The scope and breadth of these audits will be enormous.  This is true for the number of healthcare providers that will be subjected to investigation and audits; it is also true of the number of issues that are being addressed.  Thus, the RAC audits are a certainty, and all healthcare providers should be prepared and/or prepare for significant activity over the coming years.


Key Point #2 – There Really Are No New Issues

Alright, some of them seem new, but virtually all of the issues addressed by the RAC audits have been identified in some shape or form over the last two decades.  Issues change as do the payment systems from which these overpayments arise.  With all of the guidance, Federal Register entries from the OIG, fraud alerts, DOJ investigations and other directives, we have been duly alerted to most, if not all, of the issues have been identified.  It is our duty to know; we have been informed over the years.  Thus, the best course of action is to batten down the hatches and prepare for rough seas.


A key source of problem areas arises with payment system interfaces.  Services can often be provided in different settings and with different levels of intensity.  These various setting often have different payment systems and sometimes very different approaches to payment.  There seems to be very little effort on the part of CMS to smooth how these payment systems interface.


A favorite issue for the RAC auditors has been inpatient services that could, or should, have been performed in an outpatient setting — a short-stay hospital admission for chest pains that could have been observation or a coronary stenting procedure that could have been outpatient instead of inpatient.   In both of these instances there are significant payment differentials between inpatient payment (i.e., DRGs) and outpatient payment (i.e., APCs). The underlying, subjective issue is medical necessity.


While general compliance has always be an issue, for the RAC audits the emphasis will be on finding overpayments, and, theoretically, underpayments.  We must all try to anticipate future issues that will be addressed by the RAC audits.


Key Point #3 – Major RAC Audit Issues Are Subjective

Many of the issues over which there will be contention involve subjective judgments.  Let us expand one of the examples in the key point above. 


Case Study: A patient presents to the ED in the morning.  This is an elderly patient recently started on a diuretic.  However, the patient has refused to take the prescribed potassium supplements.  The patient is presenting with an electrolytic imbalance.  The attending physician decides to admit the patient to the hospital.  IV potassium is provided.  Later, in the afternoon the patient is ready to go home and is discharged.


This would appear to be a routine case.  Depending upon utilization review and medical staff bylaws, the inpatient admission criteria may have been met.  However, a RAC auditor may claim that this inpatient admission was not medically necessary.


How would you defend yourself in situations like this?  Even if you knew this type of case would be an issue, what steps could you put into place to prevent this circumstance?


Key Point #4 – There Is an Extended Appeals Process

Assuming that the RAC auditors are demanding repayment based upon any number of findings, hospitals can undergo an extensive appeal process.  However, pursuing the entire appeals process will require significant effort, research, consulting support and possible legal support.   Thus, this will be an expensive process.  If, as illustrated in Key Point # 3, the issue really is subjective, then to what extent should you be pursuing the appeals process?


Key Point #5 – The Motivation for the RAC Audits Is Purely Monetary

Given the scope of issues and coverage of healthcare providers, who is going to pay for all these auditors, data mining, appeals and all the concomitant activities? The answer is really quite simple: You will be paying for all this! If the federal government had to set up a new bureaucracy to undertake these audits and recoupment activities, Congress would spend years wrangling over budgets, hiring more government workers, accountability and all the associated concerns that go with a bureaucracy.


CMS’s solution to this whole process is to pay the RACs on a contingency basis.  What a minute!  Didn’t the OIG basically prohibit healthcare providers from hiring consultants on a contingency basis?  Yes, healthcare providers are not to use consultants on a contingency basis because the objectivity of the consultants might be compromised if their incentive was monetary.


Alright, what is not acceptable for healthcare providers apparently is acceptable for the Medicare program.  Will the RACs be unduly motivated by money?


The normal objective of auditing is to verify that a given procedure, operations and/or process is working properly within defined standards.  The standards are often spelled out in written policies and procedures (P&P).  These P&Ps can be used as a metric to determine if a given process or operation is working properly.  The RAC auditors will be driven by identifying and recouping overpayments.  The simple fact is that there is motivation to push the envelope if overpayments can be identified.  This means that the RAC auditors will tend to establish new standards and new levels when studying specific situations.


For instance, a physician may admit a patient to the hospital as an inpatient.  Inpatient criteria are met.  The patient stays only one day and is discharged.  Quite likely, the RAC auditors would claim this should have been an observation stay as opposed to an inpatient stay.  The hospital is using the inpatient admission criteria as their standard.  What will the RAC auditors using? In other words, how can a hospital establish appropriate policies and procedures when the specific standards to be used by the RAC auditors are not fully known?  Worse yet, the standards used by the RAC auditors may be constantly shifting in order to be accommodate overpayment identification.


A similar issue was encountered in the demonstration project.  This involved Medicare guidance that was either not specific enough or in some cases there might have been conflicting guidance at different levels within the Medicare program.


Key Point #6 – Are You Prepared?

Well, the RAC audits are coming.  It is just a matter of time.  One piece of good news is that they can only go back to October 1, 2007.  Also, not every single issue is currently available for consideration.  However, anticipate that the scope of coverage will increase in the future.


The first assessment you should consider is your current organizational infrastructure.  More specifically, look at your current coding, billing and reimbursement compliance program.  While you may have a compliance program, how much of this program is devoted to coding, billing and reimbursement audits and problem identification?  How much technical expertise has been developed internally and have you established contract with firms that can provide the necessary external technical audits?


This assessment needs to be brutally honest.  This should be a zero-based assessment.  Start at the ground level.  Large healthcare providers such as hospital systems may well have a Coding Bill and Reimbursement (CBR) compliance program in place.  Perhaps not everything is being covered, but there is a program.  Smaller healthcare providers, such as a physician clinic, may have assigned compliance responsibility to some lucky individual who has little time to devote to coding, billing and reimbursement issues.  The simple fact is that the RAC audits will necessitate that a proper organizational infrastructure be in place.


Second, look at identifying current and future issues that might affect your specific healthcare provider organization.  The list of issues that you identify will depend upon who you are.  A hospital will have a fairly long list.  A physician clinic will have a shorter list.  Be careful to broaden your focus and look at situations with another provider that might end up affecting you.  Let us consider a simple case study.


Case Study: During a recent audit at a hospital, patients undergoing knee replacement seem to always be in the hospital for exactly three days and then they were moved to skilled nursing.  Given the three-day qualifying stay, the SNF services are covered.


All right, what would a RAC auditor say about this? Most likely there would be suggestions that perhaps only two days in the hospital were medically necessary so that the hospital was overpaid as well as the SNF.


Whoever you are, you should be able to develop a fairly sizeable number of already known issues and issues that may be addressed in the future.


Key Point #7 – Financial Implications

We would not have the RAC audits unless they were identifying overpayments and recouping significant amounts of money.  Thus, virtually every healthcare provider should anticipate that there will be some recoupment.  As a result, a prudent course of action is to establish a reserve fund to address future recoupments.


However, establishing a reserve fund is only part of the issue.  In some cases you will want to go through the appeals process at least to some extent.  You may also find that you need to enhance your current CBR compliance activities.  Thus, there will be increased operational costs that will also be incurred.


The bottom-line is that the RAC audits are coming, you need to prepare and it will be expensive no matter how you approach the various issues.


By Duane C. Abbey, Ph.D., CFP

Duane C. Abbey is president of Abbey & Abbey, Consultants, Inc.

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