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nbeckleyPennsylvania providers have reported receiving demand letters from DCS, the Region A RAC, on the CMS-approved issue of untimed codes.

DCS posted this issue on June 17, 2010, outlining it as follows: "A potential vulnerability may exist if certain codes are billed for more than one unit. Therefore, an issue may exist when these codes are billed and are reimbursed under Medicare Part B in this manner." DCS refers providers to additional information by referencing CMS Pub 100-04, Ch. 5, § 20.2 and CMS Pub 100-04, Transmittal 1019, dated Aug. 3, 2006, pages 7-11.

As the therapy community knows, service-based, or untimed, codes only may be billed for a unit of service that is equal to one regardless of the actual time spent on a therapy encounter. For example, a therapy evaluation that takes 30 minutes may be billed for one unit, but a therapy evaluation that takes 60 minutes would be billed the same. There is no prohibition in CMS Transmittal 1019 (which since has been incorporated into the Medicare Claims Processing Manual), however, against billing two separate and distinct untimed codes, for example a physical therapy evaluation on the same day as a speech-language pathology evaluation. Additionally, the NCCI edits do not prohibit billing these codes in pairs. But it would appear that DCS has interpreted this practice as one plus one equals two, and therefore is sending demand letters to providers.

Transmittal 1019 refers to codes that only are permitted one unit for "allowed units" in a chart identifying therapy codes that "may be billed no more than once per provider, per discipline, per date of service, per patient." While the chart does have a prohibition against a physical therapist billing for an occupational therapy evaluation, there is nothing to suggest that two therapy evaluations (untimed codes) with different CPT codes cannot be completed and billed on the same day.

A similar issue arose when RAC activity began as Connolly Healthcare, the Region C RAC, was the first to have the issue of untimed codes approved for automated review by CMS. However, Connolly described the issue as follows: for "CPT codes (excluding modifiers KX and 59) where the procedure is not defined by a specific timeframe (untimed codes), the provider should enter a one (1) in the units billed column per date of service."

RACmonitor covered this story in two separate articles: Florida Providers Report Seeing Demand Letters, and The RAC Race Has Begun- There is Still Time to Turkey Trot Your Way to Success.

DCS is the RAC covering the following states: Connecticut, Delaware, the District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont.

Stay tuned for further updates, as well as the Monitor Monday podcast, for additional information as providers weave through the process of dealing with what seems to be a misinterpretation of a Medicare-cited regulation.

For a refresher on avoiding problems with the issue of untimed codes, there are suggestions in the following article: Catch Me If Your Can: Staying Ahead of the RAC Reviews of Untimed Codes.

The June 17, 2010 DCS reference can be reviewed at:

About the Author

Nancy Beckley is a founder and president of Nancy Beckley & Associates LLC, providing compliance planning and outsourced compliance services to rehab providers in hospitals, rehab agencies, CORFs, SNFs and private practice. Nancy is certified in healthcare compliance by the Healthcare Compliance Board.  She is on the Board of the National Association of Rehab Providers & Agencies.  She previously served on the CMS Professional Expert Technical Panel for Comprehensive Outpatient Rehabilitation Facilities.

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fcohen100Recently I received a call from one of my physician clients advising me that they were undergoing a RAC audit of – now get this – E/M codes.

This is one of the first RAC audits I have encountered in which E/M codes were the focus of a review. According to my client, the RAC auditors requested 120 charts for CPT codes 99214, 99233 and 99223, all of which are at the top of the CERT list of improperly paid procedure codes.

This isn’t much of a secret, and looking through the 2009 CERT report, it is pretty clear what codes will be common targets during the coming years. What isn’t clear, however, is how a practice can conduct an initial analysis of its E/M code utilization in order to assess the level of risk it may face. Risk, interestingly enough, is a term that, without the concept of utility, has little meaning or value. For example, a large practice wouldn’t blink at a RAC overpayment demand of, say, $30,000, while this same amount could prove catastrophic to a solo primary care doctor. Utility creates a boundary for risk based upon the ability of the practice to absorb a consequence. 

Assessing Risk

When trying to assess the risk of an audit or a review, a practice needs to put itself in the auditor’s shoes. What are they looking at when trying to determine the potential for recovery? When it comes to E/M coding, this is really a bit easier than one might think, and like the concept of utility, it involves building a set of boundaries that helps define the meaning of risk.

