fraud audits averaged just over $1 million.
• Since the program’s inception, the RACs were given nearly 1.2 billion claims to review. Inpatient hospitals represented 85% of overpayments. Rehabilitation represented 6%; SNF, 2%; Outpatient hospitals, 4%; Physicians, 2%; and other facilities 1%.
• Inpatient Focus on Audits:
• Medical necessity
• Observation and admissions
• Transfers and discharges
• One-day stays
• Lack of documentation
• Extensive procedures OR procedures unmatched to principal diagnosis
• Inpatient procedures eligible for outpatient surgical setting
• Unbundling procedure codes to obtain additional reimbursement
• Excisional debridement
• Joint replacement surgery
• Heart failure and shock
• Drugs and biologicals
• Chest pain/back pain
• Billing for items/services before they were delivered/performed
• Billing for non-covered services under a covered procedure code
• Outpatient focus on audits:
• Excess units
• Multiple claims
• Speech & therapy claims
• Infusion therapy


• No records should be sent to the State of Alaska, First Health, Noridian, CMS, Livanta, or any other entity until the following issues are addressed:
• Was your CFO made aware of the request?
• Before records are sent, has the Point of Contact team checked a list to assure:
• All records were copied correctly, two sided documents have legible dates and signatures, and information has not been cut off.
• For the patient’s record being requested, you have included every record required by regulation, including the UB and charge data.