The main objective of the Medicare RAC program is to identify and correct improper payments. Logically, this means both overpayments and underpayments.

However, according to the CMS "Update to the Evaluation of the 3-Year Demonstration" issued in January, underpayments accounted for only 3.67 percent of all the improper payments identified and addressed by the RACs. Why is this percentage so low? Are the RACs even really looking for underpayments?

The RACs are paid on a percentage, or contingency, basis for finding improper payments. Thus, in theory, the incentive to find underpayments is the same as for finding overpayments. However, as we will explore, the whole Medicare RAC program has been constructed and organized to find overpayments, not underpayments: that fact is certainly obvious gauging by the 3.67 percent figure from the CMS report.

Healthcare consulting firms for years have worked to assist every type of provider to identify circumstances in which payments under a variety of payment systems can be increased. Sometimes the word optimize is used, but the OIG has frowned upon using this or maximize because it suggests that consultants, particularly on a contingency basis, are incentivized to find underpayments where none actually may exist.

Interestingly enough, it appears that RACs can be incentivized on a contingency basis to find overpayments that actually may not exist. At the very least, overpayments may be claimed by the RACs on a subjective basis, such as by questioning medical necessity.

Types of Audits

There are many different types of audits; chapter 15 of "Compliance for Coding, Billing & Reimbursement"[1] discusses a number of these.  Among them are:

• Probe Audits
• Pre-Payment Audits
• Base-Line Audits
• Stratified Audits
• Chargemaster Audits
• E/M Coding Audits

The list can go on. Some audits depend on a given perspective. A third-party payer may conduct pre-payment audits to ensure that inappropriate payments are not occurring. Some audits are specialized; for instance, a hospital may have a chargemaster audit to ensure that the chargemaster is compliant and charges are correct. For healthcare providers audits can be classified as:

§        Prospective Audits

§        Concurrent Audits

§        Retrospective Audits.

Prospective audits address the systematic process of providing services, documenting services, and coding and billing for services. The emphasis is on the processes and associated sub-processes utilized throughout the reimbursement cycle.[2]

Concurrent audits look at the systematic processes in addition to samplings of current claims. Generally, current claims are in the 90- to 180-day range and may or may not be paid. The purpose of such audits is to identify weaknesses in the processes by analyzing current end products - namely the claims. If possible, reimbursement also is audited. A real advantage with current claims is that they can be corrected and refiled if errors or omissions are identified.

Retrospective audits look back in time and consider only paid claims.  Often the claims considered are so old that there is no opportunity to correct and refile them, but if there is an overpayment found, then a repayment is appropriate, and on rare occasions underpayments may be identified. In general, though, these underpayments are lost.

Auditors of all types have been using these types of audits for many years.  For instance, the OIG or DOJ may decide to investigate a particular issue -in some cases, they have gone back as far as seven years in conducting retrospective audits. Consultants assisting healthcare providers in reimbursement enhancement generally use the prospective and concurrent audits, but also routinely conduct retrospective audits looking for possible errors.

One of the dilemmas created by prospective and concurrent audits is that they can uncover a systematic error. The error may be generating underpayments or overpayments. If overpayments are occurring and have occurred in the past, what should the healthcare provider do? The simple answer is to perform a retrospective audit to verify possible overpayments and the extent to which they may have occurred.

Optimizing Reimbursement

Consultants assisting a healthcare provider such as a hospital or clinic generally will look at the overall system flow from patient encounter all the way through claim payment. There are many sub-processes and associated questions. Consultants will look for patient services or items dispensed that never made it onto a claim. Missed charges and documentation deficiencies are always suspect. Perhaps additional training of physicians can assist in developing better diagnostic statements, which in turn assists in better coding, which itself results in increased payments.

The process of optimizing reimbursement typically involves either prospective audits or concurrent audits. It is examination of the systematic processes of providing services and the associated documentation, coding, billing and reimbursement that can yield significant improvements. These are the two types of general auditing approaches that consultants have used for years to assist healthcare providers.

Now, healthcare providers certainly have used retrospective audits on a routine basis as well. For instance, hospitals typically have retrospective audits for inpatient services (e.g. Medicare DRGs) and outpatient services (e.g. Medicare APCs). Physicians and clinics typically have annual audits of proper E/M level coding. If these retrospective audits detect any sorts of problems, which would be mainly overpayments, further investigations can be conducted. Typically these types of annual audits find sporadic overpayments and, less frequently, underpayments.

However, if you really want to find circumstances in which underpayments or even non-payments are occurring, the overall reimbursement cycle must be examined, analyzed and improved as appropriate.