Many of us have been involved in conducting basic E/M utilization analyses. Usually, we take a look at the utilization of a particular E/M code as a ratio of all E/M codes in a category and then compare that to some control group: most often the CMS national physician database. We then take a look at the distributions (or graphs) in order to get some idea of how similar or different we are from the control group.

Let’s consider an example. Suppose we are internal medicine practice and we want to get an idea as to what our established office visit codes (99211 through 99215) look like compared to those of our peers (assuming that the control group does, in fact, do a decent job of peer analysis). The first step most of us take is to create a distribution graph such as the one below:

Table 1: Established Office Visits


Now here’s the question: does this comparison demonstrate a risk for the practice? Initially, most of us would say “yes” based solely on the fact that the utilization of the 99214 and 99215 codes appears to be higher than that of the comparison group. What if I told you, though, that this practice only reported 10 established office visit codes? Now do you consider the above distribution to pose a risk? Most likely not, since the best the RAC might be able to do in this case is a few dollars in recovery.  When looking at risk and considering the idea of utility, we have to consider the volume of codes reported within each category, and you can’t do that simply by looking at graphs. We also don’t get that kind of information just by considering the variances since, without the tabular data, they still don’t factor into frequency.

Variance graphing does, however, give us a much better idea about the differences between similar codes within a category, as shown below:

Table 2: Variance of Established Office Visits


In this case, it is pretty easy to see that the majority of the impact comes from the 99215 code.  Once again, however, if there were only 10 E/M codes reported, it would be a stretch to identify this as any kind of significant risk.

So what do we do to assess the risk of audit or review? We have to factor the variance and the frequency and come up with some type of metric that lets us make a reasonable call. To do this, there are two steps we have to go through. The first is to measure the actual variance between the practice’s distribution and the control group, which in this case comes from the CMS database. We start with a basic frequency distribution table like the one below:

Table 3: Utilization distribution comparisons


In this table, we simply compare the utilization distribution for each of the practice’s established visit procedures with the national distribution figure for the same specialty. The next step is to create a proportion distribution calculation that will give us an average RVU value for both the practice and the national average. We do this by multiplying the individual percentages by the RVU for each procedure, thus generating the sums as follows:

Table 4: Average RVU Values


Now we can see that the practice reported an average RVU for all established office visits of 2.93 while the national average for the same code set is 2.41. This means that the practice is reporting utilization of established E/M codes at around 122 percent of the national average. Remember, this doesn’t mean that the practice is utilizing established visit codes more, rather that they are shifting utilization of established office visits to the higher codes. Put another way, this practice’s distribution of established office visit codes is about 22 percent higher than that of their peers.

Frequency of Visits

Let’s get back to the issue of frequency now, since that is the second part of the equation. To calculate a risk value, we want to multiply the total volume of established office visits by the variance (22 percent) between the practice and the national average. If, for example, this practice only reported 10 established office visits, then its “risk score,” as I call it, would be 2.2. If, on the other hand, it reported a total of 3,560 established office visits during the data period, its “risk score” would be 783: a figure that not only is significantly higher, but within the “high risk” range.

From a scoring perspective, this is how I determine severity of risk:

•    High Risk    > 100
•    Medium Risk    50 – 100
•    Low Risk    20 to 50
•    No Risk         < 20

In our case, with a variance of 22 percent, the practice would need to report at least 455 established office-visit codes to be considered at high risk. But what if the variance were to change? Let’s say that the variance is 9.6 percent? This would mean that the practice would tend to be shifted right about that figure, or put another way, it has around a 10 percent “overutilization” tendency toward the higher codes. In this case, the practice would need to report nearly 1,050 new office-visit codes in order to be considered at high risk. On the other end, if we had a practice that reported a variance of 65 percent, it only would need to report 150 established visit codes to be considered at high risk.

In summary, the idea is to balance volume with variance in order to determine the potential risk for audit or review. Remember, RACs get paid a commission on what they recover, so the greater the probability that they will find more, the greater the potential risk to the practice. This type of a model allows practices not only to identify the location of potential risk, but it also gives them the tools they need to determine priorities and allocation of resources when it comes to internal reviews.

