cengle120xThe Centers for Medicare and Medicaid Services’ (CMS) permanent Recovery Audit Contractor (RAC) program began its formal rollout a few months ago, being required by law to be in place in all states by January 2010. Most hospitals are receiving requests from their RAC contractors at the moment and just are seeing the tip of the iceberg of what is likely to cross their radar screens eventually, especially considering that the RAC auditors are just one in a myriad of other regulatory auditing bodies like ZPICs, MACs, MICs and OIG – all of which will be conducting similar types of claim audits.

The goal of the permanent RAC program, launched after the three-year RAC demonstration project ended in March 2008, is to identify improper payments made on healthcare claims for services provided to Medicare beneficiaries. The RAC pilot began with three states in 2005 and in 2007 expanded to include three additional states. RACs corrected more than $1.03 billion of improper Medicare payments during the three-year demonstration period, resulting in more than $900 million in overpayments being returned to the Medicare Trust Fund (“The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of the 3-Year Demonstration”).


Of the overpayments collected by the RACs during the demonstration project, almost half of the corresponding errors that resulted in improper payments had links to patient access functions, as the error types identified related to revenue cycle issues that front-end employees are expected to manage properly. Specifically, nearly 40 percent of overpayments identified during the RAC pilot were for medically unnecessary services and 8 percent were due to insufficient documentation (“The Medicare Recovery Audit Contractor [RAC] Program: An Evaluation of the 3-Year Demonstration” – see Exhibit 1).


Exhibit 1.

Another 35 percent of the errors were connected to incorrect coding, with 17 percent of errors falling into the “other” category. Inpatient hospitals were the provider type that was the source of the greatest number of overpayments identified in the RAC demonstration. Furthermore, at inpatient hospitals, 62 percent of improper payments were for medically unnecessary services or for services provided in an inappropriate setting. Of particular note is that, of all the medical record reviews conducted during the RAC demonstration, nearly one-third resulted in overpayment findings. CMS calls this the medical record “hit rate,” which ranged from 29 percent to 37 percent among the three RACs contracted for the demonstration project. The average overpayment amount per inpatient claim ranged from $3,917 to $12,157.

In its report on the RAC demonstration, CMS cited as an important outcome the fact that RAC findings can be analyzed by CMS and Medicare claims-processing contractors to prevent future improper payments. Such payment error prevention is possible, as these contractors can use the data.

Each of the following two error categories has ties to patient access, since front-end employees are first in line to screen for medical necessity and to initiate a complete and accurate patient record.

Patient Access and Medical Necessity

Although most of the medically unnecessary claims (and those that were provided in an inappropriate care setting) in the demonstration project were rooted in inpatient claims, there is a tie to patient access, particularly for outpatient claims. The frequency of this error type should send up a red flag for patient access leaders, because screening for medical necessity is vital not only to prevent improper Medicare payments, but also to ensure that a provider can pursue payment from beneficiaries if services are determined to be medically unnecessary by Medicare. If patient access employees fail to screen for medical necessity properly, two negative outcomes may result. First, the provider may receive payment from Medicare that later must be returned if the payment is found to be improper. And second, too many instances of this type of improper payment may constitute healthcare fraud.


Advance Beneficiary Notice of Noncoverage (ABN) form

Front-end employees must screen for medical necessity to determine if a need exists for Medicare beneficiaries to sign an Advance Beneficiary Notice of Noncoverage (ABN) form. If a provider submits a claim to Medicare for services that Medicare later deems medically unnecessary, an ABN must be on file for the provider to bill the beneficiary for the cost of services not covered by Medicare. The ABN requirement alone mandates that patient access professionals be attuned to medical necessity issues. Front-end medical necessity screening is essential not only to prevent improper payment errors, but to ensure that patient access employees, as required, can alert Medicare beneficiaries and deliver them ABNs in a timely manner prior to service. Without an ABN on file, providers cannot collect payment for services from beneficiaries if Medicare denies a claim due to lack of medical necessity, and the cost of those services then must be written off as bad debt. Therefore, an internal assessment of the front-end ABN process is imperative for providers.

