Updated on: June 22, 2012

84% of Hospitals Report RAC Activity Increases Administrative Costs

By
Original story posted on: July 19, 2010

vandegriftB

 

How are hospitals being affected by the Recovery Audit Contractor (RAC) program?


That’s a question that the American Hospital Association (AHA) wanted to answer in response to “a lack of data and information” from the Centers for Medicare & Medicaid Services (CMS). Taking things into its organizational hands, the AHA created a free, web-based survey called RACTrac, which collects hospital data on a quarterly basis.

 

A Few Basics

 

On June 22, the AHA issued survey results from the first quarter of 2010 (January through March). Of the 653 hospitals responding to the survey, 437 (or 67 percent) reported RAC activity. Most of those (616 of the 653) were general, non-teaching medical and surgical acute care hospitals, including critical access hospitals and cancer hospitals.

 

Of the four RAC regions established by CMS, region C encompasses nearly 40 percent of all U.S. hospitals, so it follows that a high number of hospitals responding to the survey also were located in the states included in region C. Specifically, 251 or 38 percent of the hospitals were located in region C. Region D followed next with 26 percent, then region B with 19 percent, and region A with 16 percent.

 

Breakdown by Review Type

 

As you know, RACs conduct two types of reviews:


  • Automated, which use computer software to detect improper payments to providers; and
  • Complex, which use human review of medical records and other medical documentation to identify improper payments to providers.

 

According to the AHA survey findings, most RACs are performing complex reviews (88 percent of total) with inpatient coding being the target. Most automated reviews relate to outpatient coding and billing.


In dollars and cents, the RACTrac respondents reported $2.47 million in denied claims in the first quarter and, again, many denied claims (47 percent) came out of the region C RAC. Most denied funds were from complex reviews.

 

The AHA report lists the following as the top reasons for complex denials by dollar amount for hospitals with RAC activity:

 

  • Incorrect MS-DRG or other coding error (92 percent);
  • All other (3 percent);
  • No or insufficient documentation in the medical record (2 percent);
  • Incorrect APC or other outpatient coding error (1 percent); and
  • Other medically unnecessary (1 percent).

 

On the automated denials side, the AHA report listed the following as top reasons by dollar amount:

 

  • Outpatient billing error (51 percent)
  • All other (23 percent).
  • Duplicate payment (13 percent);
  • Outpatient coding error (8 percent); and
  • Inpatient coding error (MS-DRG) (5 percent);

 

Administrative Repercussions


Of the reporting hospitals, 84 percent stated that the RAC program increased administrative costs such as the following even when no reviews occurred.

 

  • Managing the RAC process is spread across many types of hospital staff creating significant administrative burden;
  • Clerical and other types of staff, including RAC coordinators, spent the most time responding to RAC activity;
  • Both internal and external resources are required to prepare and manage RAC activity; and
  • Of the total, 17 percent of the responding hospitals are using external resources to manage the process, spending an average of $91,636 to hire an external utilization management consultant.

 

As word spreads about the AHA’s RACTrac survey, the number of hospitals responding will, of course grow.  It follows that the data and information related to the RAC program activities will also grow, filling the void of communication coming from CMS.

 

About the Author


Barbara Vandergrift, RN, BSN, MA, is a senior healthcare consultant with Medical Learning, Inc. (MedLearn®), St. Paul, MN. MedLearn is a nationally recognized expert in healthcare compliance and reimbursement. Founded in 1991, MedLearn delivers actionable answers that will equip healthcare organizations with their coding, chargemaster, reimbursement management and RAC solutions.

 

Contact the Author

 

(bvandegrift@medlearn.com)
ED. NOTE: For more analysis on the significance of the AHA report because to read this Thursday’s RACMonitorEnews.  (See www.aharactrac.com.)

 

 

 

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