About the Author

Frank Cohen is the senior analyst for The Frank Cohen Group, LLC. He is a healthcare consultant who specializes in data mining, applied statistics, practice analytics, decision support and process improvement.

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To read article entitled, "Part 1: Harnessing Health Information in Real Time: Lessons from the Financial Services Industry to Mitigate Healthcare Waste, Fraud and Abuse," please click here

pspencer100RAC Song Debuts Nationally on Monitor Monday

Singer, songwriter J. Paul Spencer, CPC, CPC-H, the compliance officer for Fi-Med Management, Inc., made podcast history on Monitor Monday this past week with the national debut of his folksong, “Here Comes a RAC.” With his guitar, a music stand and conference room phone, Spencer sang his original song live during the closing minutes of the weekly program.  When he’s not performing his daytime job as a healthcare compliance officer, Spencer can be heard performing in an acoustic duo in Milwaukee with Leigh Ann Holmes. Spencer comes to music naturally. His grandfather played saxophone with the late Paul Whiteman’s orchestra. Enjoy the song now. It will soon be copyrighted under Spencer’s self-publishing entity, Clown Torch Music by ASCAP.

Listen to Here Comes The RAC



As hospital leaders, RAC teams, HIM directors, case managers, documentation specialists and others deal with an increasingly adversarial denial industry, many often wonder “Why can’t physicians just do it correctly?”  

While many physicians can improve the quality of clinical documentation to collaboratively assist in preventing or responding to denials, let’s consider the question in the context of the transition to the electronic medical record (EMR).

Do you recall the promises, perhaps a decade ago, of the changes that would occur with the EMR?  Data would be accurately and perhaps automatically captured, physicians would have rapid access to a comprehensive medical record, recorded longitudinally over time, to allow more accurate diagnoses, improved patient safety and quality, an enhanced practice satisfaction and efficiency.  As is often the challenge with complex systems, simple solutions often lead to unanticipated consequences.

Cut and Paste Notes

As hospitals have incrementally implemented EMRs, individual caregivers are providing more and more detailed documentation.  Many providers such as dieticians, nurses, physical and occupational therapists and others now create progressively comprehensive documentation.  While conceptually improving quality, few physicians have the time (or patience) to review multiple lengthy, repetitive, and at times uninformative notes.  Physician notes themselves have expanded as physicians attempt to remain compliant with increasingly complex professional billing requirements.  Many hospitals have enabled “cut and paste” which theoretically might improve efficiency of documentation, but more frequently results in more words, but less credible information.

I was recently informed by a group of hospitalists that they spend less than 20 percent; of their time in actual patient care.  Deciphering the EMR, identifying Present on Admission conditions, reading documentation, doing their own documentation, attempting to communicate with other clinicians and other activities increasingly cut into their time, decreasing efficiency and professional satisfaction.

Team Approach

As the healthcare industry transitions fully into the electronic era and attempts to resolve many of these challenges I would also suggest that we need to consider a change in physician attitude – what we would have called in the ‘90s a “paradigm shift.”  I was trained as a surgeon; that I was the “Captain of the Ship” and was responsible for all details of care.  A much more applicable metaphor in today’s environment would be the pilot in command of a commercial aircraft.  One of the most significant interventions in the past 20 years to increase the safety of commercial aviation has been to decrease pilot workload.  Aviation had the novel idea that pilots should actually have time to think.  How do they do it?  They rely on others.  Their team includes ground crews, flight attendants, and perhaps most importantly Air Traffic Control (ATC).

From personal experience, I have found it exceedingly gratifying when ATC informs me of the location other aircraft or embedded thunderstorms when flying through clouds in instrument conditions.

What can we learn from this model?  Increasingly case managers, coders, documentation specialists, clinical integration specialists and others need to evolve the infrastructure and skills to provide “situational awareness” for the clinical treatment team.  This will involve the development of new information technology tools, enhanced team communication, as well as a change in physician attitude.  We are seeing it happening at an increasing number of hospitals.  Perhaps the best example of a team approach I have seen recently was in an ED Trauma bay where a multiple trauma victim was being intubated by the anesthesiologist, orthopedically stabilized by the ortho resident, assessed by the general surgery resident (testing the abdomen for blood), and generally prepared by the IV team, ED nursing staff and others.  Where was the trauma surgeon?  Analogous to the pilot in command, the trauma surgeon was standing in the back, arms crossed, observing the activities of all members of the team, … and … most importantly, …thinking.

