Most of the medical-necessity denials uncovered by complex reviews conducted by recovery audit contractors (RACs) come down to one-day stays in medical/surgical acute-care hospitals. The interesting thing about this is that the denials occurred because the service provided was provided in the wrong setting. RACs collected $89 million of overpayments from the group of hospitals that reported this piece of data to the American Hospital Association (AHA) for its latest RACTrac Survey (November 21, 2011 report).

The largest financial impact for inpatient services came from complex reviews like the above while it was automated reviews that primarily impacted outpatient services. As a reminder, for automated reviews, RACs use computer software to detect improper payments but complex medical-record reviews are conducted by humans.

Survey responders reported that denials from automated reviews varied in terms of problem areas. Inpatient coding errors (MS-DRG) and duplicate payments were the least of the problems, at 6 percent and 5 percent, respectively. Percentages were not as low in the following areas:

• Outpatient billing errors--41 percent
• All other errors-20 percent
• Incorrect discharge status-16 percent
• Outpatient coding errors-12 percent.

Most Common Denials

Eighteen percent of the survey responders received medical-necessity denials for MS-DRG 312-syncope and collapse. This MS-DRG also topped the list for "all other complex denials" with 8 percent.

The table below lists the MS-DRGs with the highest number of denials (both medical necessity denials and all other types of denials) as well as the percentage of hospital responders who received the denials, according to the RACTrac survey.

Administrative Burdens

Now that RACs are firmly entrenched in reviewing hospital medical records, a consistent pattern of the inconveniences their presence causes for providers is surfacing. Increased administrative costs are at the top of this list, with 51 percent of the responders citing this as a key impact.

Specifically, 52 percent of participating hospitals put their average costs between $0 and $10,000. For 17 percent, that figure jumps to $10,001 to $25,000 and for 13 percent, it ranges from $25,001 to $50,000. The remaining hospital responders spent between $50,001 and $100,001 and a small number of hospitals spent more than that amount. Only 1 percent stated that they have had to "make cutbacks" due to RAC reviews.

Other impacts and their percentages are shown below.

• Provided training and education-34 percent
• Purchased and installed tracking software-28 percent
• Modified admission criteria-19 percent
• Employed additional staff-18 percent
• Increased administrative role of clinical staff-17 percent
• Initiated a new internal task force-17 percent.

In addition to the above, hospitals have a few other complaints about the RAC program, including the following:

• Fifty-seven percent of those responding have yet to receive any education on how to avoid payment errors from the Centers for Medicare & Medicaid Services or their Medicare contractors.
• Forty-eight percent have waited more than 30 days after receipt of a review-results letter to receive a demand letter.
• On average, 15 percent of the hospital providers waited 14 days or more to receive a response from their RAC.
• RACs are rescinding medical record requests after the hospital has already submitted the records.

The Good News

Although the focus is generally on improper payments, the truth is that two-thirds of the medical records reviewed by RACs did not contain improper payments. Most surprisingly, 29 percent of hospital responders stated that RACs have had "no impact" on them.