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Back in 2015 from a Summer Hiatus: Medicare RACs —with new rules and positive changes.

By Ed Gaines, JD, CCP


After a temporary suspension of activity in 2014 (during a bid protest by one of the existing Medicare RACs), CMS recently announced the official restart of their (RAC) reviews with some favorable changes in response to concerns expressed to CMS in a joint ACEP/EDPMA letter and criticism by the AMA. Specifically, RACS now have a shorter reporting period for findings and have more pressure to get their audits right. This article outlines some specific targets and regulatory changes for emergency department (ED) groups, and how they can respond to RAC audits in 2015.

The Final Exam for EDs

Various RACs have targeted these common ED scenarios for audit scrutiny, including:

1. Critical care billed on same day as ED E/M by same physician for same patient
2. Services or procedures billed during the 10 or 90 day global surgical period (GSP)
3. Admit and discharge same day Observation Codes (CPT® 99234-236 codes)
4. Improper payments based on improper -59 modifier application

For the Medicaid RACs, the following issues have been cited of note:

1. Services/procedures billed during the 10 or 90 GSP as noted above;
2. Credit balances and refunds in compliance with the ACA mandates.

Look for Changes in Additional Documentation Requests, Notification Timelines

In response to industry feedback, including a joint letter by ACEP and EDPMA calling for changes in the RAC program, CMS will ensure that RACs establish additional documentation request (ADR) limits based on provider compliance with Medicare rules. ED practices with low denial rates will have lower ADR limits, and practices with high denial rates will have higher ADR limits.

The fix: CMS will now adjust the ADR limits as a practice’s denial rate decreases. That will ensure that providers complying with Medicare rules have fewer RAC reviews. What this means for you is that you get rewarded for prior good audit outcomes. The previously permitted ADR limit amounted to 2 percent of all claims submitted for the prior calendar year, divided by eight. RACs had been allowed to send a maximum of 400 requests per 45 days to a practice RACs can apply ADR limits incrementally to new providers under review.

But what if you don’t have an audit history? One of the complaints to CMS was that new providers were receiving requests for the maximum number of medical records allowed, causing administrative headaches and possible accounts receivable delays at their most vulnerable time. RACs should then apply ADR limits incrementally to new providers under review.

New Thirty Day Notification Period of Complex Review Findings

You won’t have to wait as long to learn the findings from any RAC complex audits. In the past, ED providers waited up to sixty days (60) days before being notified of the findings of RAC complex reviews. The new thirty day (30) deadline requires more immediate feedback to providers about the outcome of reviews.

No RAC Payment Until After the Second Level of Appeal; RACs Must Maintain An Overturn Rate of Less Than Ten (10%) Percent

RACS now have more incentive to get the audits right the first time. Previously, RACs were paid immediately upon denial and recoupment of claims according to the percentage of recoupment allowed in their contract, until and unless they were reversed on appeal. This created an unfair delay in provider payment while the appeals process played out, often over many months. The new rules add performance standards that can delay when the RACs get paid. CMS will require that the RACs have an overturn rate of less than 10 percent at the first level of appeal, excluding claims denied because of insufficient documentation or claims corrected during the appeals process. If a RAC fails to have a low overturn rate, CMS will place it in on a corrective action plan that could include decreasing ADR limits or ceasing certain reviews. Hopefully this new rule creates incentives for RAC audit decisions to be fairly based upon Medicare statutes, coverage determinations, regulations and manuals.

Unfavorable Audit? Don’t Think Twice About Appealing

If you’ve taken a hit from RAC auditors, think twice before just writing a check for alleged overpayments. ED groups are an attractive target for auditors because the percentage of governmental payor patients , e.g. Medicare, Medicaid and Tricare, tends to be much larger on average than other specialties. This means when audits identify overpayments, the potential for recoupment is larger because of the volume of governmental patient claims reported by the ED group. The cost of extrapolation with these volumes can get expensive very quickly, so you should appeal any audits that seem unfair or inaccurate. Check out this scenario: An AMA survey found that the average RAC audit overpayment amount was $86 per claim. However, the average cost of a RAC audit to a medical practice is approximately $110 per claim. So doing the math, there’s a net loss of each RAC audit appeal per claim of -$24.00 ($110 cost less $86 overpayment average). Initially this appears to add additional expense and it would be cheaper to just write a check for the overpayment amount. However if you consider that CMS data shows that 60 percent of appeals are successful at levels 1 through 4, it is in your best interests to go through the appeals process if you are confident your code assignments are correct.

The net reduction in the overpayment could offset much of the cost of the appeal process. You also are mitigating risks of Progressive Corrective Action (PCA), through statistical sampling and extrapolation.

You Want To Avoid Extrapolation If You Can

RAC Extrapolation is a method of forecasting the results of an audit sample to the universe of claims from which the sample was drawn. It is used to project an error rate, such as 10 percent, across all Medicare claims from that provider for a multi-year period of time, e.g. 4-5 years.

But be advised that the Medicare statute (Medicare Modernization Act of 2003) does NOT permit extrapolation unless there is “a sustained or high level payment error,” or a “documented educational intervention” has failed to correct the payment errors.

CMS has utilized one or more of the following to identify a sustained or high level payment error:

- Medical review by any contractor
- Probe or data analysis
- History of provider audits/probes
- Information from law enforcement
- Allegations of wrongdoing
- OIG audits or wrongdoing

Good Reasons for Appealing Medicare Administrative Contractor (MAC) & RAC Findings

- The decision to use extrapolation cannot be challenged on Medicare appeal or in the federal courts, 42 USC 1395fff (d)(3), 42 CFR 405.926 (p) and MPIM 8.4.1.2.
- The extrapolation methodology to determine the overpayment is subject to challenge on appeal and in the courts.
- The MAC/RAC methodology is presumed valid, and burden of proof is on the provider.
- CMS Ruling 86-1. This ruling provides that CMS and the MACs may use statistical sampling to project overpayments when claims reflect a pattern of erroneous billing and case by case review is not administratively feasible.

In closing, while ED groups must look for changes to include additional documentation requests and notification timelines for the targeted areas noted above, RACs are also undergoing scrutiny to correctly audit, and within a shorter reporting period. ED groups must remember they can (and should) always appeal an unfavorable audit, though they may avoid it altogether by internal audit and QA, and heeding those specific regulatory changes and items that RACs are targeting in 2015.

Ed Gaines, JD, CCP is a chief compliance officer with Zotec Partners.