All members of the clinical team; nurses, physicians, documentation specialists, dieticians, case managers, therapist, clinical integration specialists, and others need to continue to evolve their roles to enhance the team approach to attaining the most accurate documentation of clinical diagnoses and treatment of every patient to support collaborative efforts to avoid take-backs from the ever-growing denial industry.

About the Author

Paul Weygandt, MD, JD, MPH, MBA, CPE, is a Certified Physician Executive (CPE) with more than 20 combined years of experience in medical management, legal counsel and orthopedic surgery. He has served as a hospital VPMA, improving documentation across all DRG payers. Dr. Weygandt is vice president of physician services for J.A. Thomas & Associates and is a partner in the firm.

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pspencer100As the RAC contractors ready themselves in the bullpen for their entry into complex review of Part B claims, it is expected that physicians will receive many “blasts from the past” as part of the process. To clarify, that is to say they will be revisited by claims issues that clearly have been identified as problem areas in the past, either as part of a CERT or other type of review.

Modifier usage has been a perennial thorn in the side of both physicians and the auditing parties who love them for at least a decade. Of all CPT® modifiers, the twin beasts that are -25 and -59 have wrought a particularly destructive brand of havoc due in part to poor understanding of the modifiers’ definitions and rules for usage. It is the first of these modifiers, indicating a significant, separately identifiable E/M service performed by a physician on the same day as another procedure or service, which I would like to address in this space.

Starting from the Beginning

Let’s start from the very beginning. Appendix A of CPT does its very best to clarify when it is best to utilize this modifier. It states that “...if the patient’s condition requires a significant, separately identifiable E/M service above and beyond the other service provided or beyond the usual preoperative and postoperative care associated with the procedure that was performed,” the usage of the modifier is appropriate. But it is in the realm of “significant and separately identifiable,” and how this is documented in the medical record, where understanding of the proper usage of this modifier begins to break down.

The Establish Patient Returns

As a first example, let’s say that an established patient is returning to your practice for a procedure that was scheduled during a previous visit. In this case, unless the patient presents with a new problem requiring a workup wholly separate from the scheduled procedure, the billing of an E/M service with a -25 modifier is not appropriate. A decision for surgery already has occurred, meaning that all E/M services on the day of (or the day prior to) the surgery are included in the surgical package. If you are a provider who routinely bills a low-level E/M service for established patients on the same date as a surgical procedure, you more than likely can expect a few ADRs from your regional RAC contractor.

One of the most frequent questions I receive regarding the -25 modifier comes from primary care providers. The query poses the following: if a primary care provider has a scheduled yearly preventive visit with an established patient they are seeing at regular intervals for chronic disease management (most often diabetes), can the management of the chronic disease be split from the preventive visit?

The main purpose of visits of this nature goes back to the scheduling of the encounter. If the patient is coming in for a preventive visit, then the appropriate preventive CPT code, based on age, will be the reported component. Because of the comprehensive nature of a preventive visit, which by CPT definition should include “an age- and gender-appropriate history and examination,” it certainly would be surprising if the documentation for a significant and separately identifiable visit can be dictated and clearly recognized in the patient’s medical record.

The Doorknob Patient

One exception to this rule would be what I like to refer to as the “doorknob patient.” Consider a case in which the provider completes a scheduled preventive visit, and believes the visit to be over, when the patient suddenly adds “oh, doctor, while I’m here…..” The patient then details a condition that was not mentioned during the course of the preventive visit. If the provider documents a separate history, exam and medical decision-making process for the patient’s new problem, it would be appropriate to bill an additional E/M service with the -25 modifier. In these cases, breaking out the examination component is going to be a difficult task if an expected full-system exam has been undertaken during the course of the preventive visit.

Remember that for an established patient visit to be reported for billing, only two of the three key components are necessary to determine level of service. Keeping this in mind also will help in the selection of the level of service for the additional E/M code. These rules also would apply to a patient who reports to the physician’s office for a scheduled preventive visit with a previously undocumented illness. Acceptable documentation should include separate history and medical decision-making for the new illness in order to be billed as an additional service.

