On Nov. 29, 2012, the Illinois Department of Healthcare and Family Services Office of Inspector General (OIG) suspended all DRG audits of hospitals in response to concerns expressed by the Illinois Hospital Association about the audit methods and results, including the use of extrapolation. As with many governmental oversight organizations, the Illinois OIG contracts out its audits to private contractors. At Sherman Hospital in Elgin, Ill., where I served as medical director of case management from 2006 to 2012, we were the target of one such audit in 2011. I was able to refute every denial easily, as the auditors were using outdated coding guidelines and ignoring entries in the medical record that obviously supported the DRG coding; 18 months later, there still has not been a re-audit.

The Medicare RAC program recently reported that in the most recent fiscal year, $2.29 billion in overpayments was collected. The American Hospital Association reported that RACTrac data shows that, in the second quarter of 2012, more than 40 percent of denials were appealed, yielding a 75 percent success rate. In preliminary third-quarter data, the appeal success rate was 85 percent, and the percentage of denials being appealed also was increasing. (It is unclear if the low appeal rate is due to a lack of hospital resources, a decision by hospitals not to fight the government, or agreement with the denials.) An 85 percent overturn rate on the 40-plus percent of denials being appealed suggests that at least 34 percent of all RAC denials have been determined to be inappropriate. We also learned from a presentation at the recent RAC Summit in Washington, D.C. that the number of appeals coming into the offices of the administrative law judges is increasing dramatically and now has exceeded 5,000 appeals per week; the backlog is also increasing, with one hospital recently reporting an 18-month delay before its cases were heard.

On the same November day that the Illinois OIG halted its audits, CGS, the Medicare Part A MAC contractor for Ohio and Kentucky, reported the results of a probe audit of claims for DRG 195 (simple pneumonia) and found a 36.8 percent error rate. The contractor reported that, “based on this moderate charge denial rate … it is recommended that this probe edit be progressed to complex edit review per management.”

So let’s get this straight: When a MAC finds a 37 percent error rate, it considers it serious enough to escalate its reviews to a higher level of scrutiny. Yet when data shows that the RAC auditors have an error rate of more than 40 percent, no action is taken.

The purpose of the RAC program, as stated in the Statement of Work, is “to reduce Medicare improper payments through the efficient detection and collection of overpayments, the identification of underpayments and the implementation of actions that will prevent future improper payments.” There is no differentiation between overpayments and underpayments in that statement. The goal of the major physician advisory services in the industry aligns with that purpose. AccretivePAS states on its website that its objective is to “work closely with the hospital medical staff, case management and senior leadership to strengthen compliance, limit denials, improve revenue integrity and improve efficiency.” Executive Health Resources has a similar objective: “EHR delivers an outsourced operational, technological and clinical resource that helps hospitals achieve the critical goal of effectively managing clinical care while maintaining regulatory compliance and sound financial performance.” On the other hand, HMS, the company that has won 31 state Medicaid RAC contracts and recently purchased HDI, the Region D Medicare RAC, proudly proclaims that it is “the nation’s leader in cost containment solutions for government-funded, commercial and private entities.“ Note the absence of any mention of following regulations or compliance.

Virtually every admission decision made in a hospital adheres to Medicare regulations in the sense that it is made by a physician who considers a number of factors, including the predictability of something adverse happening to the patient. Furthermore, most hospitals follow regulations by using screening tools, properly administered by nurse case managers, for the first level of review and by referring cases that do not meet certain criteria for secondary review by a physician. Yet auditors rely on nurses and therapists to perform their audits. In Illinois, the Nurse Practice Act delineates an RN’s scope of practice (background available at http://tinyurl.com/ILRNScope). The nurse’s role includes patient assessment, developing and implementing a care plan, administering medications, and communicating and collaborating with other healthcare professionals, but does not include medical decision-making. Likewise, to the best of my knowledge, therapists receive no medical decision-making training at all, and certainly have no legal authority to do so. Yet we are expected to be reassured because the permanent RAC program features the requirement for a single medical director to oversee each RAC.

The rules promulgated by the Centers for Medicare & Medicaid Services (CMS) for determining correct patient status are vague and circuitous. In fact, as we learned on that infamous Nov. 29, even the MACs, the official “spokespeople” for CMS, don’t always interpret the rules correctly. On that day, NGS apologized and retracted its “two-step process” for determining the correct admission status of a patient (which was published three days earlier, when Dr. Steven Meyerson created a firestorm by publishing a www.RACmonitor.com article that was shared on the RAC-Relief list-serve group and eventually made its way to CMS, which subsequently instructed NGS to pull the guidance;  see the article at http://racmonitor.com/news/43-special-bulletin/984-ngs-declares-48-hour-time-frame-for-inpatient-admissions-or-does-it.)

So, what makes CMS and its auditors so confident that they are finding “payment errors?” The evidence outlined above makes a compelling case that we actually may be seeing a large number of “audit errors.” Should the medical decision-making of a nurse or therapist trump that of a physician? Is HMS, with 31 state Medicaid contracts and one Medicare RAC region, able to hire and train enough nurses and therapists to perform accurate audits (which they are not even licensed or trained to perform), or to handle the volume of denials needed to support their business model of “cost containment?” Shouldn’t the fumbles made by the Illinois OIG in hiring an unqualified audit contractor and NGS in releasing an incorrect admission process protocol give every government agency pause – and give every hospital more reason to appeal every denial and to question the qualifications of every auditor?

Perhaps it is time for a nationwide timeout to let CMS reevaluate its goals, its processes and its auditors.

About the Author

Ronald Hirsch, M.D. serves as vice president of physician advisory services (AccretivePAS®) in the Regulation and Education Group (“the REG Specialists”). Prior to his employment at Accretive Health, Dr. Hirsch, a board certified internist and HIV specialist, practiced and served as president at a multispecialty practice in Illinois, and medical director of case management at Sherman Hospital in Elgin, Ill.

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