The Recipe for a Self-Audit


You may want to start off with a focus on compliance, and you may do that by performing a self-audit. If you’re wondering how to notify your recovery audit contractor (RAC) of your plan to do this, CMS provides the following guidance in FAQ (frequently asked question) 9503:


“If a provider does a self-audit and identifies improper payments, the provider should report the improper payments to the appropriate Medicare claims processing contractor. The exact information necessary for the self referral can be determined by contacting your local carrier, FI or MAC (your claim processing contractor).”


CMS goes on to explain two types of self-audits: voluntary refund and extrapolation.


The voluntary refund is claim-based. If you send the required claim information along with the improper payment amount to the claim-processing contractor, a claim adjustment will be made. Although your RAC will be aware of the adjustment, the refund does not preclude future review of the claims.


The second type of self-audit may involve the use of extrapolation. The claim-processing contractor will review the case file to determine if the data extrapolation is acceptable and will accept or deny it for the issue identified by the provider. If accepted, the claims in that universe will be excluded from RAC review. However, a provider may self-disclose a payment error and the contractor confirms that it does indeed exist and that the sampling/extrapolation methodology used was correct. If so, the RAC will not review these claims. CMS states that the contractor will exclude the self-disclosed claims in the RAC data warehouse.


Documentation Requests and Requirements


RACs can review any provider, physician or supplier that submits claims to Medicare.  Submitting records in a timely manner is essential and “timely” means within 45 days of the RAC request. You may, however, contact the RAC to request an extension at any time before the 45th day. The RAC additional documentation request (ADR) letters specifically indicate suggested medical documentation that providers should submit in order to justify the services billed.


If you have any questions regarding your audit, first attempt to contact the RAC through the customer service line. If that does not resolve your questions or address your concerns, then contact CMS at special email address established for the provider community to use.


But what happens when you receive an ADR for an issue that is not approved? A helpful lesson is included in CMS’s response to FAQ 10030:


“RACs may request a small sample of records to assist CMS in determining if an audit concept is consistent with Medicare policy and should be approved for widespread review. Providers must still submit the requested documentation to the RAC within the expected timeframe to avoid having that claim denied.  The RAC will complete its review of the claim and issue a review results letter within the 60 days.”


Can the RAC do a medical necessity review on a claim that it originally reviewed for DRG validation? According to CMS (in FAQ 10007), “Beginning November 1, 2010 if the RAC has already requested documentation and issued a review results letter to the provider for a DRG validation, the RAC will be allowed to re-review the claim again for medical necessity. However, if both issues are approved (DRG validation and medical necessity) prior to the request of the additional documentation, the RAC may also conduct both reviews simultaneously. Each ADR is subject to the same review timeframes and counts toward the provider’s ADR limit.”


You may re-bill all of the services on an outpatient claim when the RAC identifies in a demand letter that the service doesn’t meet Medicare’s medical necessity criteria for an inpatient level of service. In FAQ 9462, CMS states that providers can re-bill for inpatient Part B ancillary services but only for the services on the list in the Medicare Benefit Policy Manual (Chapter 6, Section 10 at


Rebilling for any service will be allowed only if all claim-processing and claim-timeliness rules are met. There are no exceptions to the national Medicare program rules. The time limit for re-billing claims is 15 to 27 months from the date of service. These normal timely filing rules can be found in the Medicare Claims Processing Manual, Chapter 1, Section 70 at



CMS provides the final ingredient for the compliance soup-getting reimbursed for photocopy charges associated with records for RAC audits-in FAQ 9337:


“RACs are required to reimburse PPS providers and Long Term Care providers. The reimbursement rate is 12 cents per page for reproduction of medical records. Facilities are not required to submit vouchers to the RAC requesting payment. Rather, the RACs will automatically issue payments to the hospitals for photocopying charges. RACs are required to pay for copying on a monthly basis. All checks should be issued within 45 days of receiving the medical record.”


Three-Day Payment Window


There are sure to be challenges when attempting to operate under the new three-day payment window. On August 16, 2010, CMS published an interim final rule in the Federal Register related to this topic.


In response, the Healthcare Financial Management Association (HFMA) asked CMS to clarify the rules surrounding the implementation of the three-day payment window-even though this is what CMS stated it provided in transmittal R796OTN (issued October 29, 2010). (This memo can be found at HFMA acknowledges in its letter and pleads with CMS saying:


“There is a complex regulatory history surrounding the three-day window rule (dating back to 1990), which has made it difficult for hospitals to determine when it was appropriate to separately bill unrelated non-diagnostic services. This, coupled with significant enforcement activity that followed passage of the rule, leads many hospitals to err on the side of caution and bundle all services provided within three days of admission into the inpatient claim.  As a result, this issue has evolved into an area of significant activity for Medicare Recovery Audit Contractors (RACs) that hospitals have been working to address by submitting corrected claims.


“However, section 102(c) of PACMBR states that Medicare may not ‘reopen a claim, adjust a claim, or make a payment…for purposes of treating, as unrelated to a patient’s inpatient admission, services provided during the 3 days (or, in the case of a hospital that is not a subsection (d) hospital, during the 1 day) immediately preceding the date of the patient’s inpatient admission.’


“Given the complex history and confusion surrounding the appropriateness of separately billing unrelated non-diagnostic services under the prior regulatory regime, coupled with the lack of administrative remedy for hospitals to correct their mistakes retrospectively, we believe CMS should create a safe-harbor from RAC recoveries for cases involving the three-day payment window.”


Waiting for the Soup to Cool


As expressed by HFMA, providers are boiling over in frustration because of the lack of clarity that currently exists around the three-day payment window. Specifically, “clinically associated” is not well defined. Unbundling outpatient services thought to be unrelated to an inpatient encounter could burn providers in an audit with their misinterpretation of the law.


Therefore, clarity is crucial, so be sure to review all of your claim-reviews process and policies that relate to the three-day window. The current regulation definition will require that your 2011 inpatient and outpatient claim reviews be manual, and this, of course, will be cumbersome.  Without the clear definition of “clinically associated,” not even chicken soup can help, so stay tuned for updates in the New Year as HFMA and others press CMS for clarity and details on the three-day payment window.


About the Author


Barbara Vandergrift, RN, BSN, MA, is a senior healthcare consultant with Medical Learning, Inc. (MedLearn®), St. Paul, MN. MedLearn is a nationally recognized expert in healthcare compliance and reimbursement. Founded in 1991, MedLearn delivers actionable answers that will equip healthcare organizations with their coding, chargemaster, reimbursement management and RAC solutions.

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