Automated RAC reviews of Part B claims already have established a trend toward the identification of erroneously billed E/M codes in the global period of surgical procedures. I fully expect the RACs to expand this focus to include modified E/M services when complex review of Part B claims commences in earnest.

About the Author

Paul Spencer is the Compliance Officer for Fi-Med Management, Inc., a national physician practice financial management company based in Wauwatosa, WI. Paul has over 20 years of experience across all facets of healthcare billing, including 6 years spent with insurance carriers. In his current role with Fi-Med, he acts as a physician educator on issues related to E/M level of service and documentation audits by CMS and other outside entities. Paul has carried the CPC and CPC-H credentials from the American Academy of Professional Coders since 1998.

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A review of the ever-changing audit landscape suggests that providers should be prepared for increased Recovery Audit Contractor (RAC) activity in both the Medicare and Medicaid programs in 2011.

Of particular importance is the expansion of the RAC program to Medicare Part C, Medicare Part D and Medicaid, pursuant to the Patient Protection and Affordable Care Act (Affordable Care Act). The act mandates the expansion of the RAC program to Medicare Part C (Medicare Advantage plans) and Part D (prescription drug coverage) by Dec. 31. This is also the date by which states are required to have contracted with one or more RACs to perform audits of Medicaid providers.  States are expected to implement their individual RAC programs by April 1, 2011. CMS recently issued a letter indicating that state Medicaid directors need to submit a State Plan Amendment (SPA) attesting either that the state will establish a Medicaid RAC program by Dec. 31 or that the state will seek an exemption from the requirements. CMS has indicated that exemptions only will be granted under the most compelling circumstances.

States also are required to have adequate processes to handle appeals from adverse audit decisions made by the Medicaid RACs. As long as a state’s existing administrative appeals process (such as one used to handle Medicaid Integrity Contractor (MIC) appeals) is able to accommodate Medicaid RAC appeals, CMS is not requiring states to adopt new administrative review processes. It is important to note, however, that the Medicaid RAC program is active in addition to, not in place of, the Medicaid Integrity Program and audits being conducted by the MICs. Because of the existence of these multiple programs, Medicaid providers are faced with a greater likelihood of audits in the upcoming year.

Expect More RAC Audits

Providers also are more likely to be faced with significant RAC audits during the upcoming months due to the recent introduction of medical necessity reviews in all four RAC regions. Medical necessity reviews allow the RACs to apply a subjective standard to various services, thus creating increased risks for all providers – even those who believe they are billing and coding appropriately. The RACs steadily have been increasing the number of procedures and issues subject to medical necessity reviews. During the RAC demonstration project approximately 50 percent of identified overpayments were related to medical necessity issues.
It logically follows that medical necessity reviews will continue to be a highly targeted area for the RACs, as is evident by the recent approval of five additional and potentially broad medical-necessity approved issues in Region C. These approved reviews also may include the issue of outpatient reimbursement for inpatient denials.

False Claims Liabilities

In addition to expanding the RAC program, the Affordable Care Act also creates new risks for false-claim liability when auditors identify overpayments. The act amended federal law to require that an entity that has received an overpayment must return it and notify the appropriate entity (CMS, OIG, or the carrier) regarding the reason it existed. This must occur no more than 60 days from “the date on which the overpayment was identified” or “the date any corresponding cost report is due, if applicable.” Retention of an overpayment beyond this deadline creates liability under the False Claims Act (31 U.S.C. §3729).

These changes raise many questions for those involved with the RAC audit process, including:

  • Does a denial of an appeal create an overpayment that must be paid back in 60 days?
  • What are the responsibilities for a provider who realizes during the audit process that they received an overpayment?
  • What is the potential liability for a provider who cannot afford to pay back the overpayment?

The Office of the Inspector General (OIG) has yet to offer clarification of many issues surrounding this legislation, including when during the audit process the overpayment return obligations are triggered.   Although the appeals process likely will provide temporary protection from an audit finding being deemed a “known” overpayment, there is some level of risk that the OIG under the False Claims Act could prosecute individuals or entities who do not repay overpayments in a timely manner, especially if there is no good-faith basis for appeal  (e.g., no documentation to support the services provided).

