On the windswept ranch land of Ballinger, Texas, 36 miles northeast of San Angelo, the news blowing out of Washington on Wednesday was good—not the foreboding ill winds that typically batter Ballinger Memorial Hospital.

With a service area of 635 square miles, roughly half the size of Rhode Island, Ballinger Memorial, which became a critical access hospital 12 years ago, has experienced rough times under Medicare’s recovery audit program.

So when greeted with the news that the Medicare Audit Improvement Act for 2012 was introduced yesterday in a pro forma session of Congress, addressing some of the issues facing providers both large and small, Lance Keilers, chief executive officer for the 25-bed hospital, felt a sense of tentative relief.

“This bill is especially helpful to rural facilities with small administrative staff that already face monumental challenges related to regulatory compliance,” Keilers told RACmonitor in a written statement. “Among other provisions, the legislation would require physician review for Medicare denials.”

The legislation would establish a consolidated limit for medical record requests, and improve auditor performance by implementing financial penalties and requiring medical necessity audits to focus on widespread payment errors. The bill would improve recovery auditor transparency; restore due process rights under the Centers for Medicare & Medicaid Services’ (CMS) Part A to Part B Rebilling Demonstration; and allow denied inpatient claims to be billed as outpatient claims, when appropriate.

Part A to Part B Demonstration

The AB Rebilling Demonstration was very much on the mind of healthcare attorney Andrew B. Wachler, principal of Wachler & Associates.

“There is no rationale that justifies forcing providers to waive their due process rights to appeal for full Part A reimbursement,” wrote Wachler in a statement to RACmonitor. “Some hospitals, particularly ones that are subject to prepayment review, may be forced to join this demonstration program to continue the hospital’s cash flow.”

Wachler also expressed concern about the RACs’ lack of accountability: “Why should the RACs, incentivized by a contingency fee, have a free shot to deny hospitals Part A payment without accountability provided through the appeals process?”

Citing issues heard frequently on Monitor Monday, the weekly Internet radio broadcast produced by RACmonitor, Wachler said the current process is “inconsistent with the RAC Statement of Work and provides a windfall to the RACs when the money should be going to the hospitals as reimbursement for the medically necessary care that was provided.”

“This legislation adds fuel to the recent court decisions at the (Department of Appeals Board fourth level of appeals) DAB that took a swat at the RA auditors (recovery auditors) for violating the statement of works by taking the full payment for the denied claim as medically unnecessary for level of care even though the service was medically necessary,” Kimberly Young, RAC response manager for Adventist Healthcare in Rockville, Maryland, said. “The DAB decision also noted the ALJs (Administrative Law Judges), who stated observation was appropriate but then did not grant the provider the opportunity to recoup the cost at the observation payment.”

“The current administrative appeals structure cannot handle the caseload caused by hospitals having to appeal Part A denials for the purpose of obtaining Part B reimbursement,” argued Wachler.

Taryn Schraad, audit and appeal specialist for Lawrence Memorial Hospital in Lawrence, Kansas, told RACmonitor, “I am in favor of rebilling inpatient claims as outpatient if the provider sees fit and wants to avoid the appeal path—and a provider’s appeal rights should never be taken away to sweeten the deal for CMS.”

Consolidating Medical Record Requests

Among the hot-button provisions in the proposed legislation is consolidating the limit for medical record requests.

“I deal weekly with leaks of data from payer to auditor that should not be allowed for mining and extrapolation,” Schraad said. “Many different payer systems are going to have to improve before the data they allow to be mined for auditing purposes is appropriate. I would like to see some sort of financial penalty and an automatic overturn assigned for that erroneous process, as well as a scorecard of which payer violates that process repeatedly.”

Improving Auditor Transparency

One of the provisions of the legislation calls for improving recovery auditor transparency—a provision that ignited interest from Wachler and others.

‘With regard to improving auditor performance by implementing financial penalties, I agree that we (the healthcare industry) need auditor accountability,” said Wachler. “As you may recall in the original demonstration program, 40 percent of RAC auditor denials for inpatient rehabilitation services were found to be medically necessary by an independent validation auditor.”

On the other hand, Schraad expressed some skepticism on this provision of the proposed legislation.

“What software are they using?” Schraad asked. “What revenue are they collecting? What audits are they succeeding on and where are their errors falling? The RAC is being funded by the American people’s tax dollars for this audit process. Meetings, trainings, errors, software, etc., should all be available for review through the Freedom of Information Act.”


Frank Cohen, senior analyst for the Frank Cohen Group, and a critic of the recovery audit program, expressed his skepticism while also acknowledging his support of the proposed legislation.

“I am particularly pleased to see the portion that suggests financial penalties, but I have yet to see the details to understand better how and where those penalties would be applied,” said Cohen. “Since I have been pitching this type of reform for years, I am pleased to see that someone has finally listened. I would like to think that my efforts have helped to advance this agenda.”

Burden on Hospitals

Congressman Sam Graves (R-MO), co-sponsor of the bill along with congressman Adam Schiff (D-CA), addressed a sensitive issue hospitals are facing—the suspicion of fraud.

“While I believe we must continue to identify and correct verifiable fraud, hospitals have been buried in the administrative burdens put on them by Medicare audit contractors,” said Rep. Graves in a written statement to RACmonitor. “Doctors and nurses should be focused on caring for patients, not trying to comply with the ever-increasing requests for documents.”

Graves went on to say that his bill would “put in place common-sense reforms allowing auditors to still conduct adequate oversight of billing problems without an open-ended invitation from CMS to continually bombard hospitals.”

“While this legislation is a start, if passed, it amounts to little more than a sternly-worded letter to the RACs,” said J. Paul Spencer, the compliance officer for Fi-Med Management, Inc. “In my mind, the biggest thing the bill fails to address is the abuse of the timelines by the contractors tasked with handling appeals of RAC denials. What I would prefer is recognition from HHS that the RAC program has fatal design flaws, and a willingness to address the concerns in a meaningful way.”  

RAC Impact on Rural Hospitals

“Our rural hospitals are struggling as it is to sustain the vital services they offer without the abusive tactics of Recovery Audit Contractors,” said Brock Slabach, senior national vice president for the National Rural Hospital Association. “This legislation would put in place safeguards that will ensure common-sense treatment of providers by RACs.”

He added that his organization is pleased to support the act.

“We encourage our members to reach out to their legislators and ask them to co-sign this important piece of legislation.”

“Our smaller, rural hospitals are especially ill-equipped to deal with this increased administrative burden,” said Graves. “When I heard about this issue from many of the small-town, rural hospitals in my district, I was concerned and knew we had to act on their behalf.”

About the Author

Chuck Buck is the publisher of RACmonitor.

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Medicare Audit Improvement Act of 2012

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Hospital Calls for Moratorium on Connolly as Congressman Urges Investigation into RACs’ Methods

EDITOR’S NOTE: The General Counsel for the Healthcare Association of New York (HANY) will be the special guest on Monitor Monday, October 22 at 10 AM ET, along with regulars Nancy Beckley and J. Paul Spencer.

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