The Centers for Medicare and Medicaid Services' (CMS) permanent Recovery Audit Contractor (RAC) program began its formal rollout a few months ago, being required by law to be in place in all states by January 2010. Most hospitals are receiving requests from their RAC contractors at the moment and just are seeing the tip of the iceberg of what is likely to cross their radar screens eventually, especially considering that the RAC auditors are just one in a myriad of other regulatory auditing bodies like ZPICs, MACs, MICs and OIG - all of which will be conducting similar types of claim audits.

The goal of the permanent RAC program, launched after the three-year RAC demonstration project ended in March 2008, is to identify improper payments made on healthcare claims for services provided to Medicare beneficiaries. The RAC pilot began with three states in 2005 and in 2007 expanded to include three additional states. RACs corrected more than $1.03 billion of improper Medicare payments during the three-year demonstration period, resulting in more than $900 million in overpayments being returned to the Medicare Trust Fund ("The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of the 3-Year Demonstration").

Of the overpayments collected by the RACs during the demonstration project, almost half of the corresponding errors that resulted in improper payments had links to patient access functions, as the error types identified related to revenue cycle issues that front-end employees are expected to manage properly. Specifically, nearly 40 percent of overpayments identified during the RAC pilot were for medically unnecessary services and 8 percent were due to insufficient documentation ("The Medicare Recovery Audit Contractor [RAC] Program: An Evaluation of the 3-Year Demonstration" - see Exhibit 1).

Exhibit 1.

Another 35 percent of the errors were connected to incorrect coding, with 17 percent of errors falling into the “other” category. Inpatient hospitals were the provider type that was the source of the greatest number of overpayments identified in the RAC demonstration. Furthermore, at inpatient hospitals, 62 percent of improper payments were for medically unnecessary services or for services provided in an inappropriate setting. Of particular note is that, of all the medical record reviews conducted during the RAC demonstration, nearly one-third resulted in overpayment findings. CMS calls this the medical record “hit rate,” which ranged from 29 percent to 37 percent among the three RACs contracted for the demonstration project. The average overpayment amount per inpatient claim ranged from $3,917 to $12,157.

In its report on the RAC demonstration, CMS cited as an important outcome the fact that RAC findings can be analyzed by CMS and Medicare claims-processing contractors to prevent future improper payments. Such payment error prevention is possible, as these contractors can use the data.

Each of the following two error categories has ties to patient access, since front-end employees are first in line to screen for medical necessity and to initiate a complete and accurate patient record.

Patient Access and Medical Necessity

Although most of the medically unnecessary claims (and those that were provided in an inappropriate care setting) in the demonstration project were rooted in inpatient claims, there is a tie to patient access, particularly for outpatient claims. The frequency of this error type should send up a red flag for patient access leaders, because screening for medical necessity is vital not only to prevent improper Medicare payments, but also to ensure that a provider can pursue payment from beneficiaries if services are determined to be medically unnecessary by Medicare. If patient access employees fail to screen for medical necessity properly, two negative outcomes may result. First, the provider may receive payment from Medicare that later must be returned if the payment is found to be improper. And second, too many instances of this type of improper payment may constitute healthcare fraud.