False Claims Act liability is significant. Possible penalties include civil fines of $10,000 for each item or service, an assessment of three times the amount claimed for each item or service, and/or exclusion from participation in the federal healthcare programs as well as any state healthcare programs. Moreover, the mere failure to repay an overpayment (even without False Claims Act liability) can lead to exclusion from the Medicaid program.

As a result of these changes, it is important for entities involved in RAC audits to consider carefully whether at any stage of the process the facts show a known overpayment. If so, the entity should discuss with legal counsel its obligation to pay back the known overpayment promptly, or risk prosecution under the False Claims Act. Also, providers should be aware of this repayment obligation once the appeals process has been exhausted or abandoned.


The Road Ahead

After a year of audit expansion, providers can expect to see increased audit activities as we move into 2011. Providers are advised to prepare for audit activities proactively, to develop an effective process to appeal audit claim denials, and to evaluate the risks and potential penalties related to the retention of a Medicare or Medicaid overpayment.

About the Authors

Andrew B. Wachler is the principal of Wachler & Associates, P.C.  He graduated Cum Laude from the University of Michigan in 1974 and was the recipient of the William J. Branstom Award. He graduated Cum Laude from Wayne State University Law School in 1978. Mr. Wachler has been practicing healthcare and business law for over 25 years and has been defending Medicare and other third party payor audits since 1980.  Mr. Wachler counsels healthcare providers and organizations nationwide in a variety of legal matters.  He writes and speaks nationally to professional organizations and other entities on a variety of healthcare legal topics.

Jennifer Colagiovanni is an attorney at Wachler & Associates, P.C.  Ms. Colagiovanni graduated with Distinction from the University of Michigan and Cum Laude from Wayne State University Law School.  Upon graduation, Ms. Colagiovanni was nominated to the Order of the Coif. Ms. Colagiovanni devotes a substantial portion of her practice to defending Medicare and other third party payer audits on behalf of providers and suppliers.  She is a member of the State Bar of Michigan Health Care Law Section.

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While the Recovery Audit Contractors (RACs) currently only are authorized to investigate a limited number of issues with regard to skilled nursing facilities (SNFs), recent audits by other Medicare contractors tasked with identifying overpayments may shed light on some potential future issues for RACs.

At the time of this writing, the only RAC-approved issues for SNF claims include consolidated billing in Region D, clinical social worker (CSW) services in Region A and ambulance service from one SNF to another in Regions C and D. The consolidated billing issue in Region D requires that the majority of SNF services provided to a beneficiary under a covered Part A SNF stay are included in a bundled prospective payment and are not billed separately.

In Region A, the RACs are reviewing SNF claims to ensure that CSW providers rendering care during a SNF stay are paid under arrangement with the facility and not billed separately under Medicare Part B.  RACs for Regions B, C and D have approved a similar issue related to CSW services, but so far the issue description refers only to services rendered in inpatient hospital stays.   Claims for SNF-to-SNF ambulance transfers, which are under review in RAC Regions C and D, are not payable separately under Medicare Part B. Rather, the SNF discharging the beneficiary is responsible for the cost of the transfer.

While the above issues are the only SNF issues the RACs presently can review, other Medicare contractors continue to audit SNFs on a variety of other matters. Ongoing audit activities by Medicare Administrative Contractors (MACs) and Program Safeguard Contractors/Zone Program Integrity Contractors (PSCs/ZPICs) highlight several areas that likely will receive increased scrutiny in the future: level-of-care issues, documentation and the three-day qualifying hospital stay requirement.

Need to Document Skilled Services

Recent audits of this nature have focused on the issue of whether SNFs are billing Medicare for the appropriate level of care based on the beneficiary's medical condition and services to be rendered. Providers must be sure that they are documenting the beneficiary's need for skilled services appropriately - whether it be skilled nursing, physical therapy, occupational therapy or speech/language therapy - and billing for the various disciplines only when the beneficiary's condition warrants such services.

SNFs also should focus on keeping accurate and complete records in order to justify the resource utilization group (RUG) score billed. Medicare contractors are probing SNF minimum data set (MDS) documentation, as well as the corresponding medical records for the applicable lookback periods, to determine if the provider billed the correct RUG score. It likely is only a matter of time before RACs also mark this as an area of interest.

