The RACs recently posted more than 560 of the current 746 MS-DRGs approved for DRG Validation, offering analysis of DRG coding, principal diagnoses, secondary diagnoses, and all diagnoses and procedure codes that could affect the DRG selection. While none of the RACs appear to be approved for medical necessity review so far, according to the CMS RAC Review Phase-in Strategy published by CMS in June 2009, they are expected to be approved sometime in "calendar year 2010."

All four RACs have posted issues approved for DRG validation, but their lists of approved/chosen DRGs vary widely. The RAC for Region D (western states), Health Data Insights (HDI), has posted the most, with 560 DRGs - almost 80 percent of all DRGs. The RAC with the next highest number of posted issues is Connolly Healthcare, the RAC for Region C (south and southeastern states), with 60. The Connolly list appears to be much more selective than the HDI list.

This stark difference is what piqued my curiosity and drove me to perform some statistical analysis, to compare the lists and to try to answer the question "why is Connolly more picky than HDI, or what do they know that the rest of us don't?"

What The RACs Target & What CMS Approves

It's not difficult for anyone familiar with the RAC program to understand what the RACs are after: profits. They are private-sector companies contracted by CMS and paid "contingency fees" for detecting and tracking incorrect reimbursements for Medicare services provided to beneficiaries. Some have described the program as "an aggressive form of bounty hunting."

In a February 2008 letter to Rep. Lois Capps in the U.S. House of Representatives, the AMA stated its belief that "the RAC program is fatally flawed." The letter goes on to describe the program in no uncertain terms:

"The RAC program is draconian, time-consuming, and devoid of efforts to improve the Medicare system. Moreover, it is based upon perverse incentives. RACs are not compensated by CMS. Instead, they receive a share of the funds recovered from alleged overpayments, otherwise known as ‘contingency fees.' At best, this type of compensation system lends itself to the possibility of questionable audit results, with ‘borderline' claims being pursued and investigated. At worst, it forces physicians, whose time is better spent caring for patients than reviewing old documents and pursuing appeals, to simply yield to unproven RAC claims."

In a July 2009 letter to the American Medical Association (AMA), even CMS acknowledged that the RACs operate in a "relatively uncommon" fashion for a government contractor. CMS claimed in that letter to have taken several steps to protect against "overly aggressive reviews."

One such step mentioned in the letter was the "New Issue Review board," which also was touted by Commander Marie Casey, deputy director of CMS's Audit Division, in an interview with RAC Monitor last fall. During that interview, Commander Casey described the process this way:

"The New Issue Review Process requires that the RAC submit a proposal for widespread review in one or more states. CMS then either (a) approves the issue as submitted for review, (b) gives a conditional approval for review in a smaller area, (c) gives a conditional approval with some caveats, or (d) declines to approve the issue as submitted. For example, CMS may decline an issue for automated denial, where CMS thinks the issue might need to be a complex review instead."

Unfortunately, no further details about this process seem to be available.

How Does An Issue Get Selected for Review?

CMS provides a set of RAC questions and answers on its Web site, albeit a rather limited set of 33. One of the questions covers this subject:

"Feedback:
How will the Recovery Audit Contractors (RACs) determine which claims to review?

Answer:
The RACs will use their own proprietary software and systems as well as their knowledge of Medicare rules and regulations to determine what areas to review."

All that answer does is beg more questions, so let's look at another source.

The RAC Statement of Work (SOW), published in November 2007, includes this statement about how a RAC selects claims to review:

"The RAC shall adhere to Section 935 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which prohibits the use of random claim selection for any purpose other than to establish an error rate. Therefore, the RAC shall not use random review in order to identify cases for which it will order medical records from the provider. Instead, the RAC shall utilize data analysis techniques in order to identify those claims most likely to contain overpayments. This process is called "targeted review". The RAC may not target a claim solely because it is a high dollar claim but may target a claim because it is high dollar AND contains other information that leads the RAC to believe it is likely to contain an overpayment." - SOW, pp 8-9.

Keep that last sentence in mind - targeting a claim with a high dollar value IS allowed, as long as there is information available for the RAC to use as evidence to support a suspicion that an overpayment may have occurred.