Trouble apparently now comes in threes!


First, just as providers were getting Medicare Recovery Audit Contractors (RACs, or now RAs) under control, Medicare Administrative Contractors (MACs) got thrown into the mix, snarling communication between RAs, MACs and providers. Second, the new Medicare Statement of Work (SOW) for Medicare RACs came out on Sept. 12, 2011, pushing RAs for claims review quotas. And third, we now have the final rule on Medicaid RACs that came out Sept. 16, 2011 and fully became effective on Jan. 1, 2012.


The Medicaid RAC final rule implements section 6411 of the Patient Protection and Affordable Care Act. One stated CMS objective is that Medicare RACs generally should serve as a model for the Medicaid RAC program, although it was not stipulated that their structures should be identical. For instance, both are paid on contingency fees, with Medicaid contingency fees capped at the Medicare maximum of 12.5 percent. If a state pays above that rate, CMS will not participate in payment, making the state responsible.


Another two similarities are the Medicaid lookback period of three years and a provision calling for coordination of recovery audit efforts with other entities. CMS specifically pointed out that RAs are not intended to replace any state-run integrity audit initiatives.


From recent provider experience, we’ve seen Medicare demand letters issued beyond the three-year window and noticed overlap in audits. Therefore, providers should keep track of dates and demand letters to challenge and appeal to the RAC program if a request does not fall within specified rules and guidelines. Yet we should keep in mind that a state may grant an approval for review of cases older than three years. We also should keep in mind that Medicaid managed care claims may be excluded from Medicaid RAC review.


Because the Medicaid final rule is not as detailed as the Medicare final rule, this may set the stage for more confusion in the first year of implementation than existed in the initial year of the Medicare RAC Demonstration Project. Since Medicaid RACs will affect almost every inpatient and outpatient provider, quick education on your state’s rules will be essential. Currently, only territories have been given exceptions – every state must comply.


Although there are many similarities between programs, there is still significant uncertainty due to statutory rule differences. As you will note throughout this article, many of the rules modeled on the Medicare program have provisions to seek exceptions by a state.


Like Medicare RACs, Medicaid RACs must hire trained medical professionals, including one full-time medical director and certified coders. However, states can apply for an exception to the full-time medical director provision and opt out of employing certified coders if the states determine that certified coders are not required for effective review of Medicaid claims. This could prove to be either detrimental or helpful for providers.


States must ensure that there is an adequate appeals process for providers, including due process, but states can use an existing process or create a new process. This may be problematic, especially for organizations that serve multiple states, in that each state determines the process and timelines for appeals and responses. However, the final rule does have a provision requiring all states to respond to providers within 60 days. For providers serving multiple states, the tracking alone will be a nightmare. We know that the appeals process has been the most difficult area for providers in the Medicare program, and we expect the same for Medicaid.


One point that has been made clear in both the Medicare and Medicaid final rules is the requirement to report fraud and abuse. In the past, RACs have not focused on fraud reporting, but CMS has taken a much more aggressive stance in this area.


There are a few bright spots: Medicaid RACs must accept provider submission of electronic medical records on CD/DVD or via fax. And as in Medicare, RACs also must detect underpayments and will be paid fees for underpayments as well as overpayments.


To assist providers, each Medicaid RAC must work with its states to develop education and outreach programs that include notification of audit policies and protocols. They also must provide a minimum of customer service measures, including a toll-free service line listed in all correspondence and staffing of the line between normal business hours of 8 a.m. to 4:30 p.m. Each RAC also must maintain provider-approved addresses and points of contact.


By this point many states already have RAC-type programs in place, but most states will find themselves in a first-time implementation mode. Providers should rely on their own internal systems built for Medicare RACs and bring Medicaid RACs into those processes in order to achieve billing compliance. Each provider will need to have a mechanism to educate itself on its state rules and may need to push for education on the RAC program.


State hospital associations are a good resource and will provide an authoritative voice on the systems. Providers should push for more standardization measures mirroring those found in the Medicare program so the rules are easier to understand, especially for providers crossing state lines.


Ultimately, achieving billing compliance will improve your bottom line and clinical quality. By implementing a transparent process, including appropriate approvals for service, bed status, place of service backed by good documentation and clinical protocols, providers will avoid denials, billing errors and takebacks.


About the author


Elizabeth Lambin, MHA, is a partner in PACE Healthcare Consulting. Elizabeth has more than 20 years of C-suite level hospital executive management experience.  Most recently, she was the CEO/Market President for Tenet Healthcare’s Hilton Head Regional Healthcare. Elizabeth holds an undergraduate degree in Business Administration, Cum Laude and a Master’s in Healthcare Administration from the University of South Carolina.


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Federal Register, Vol. 76, No. 180, Friday, September 16, 2011. GPO Website., Accessed December 28, 2011.

Medicare Statement of Work. CMS Website. Accessed December 28, 2011.

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