Three-Day Qualifying Stay

Contractors also are devoting significant time and resources to reviewing whether a beneficiary has met the mandatory three-day qualifying stay at a hospital, and whether he or she was transferred to an SNF within 30 days of discharge from the hospital. While ensuring that the documentation shows that the beneficiary met the three-day stay and 30-day transfer requirements is relatively straightforward, it may be more difficult to demonstrate that a beneficiary had a "qualifying" stay in a hospital.

To be "qualifying," the treatment a beneficiary receives in a SNF must be for a condition for which the beneficiary was receiving inpatient hospital services, or one that arose while the beneficiary was in the SNF for treatment. Providers should be prepared to defend audit denials on this issue. Medicare contractors have been focusing attention on this, and they will deny a claim if the provider cannot show that SNF treatment was for a condition related to a hospital stay. It is also important to note that while Medicare guidance requires that skilled services be provided for a condition for which a beneficiary receives inpatient hospital care that condition does not have to be the primary diagnosis upon hospital admission.

Compliance efforts should be directed toward documenting in a manner that clearly links skilled services provided to a condition for which a beneficiary received inpatient services, or which arose during a hospitalization or associated SNF stay.

Psychiatric admissions raise special concerns with regard to the qualifying three-day stay issue. Medicare guidance states that a beneficiary with only a psychiatric condition is not eligible for Medicare coverage after being transferred from a psychiatric hospital. However, the relevant Medicare manual provision does not address specifically whether a beneficiary with a psychiatric condition can qualify for SNF services after being transferred from a non-psychiatric hospital.

SNF providers are well-advised to implement compliance measures addressing these issues not only to reduce the risk of audit by the MACs, PSCs and ZPICs, but also to reduce risk should the RACs gain approval for these issues in the future.


About the Authors

Amy K. Fehnis a partner at Wachler & Associates, P.C.  Ms. Fehn is a former registered nurse who has been counseling healthcare providers for the past eleven years on regulatory and compliance matters and frequently defends providers in RAC and other Medicare audits.

Jennifer Colagiovanni is an attorney at Wachler & Associates, P.C.  Ms. Colagiovanni graduated with Distinction from the University of Michigan and Cum Laude from Wayne State University Law School.  Upon graduation, Ms. Colagiovanni was nominated to the Order of the Coif. Ms. Colagiovanni devotes a substantial portion of her practice to defending Medicare and other third party payer audits on behalf of providers and suppliers.  She is a member of the State Bar of Michigan Health Care Law Section.

Christopher J. Laney is an attorney at Wachler & Associates, P.C. He graduated Cum Laude from Wayne State University Law School in 2010 where Mr. Laney served as an Associate Editor of The Wayne Law Review. Mr. Laney counsels clients in areas of healthcare law.

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To read article entitled, "Don't Let LOS Denials Turn Into LOSSES from RACs," please click here

pspencer100If you thought the current appeals process for Medicare RAC determinations created plenty of angst and extended travail, get ready for more than 50 distinct appeals methods for programs across the nation if the proposed rule from The Centers for Medicare & Medicaid Services (CMS) becomes final.

In a last-minute news dump Friday afternoon, CMS unceremoniously released the proposed rule regarding RAC activity tied to Medicaid programs nationwide. Much of the information in the proposed rule mirrors what was learned with the release of the first preliminary guidance letter from CMS to state Medicaid directors on Oct. 1.

Section 6411 of the Patient Protection and Affordable Care Act (PPACA) requires states to contract with one or more Medicaid RACs by Dec. 31. States by this date also are mandated to submit a State Plan Amendment (SPA) indicating the initiation of the Medicaid RAC program, along with being required to pay contingency fees to their respective contractors. The goal of the proposed rule is a Medicaid RAC implementation date of April 1, 2011, and CMS is seeking comment on this date.

States can request an exception from any part of the Medicaid RAC program, but the proposed rule reiterated that CMS foresees granting exceptions “rarely, and only under the most compelling of circumstances.”

