The Recovery Audit Prepayment Review Demonstration is now under way, allowing the RACs to review selected claims before they are paid to ensure that they are in compliance with all Medicare payment regulations.

The demonstration program can be viewed as a test to determine whether prepayment reviews can lower the Medicare payment error rate and the incidence of erroneous and fraudulent claims. Health Data Insights (HDI) has released a new, Centers for Medicare & Medicaid Services (CMS)-approved issue for the pre-payment review of MS-DRG 312. HDI’s focus will be on hospital billing for MS-DRG 312 in California and Missouri, the only states in the HDI region that are part of the demonstration program. Medical documentation will be reviewed to determine that:

  • Services were medically necessary;
  • Diagnostic and procedural information and discharge statuses were coded and reported on the claims matching the attending physician’s descriptions and the beneficiary’s medical records; and
  • The principal diagnosis, secondary diagnosis and procedures affecting the DRG were valid.

To prepare for these audits and those that soon will follow for the other RAC regions, it is important for hospital providers to understand what is being done to uncover and eliminate Medicare overpayments – and to learn the characteristics of MS-DRG 312 and other short-stay cases in order to comprehend why these cases are being targeted. Armed with that information, you will be able to implement strategies to avoid lengthy claims processing delays in the future.

MS-DRG 312 already is being reviewed by the RACs on a post-payment basis due to concerns about medical necessity of billed inpatient hospital services. RACs also are reviewing documentation to validate the medical necessity of the short stays. Medicare only pays for inpatient hospital services that are coded correctly and determined to have been medically necessary for the setting billed.

In preparation for the RAC prepayment reviews and to address the prepayment review edits that MACs are instituting in their jurisdictions, providers should make sure they are current on Medicare coverage and coding guidelines. The relevant regulatory citations include:

CMS Publication 100-02, Medicare Benefit Policy Manual

  • Chap. 1, sec. 10, “Covered Inpatient Hospital Services Covered Under Part A.”
    • This section is self-explanatory, outlining the requirements for classifying a patient as an inpatient.
    • Chap. 6, sec. 10, “Medical and Other Health Services Furnished to Inpatients of Participating Hospitals.”
      • This outlines the billing guidelines for Inpatient Part B services.

CMS Publication 100-08 Medicare Program Integrity Manual

  • Chap. 6, sec. 6.5.2, “Medical Review of Acute Inpatient Prospective Payment System (IPPS) Hospital and Long-Term Care Hospital Claims.”
    • This section outlines the regulations pertaining to FI/MAC ability to conduct medical reviews.
  • Chap. 6, sec. 6.5.3, “DRG Validation Review.”
    • This provides the guidelines and methods that FIs/MACs use in conducting medical reviews that encompass both medical necessity and DRG validation.
  • Chap. 13, sec. 13.1; 13.1.1 and 13.1.3, “Medicare Policy.”
    • These sections outline the guidelines for national and local medical review policies.

Additionally, since MS-DRG 312 has topped the list of all complex denials in terms of dollar value and ranks second for medical necessity complex denials under post-payment RAC review (see the AHA RACTrac Survey results for the second quarter of, 2012 online at, it is also a good proactive step to analyze a sampling of billed and unbilled claims to determine whether coding was accurate and whether services were performed appropriately in an inpatient setting.

About the Author

Carol Endahl is longstanding healthcare product manager and hospital billing compliance and reimbursement expert. Endahl has 30 years’ experience in healthcare, maintaining subject matter expertise in hospital and institutional billing and payment, claims processing, RAC audit and appeals management and workflow, revenue cycle operations, and Medicare coverage issues. Her experience encompasses product ideation, development and launch of new products, and product managing of a RAC/audit and appeals management solution.

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EDITOR’S NOTE: Carol Endahl is scheduled to conduct a two-part webcast series exploring major target areas, covering MS-DRG code 312, Syncope & Collapse(a target that is currently being reviewed) on Oct. 30 and MS-DRGs 069 (Transient Ischemia), 377-379 (G.I. Hemorrhage), and 637-639 (Diabetes) on Nov. 15.

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