To those of you who have taken the time and effort to prepare, kudos, as ultimately you will be in better condition than some other hospitals that have not been as proactive.

This article is targeted toward those hospitals and other Medicare providers that have taken the “maybe it will go away” approach, the “why would they visit us?”  or my personal favorite, “we don’t have any funds to repay the claims anyway,” as to why they haven’t prepared for the RACs.

A Tale of Two Entities

A colleague of mine was at a recent Recovery Audit Contractor presentation at a state hospital association meeting and overheard a conversation that went something like this (names have been changed):

Jim:  “Joan, how are you? And how are things in the western part of the state?”

Joan:  “Hi Jim. It was a nice summer but we are struggling… the same old things, you know? By the way, what about these RACs? Where did this come from?”

Jim:   “Well, you know we’ve been spending the better part of the past year getting ready for this, given what happened during the demonstration project. We’ve got a committee, consultants, chart reviews and education going on, because there’s a lot of work to do.”

Joan:  “Well, why are you doing all this? It must be costing you time and money. It’s just another way for the government to scare us, and they never visit our area of the state anyway – they always deal with you city folks.”

Jim:   “We were pretty concerned about this, and our CEO told us last year that she did not want any financial or compliance surprises. We’ve had external assessments done on our risk areas, like short-stay medical necessity cases, inpatient coding and wound debridement, then we followed that up with some education for our doctors. That was rough at first, but now they are beginning to understand the risks associated with the RACs and potential financial paybacks. It was a tough process, but we got some good outside help, we educated internal staff, and now we believe our payments are accurate. We had some financial exposure with our RAC going back to October 2007, but we really believe that during the past year we have been getting proper payments. We’d like to believe that if the RAC doesn’t find many overpayments with us, we won’t be on their radar screen for chart requests every 45 days for the next five years. What have you guys done?”

Joan:  “You know, Jim, we heard about this last year from consultants and our compliance officer, but they always are saying the sky is falling.  We just don’t have time for this stuff!”

Jim:   “Well, good luck with that, Joan. I hope you guys get through this ok.”

Joan:   “I think we will – maybe it will just go away. See you at next month’s meeting.”

Failing to Plan

The purpose of outlining this conversation is to indicate that this is not a rare mentality for providers to have. Joan does not understand or even believe in the existence of the financial risk a RAC presents to her hospital – or maybe she does, but no one has been able to convince senior management and the board that this is a legitimate concern.

There is an old business adage that states “failing to plan is planning to fail.” From my perspective, there is real risk to those hospitals that currently are not actively engaged in their RAC preparation activities, and the cruel reality is that some may never recover from their decisions not to be proactive.

The Threat: Medical Necessity Reviews and How You Prepare and React

For all hospitals, the threat of RAC denials for one-day and short-stay cases is real. Let’s take a moment to highlight the facts of this threat:

  • During the RAC Demonstration Project, approximately 40 percent of identified overpayments were related to medical necessity.

  • The RAC scope of work points to continued attention on the potential to deny claims due to lack of medical necessity.
  • Every RAC expert in the country is telling you it is going to happen.

  • The latest target date for these complex reviews is anticipated to be January 2010.
  • You may have performed chart reviews indicating that your one-day and short-stay cases are having difficulty being in compliance with medical necessity documentation requirements.

  • A RAC payback for a denied admission due to lack of medical necessity probably will result in the loss of the entire admission-related payment. These are significant dollars!

Be Prepared, Be Proactive

The proactive management reaction to this threat is to say, “let’s fix this process so we can get our proper reimbursement for our admitted patients.” I am not suggesting that you should have more admissions, but rather that your admissions simply be justified as appropriate (per regulations, including your physician’s documentation) and be reimbursed as such.

Process fixes begin with assessments of your current state. Efforts to concurrently review as many one-day admissions as possible, getting case management involved in cases 24/7, establishing a physician query system and educating/engaging/empowering your medical staff on this issue are just a few of the improvements you might want to consider.

The threat of RACs is real…. if you haven’t taken proactive efforts to make sure your hospital is ready, today is the day to begin!

About the Author

Bret S. Bissey, MBA, FACHE, CHC, is a nationally recognized expert in healthcare compliance. He is the author of the Compliance Officer’s Handbook, published in 2006, and has presented at more than 40 regional and national industry conferences/meetings on numerous compliance topics. He has more than 25 years of diversified healthcare management, operations and compliance experience.

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