Medicare reimburses CAHs differently than acute-care hospitals. CAHs receive cost-based reimbursement (cost plus one percent) from CMS instead of the code-based DRG and APC methodologies used for acute-care hospital payment.


As RACs kick off this summer, many CAHs are asking if they will be held to the same scrutiny as acute-care hospitals, physicians, skilled nursing facilities and psychiatric hospitals. The answer is yes. And the results may be painful.


The RACs will focus on CAH appropriateness of inpatient admission status for one-day stays, three-day stays to SNF, one- to four-day length of stay for low-intensity DRGs and inpatient procedures considered “outpatient” by CMS.


DRGs targeted in the RAC CAH focus include but are not limited to:


DRGs 227-245, cardiac pacemaker and implanted defibrillator procedures;

DRG 293, CHF without MCC;

DRG 312, Syncope;

DRG 313, Chest pain;

DRG 392, Gastroenteritis without MCC;

DRG 641, Dehydration without MCC;

DRG 690, Urinary tract infection without MCC; and

DRG 714, Transurethral resection of prostate


Upon denial and acknowledgement of an inappropriate inpatient admission, the RAC recoups CAH payment for the entire denied stay. The financial variance will be reflected on the CAH final PS&R cost reporting and possibly affect forthcoming payment rate setting. If a CAH’s cost report has a final settlement, the denied amount will be demanded and then offset against future claims if not paid in full by the CAH. When a CAH cost report is still open, retractions will be part of the settlement.


So what does this mean for CAHs?


The inpatient RAC complex medical necessity reviews may have a significant impact on CAHs, depending upon the hospitals’ case management protocols, use and application of admission criteria such as InterQual or Milliman, as well as physician utilization practices. I suggest that CAHs conduct an audit of 50-100 Medicare inpatient accounts of specifically targeted RAC DRGs to assess and mitigate RAC risk, forecast financial reserves, and develop strategic plans for process improvements.


It does not appear that CMS will implement any change to its current RAC strategy for CAHs. The impact of the RAC program on CAHs as it relates to staffing, release of information, tracking, appeals and recoupments may be staggering.


If your organization is a CAH, be prepared for short- and long-term effects.


About the Author


Nancy Hirschl has 30 years of experience in the fields of health information and revenue management. As president and founder of Hirschl and Associates, Nancy develops, administers and manages services that address best practices in revenue integrity. She is a member of the American Health Information Management Association and the Healthcare Financial Management Association’s Southern California chapter.

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