Now that we know the RACs are rolling out their reviews of claims related to medical necessity (Regions B, C and D), it is worthwhile to consider once again how individual providers will plan and react to this challenge.

Background Information

For all hospitals, the threat of denials of one-day and short-stay cases via the RACs is real.  Let's take a moment to highlight the facts of this threat:

• During the RAC Demonstration Project approximately 40 to 65 percent (depending on which statistics you believe) of the identified overpayments were related to medical necessity issues.

• The RAC Scope of Work directs continued attention to the potential to deny the total payment value of claims due to lack of medical necessity. These cases are very attractive to the RACs because a high-value denial gives them increased revenues for their efforts. Remember, each RAC receives a percentage of its findings.

• Today (Sept. 9, 2010) reviews are a reality in all three RAC Regions, and within the short term this will be the case across the country.

• You may have performed chart reviews indicating that documentation of your one-day and short stays is problematic when it comes to being in compliance with the medical necessity requirements.

• A RAC payback for a denied admission due to lack of medical necessity probably will result in a loss of the entire admission-related payment. These are significant dollars!

Planning and Reaction

So, what is the proper reaction to the medical necessity reviews?

Hospitals need to be very careful not to overreact to these reviews. Even prior to the start of RAC activity, many hospitals have seen their medical necessity and notification denials from a number of sources increase significantly during the last year.

From my viewpoint, an overreaction by the hospital starts with the statement "these patients should not be admitted to the hospital." The proper "compliant" reaction goes something like this: "what documentation standards and processes need to be established today to ensure that our short-stay admissions can be validated as admissions per our physicians' clinical direction?"

The key learning point is that place-of-service identification, documentation of patient condition, etc. all will be driven by the admitting physician.  Yes, there are protocol standards (InterQual, Millemann) that everyone should be utilizing, and the RACs remind us of this daily, but the hospital needs to make sure that if a patient should be admitted, all processes are put into motion to ensure that they will be receiving proper payment from Medicare for their services.

The Overreaction is Costly

You will have people that will overreact. I see it on a routine basis, traveling the country as a consultant. Someone hears a discussion about the RACs and medical necessity (especially now, with Region B, C and D being about ready to receive record requests) and decides to take a very, very conservative approach, changing admissions to observation or outpatient ‑‑ not because of any threat of fraud issues, but because something in the system (orders, documentation, lack of case management) has not worked right. In this scenario, the threat of the RACs just has cost your hospital tens of thousands of dollars (maybe more) in reimbursement before they even asked for a chart to review.

Proactive Reaction

However, a proactive reaction is to say "let's fix this process so we can get our proper reimbursement for our admitted patients." I am not suggesting that you should have more admissions than appropriate, but rather that your admissions should be justified as appropriate (per the regulations, including your physician's documentation) and should be reimbursed as such.

Many hospitals have implemented process fixes such as efforts to concurrently review as many one-day admissions as possible, getting case management involved in cases 24/7, establishing a physician query system and educating/engaging/empowering your medical staff on this issue.

The threat of your staff overreacting to the RACs is real, so please take proactive efforts to make sure this is not happening in your hospital. Compliant documentation, coding and billing practices will serve your organization well as you deal with increased reviews and analysis of your payments today and in the future.

About the Author

Bret S. Bissey, MBA, FACHE, CHC, is a nationally recognized expert in healthcare compliance. He is the author of the Compliance Officer's Handbook, published in 2006, and has presented at more than 40 regional and national industry conferences/meetings on numerous compliance topics. He has more than 25 years of diversified healthcare management, operations and compliance experience.

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