The RACs have changed everything.

Back in the good old days, hospitals didn’t have to worry about auditors taking back millions of dollars due to failure to follow regulations that were “on the books” but rarely enforced.

Sure, they knew there were distinctions between observation and inpatient care, but no one really took the time to understand and enforce them. They knew there were medical necessity criteria, but deferred to physicians to determine when hospital care was required. They were aware that certain operations were to be performed in an inpatient setting, but if the surgeon wanted to perform it as an outpatient procedure, if was ok with the admitting office.

It didn’t seem to matter, because the hospital got paid as it billed, and unless if committed blatant fraud there was little chance it would be held accountable for errors.

Then, when The Centers for Medicare & Medicaid Services (CMS) did studies that found high billing error rates, it created the Recovery Audit Contractors (RACs) to find out if hiring outside auditors on a contingency basis could recoup some of those Medicare funds. It turned out that paying a contingency fee and providing all the necessary claims data was a very good way to motivate a contractor to find and collect Medicare overpayments.

These activities sounded the alarm to hospitals across the nation, reminding them of the fact that there were rules they had to follow even if they hadn’t really understood them and weren’t following them previously; it was serious business indeed. And the RACs were not looking for fraud, which was rare; they were looking for inattention to detail, which was endemic.

It was “easy pickins” for the RAC Demonstration Project that started up in three states in 2005 and was extended to three more in 2007.  Everywhere the RACs looked, they found massive hospital billing errors that resulted in Medicare overpayments that were recouped easily. In fact, less than 15 percent of the demands for repayment were ever appealed. Either hospitals were complacent about and/or unprepared for the appeal process, or they realized that they had erred in their documentation and billing practices – big time.

After recovering more than $850 million from six states for CMS, the program went national in 2010; four RAC contractors now cover every state and every hospital in the nation.

Thus utilization management rose in importance, going from an administrative role working below the radar implementing doctors’ orders and making discharge plans to a critical player in hospital finances.  Renamed care management in many facilities, the department now was charged with monitoring admission status, educating physicians and ensuring compliance with a myriad of regulations. They had to get to know a plethora of new regulatory bodies with acronym-heavy monikers like MACs, RACs, MICs, QICs, QIOs, the ALJ and ZPICs. These new entities, springing out of the Washington Alphabet Mixmaster (you could call it the WAM), suddenly threatened hospitals’ financial viability and necessitated new structures and processes such as RAC readiness committees and RAC “czars.”

Care management was charged with “getting it right” so hospitals could bill accurately, get paid properly and emerge bulletproof if audited.  In some cases, this could mean having care managers in the ED 24/7 and reviewing every observation patient daily. It meant close communication with ED and attending physicians, as well as physician advisors who could evaluate medical necessity for admission over and above InterQual guidelines. It meant, among other things, making sure inpatient procedures were performed as inpatient and that inappropriate inpatient admissions were converted to outpatient with the Code 44 procedure.

Registration, in turn, had to get accurate patient identification and insurance information; HIM had to glean correct diagnoses and comorbidities from the medical record; and PFS had to bill based on orders and recommendations from care management.

A complex system became more complex, but also was forced to be better integrated. Along with the need for better understanding of level of care and medical necessity guidelines came a need for close cooperation with the hospital’s financial side.

Revenue cycle had never been an operational term in case management, but now, with not only the RACs watching but managed care getting into the act of denying payment for care and the extension of RAC activities to Medicaid lurking around the corner – care management and revenue cycle have become linked at the hip. Information now has to flow freely and in a timely fashion between these hospital departments that before had barely any reason to be aware of each other’s existence.

Only through real teamwork between care management and finance can a hospital be assured that it not only will get paid properly for the services it provides, but that it will not have to give money back to the RACs due to failure to comply with documentation requirements and technically complex, ambiguous and sometimes contradictory regulations.

About the Author

Steven J. Meyerson, M.D. is Vice President of Physician Advisory Services at Accretive Health, Inc. where his role includes physician education on RAC activities and the latest Medicare guidelines. Prior to his employment at Accretive Health, Dr. Meyerson served as Medical Director of the hospitalist program at Baptist Hospital of Miami and then for four years was full time Medical Director and Physician Advisor for Care Management at that hospital.

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