To comply with the ABN rules, providers must implement the use of electronic tools that allow staff to query services by diagnosis in order to identify potential gaps. Electronic tools link to the NCD and LCD data banks to provide detailed documentation for educating the patient and even the provider. Rules prohibit leading the physician to select from lists of only “reimbursed” diagnoses; they must be free to select a distinct diagnosis and must provide sufficient documentation to support their conclusions. This process requires easily accessible data that physicians can use to explain outcomes to impacted patients.

Patient Access and Documentation

As mentioned prior, insufficient documentation resulted in 8 percent of the errors that led to improper Medicare payments identified during the RAC pilot. Again, patient access is implicated, as complete and accurate documentation begins here. Although patient access professionals are not responsible for every piece of documentation required to bill Medicare, front-end employees are responsible for generating a patient record that can be used further down the line for any number of purposes, including accurate patient billing. Initial documentation in the patient record needs to be sufficient to allow clinical and patient finance employees to meet any additional documentation requirements so that your institution can create and submit a clean and accurate claim to secure payment.

Patient Access and Physician Orders

During the demonstration project, auditors were extremely focused on level-of-care orders – to the point of denying admissions that did not have a clear admission order such as “admit to inpatient.” That is not likely to change as the permanent RAC program begins. In the demonstration, the physician order took precedence over everything else when auditors reviewed files, and the RACs recouped a lot of money for inadequate or incomplete admission orders. If there is not a specific order to admit a patient to a specific level of care, the RACs upon viewing the chart are likely to deny the claim and recoup the money. No matter how critical the patient’s condition was, if the order for the level of care issued at the time of admission was not accurate, the claim was denied and the money recouped during the demonstration project.

It’s easier said than done to make sure that physicians are following the guidelines. Case managers often report that it is difficult to get physicians to document the admission order thoroughly. But CMS asserts that it is the hospital’s responsibility to educate physicians and ensure that they follow the Medicare guidelines. One way to do this is through technology. If your hospital has an electronic order entry system, develop standardized admission orders that prevent the physician from ordering anything until the admission and the level of care are documented. If you’re still using paper orders, develop standardized order sets for various diagnoses and include check boxes for inpatient, outpatient or observation services. Again, CMS makes it very clear that the ultimate responsibility is on the hospital, not the physician, and the physician still will get paid under Part B even if the hospital’s payment gets recouped.

MSP Questionnaire and Audit Trails

During the demonstration project there were three MSP RACs that looked specifically at Medicare secondary payor issues. CMS probably was disappointed in the results, because we don’t have separate MSP RAC contractors in the permanent project. Obviously, they were looking for claims that were paid primarily by Medicare when Medicare should have been secondary – mostly third-party liability and working Medicare beneficiaries. The only state truly to display some results was California, where they recouped $3.9 million in 2006. Overall, only $12.9 million in MSP claims was recouped in all three states during the 3 years. Now, even though we don’t have separate contractors, the four permanent RACs can look for MSP issues if CMS approves the issues and the RACs post it on their websites. So you can see how the MSP questionnaires are going to be vital in determining who is primary, and if it’s not done correctly, the auditors can and will take back the payment.



As the national permanent RAC program currently is rolling out, patient access leaders need to assess whether the proper tools, training and technology are in place for front-end employees to address all of these elements accurately prior to service. The exciting thing about this time is that the patient access department is no longer a siloed scapegoat of the entire revenue cycle; patient access now is recognized as a vital part of the process from beginning to end – especially if the end results in a governmental audit.

About the Author

Carla Engle, MBA, is a product manger for MediRegs, a Wolters Kluwer company. Her
background includes more than 20 years in hospital and physician practice operations, particularly in reimbursement and billing functions. Prior to joining Wolters Kluwer recently, she was the vice president of compliance for a national revenue cycle solutions company and prior to that was in the Reimbursement Training Department with HCA.  For several years she headed up the Part A Fraud Investigation Unit for a CMS Program Safeguard Contractor (PSC) where she was successful in the prosecution of several national cases. In her revenue cycle compliance capacity, she worked with a number of clients in California and Florida with Recovery Audit Contractors (RACs) in setting up processes and appeals. 

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“The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of the 3-Year Demonstration,” June 2008, http://www.cms.hhs.gov/RAC/Downloads/RAC%20Evaluation%20Report.pdf


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