Contingency Fees

The proposed rule requests comment on current methodologies for determining the maximum contingency fees allowed under the Medicaid RAC program. Unless a state provides ample justification for an exception based on existing state law, no state will pay a contingency fee higher than the maximum allowed under the Medicare RAC program, which is currently 12.5 percent for a five-year period ending July 1, 2014. If state law mandates a higher contingency fee for similar services, a federal match will not be paid to the state plan on any amount above the Medicare RAC fee maximum.

As is the case with the Medicare RAC program, states must amend their plans to provide incentives for the identification of underpayments to Medicaid providers. The total combined contingency fee paid to the Medicaid RAC for underpayments and overpayments cannot equal more that the total amount of overpayments collected by the contractor.


In reporting the value of collected overpayments, states under the new rule would report only the net amount after payment of contingency fees to the contractor is subtracted. After this amount is determined, each state is required to refund the federal share of the net overpayment amount to the federal government. The proposed rule also would require that states issue reports describing the effectiveness of their Medicaid RAC programs.


The proposed rule aims to give states options regarding setting up appeals processes for providers. Rather than taking one standardized Medicaid RAC appeals approach, CMS is requesting comment on giving states the option of either utilizing an existing process for appeals of RAC determinations or creating a new one specifically tailored to an individual state’s RAC program. These particular passages in the proposed rule have the potential to create more than 50 distinct appeals processes: one for each state and territory covered by the Medicaid program.

Coordination of Audit Efforts

The proposed rule once again makes clear that the establishment of a Medicaid RAC does not nullify existing audit efforts by state plans. Going further, states are expected to mandate coordination efforts between the Medicaid RACs and other audit entities to minimize the risk of overlapping audits. CMS wishes not to jeopardize the outcome of ongoing fraud investigations via duplication of efforts.

There are multiple passages in the proposed rule about state plans and language in their Medicaid RAC programs regarding fraud and abuse referrals. CMS is finding that the Medicare RACs, due to the existence of financial incentives for identifying overpayments, generally are not referring suspected cases of fraud to CMS for further investigation.

Comment Period

The publication date of the proposed rule is Nov. 10, meaning that the public comment period will remain open until Jan. 9, 2011.

About the Author

Paul Spencer is the Compliance Officer for Fi-Med Management, Inc., a national physician practice financial management company based in Wauwatosa, WI. Paul has over 20 years of experience across all facets of healthcare billing, including 6 years spent with insurance carriers. In his current role with Fi-Med, he acts as a physician educator on issues related to E/M level of service and documentation audits by CMS and other outside entities. Paul has carried the CPC and CPC-H credentials from the American Academy of Professional Coders since 1998.

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pspencer100In anticipation of the RACs' inevitable investigational expansion of complex reviews into physician services, experts in the industry, as well as CMS itself, have turned our attention to the Comprehensive Error Rate Testing (CERT) reports.

These reports are a good indicator of what services require additional scrutiny, but there are a few items that fall between a CERT and a RAC that further narrow the focus of eventual investigations. In my eternal quest for additional information, I came across one such type of study recently, the results of which illuminate the world of physician RAC audits like an H-bomb test on Bikini Atoll.

WPS, the current MAC for Jurisdiction 5 (covering Iowa, Kansas, Missouri and Nebraska) and the legacy MAC for Illinois, Michigan, Minnesota and Wisconsin, jointly released the results of a Service Specific Probe of CPT code 99214 for the specialty of family practice.

Overall, 100 such services randomly were selected for prepayment review. Of these, 52 were allowed as billed following documentation review. Based on the utilization rate of this code for family practices nationwide being somewhere between 37 and 38 percent of all established patient E/M services, that number appears off. Keeping in mind the internalized belief that we learn from our mistakes, I now present the results of the remaining 48 claims.

The Basics

Eleven claims were down-coded based on the documentation provided. To briefly review, a level-4 established patient visit requires that two of the following three elements be present in the documentation:

  • Detailed history
  • Detailed examination
  • Moderate medical decision-making

While not specifically stated in the CMS E/M guidelines, with established visits it is always a good idea to have medical decision-making be one of the two elements selected. I recommend this based on medical necessity most often being defined by treatment options selected for the condition being treated. Even for a patient with a list of co-morbidities written on a three-foot scroll, if he or she has a bit of a rash, the greatest history ever taken and an examination and auscultation of every square inch of the body, the patient still is receiving treatment for a bit of a rash, and the E/M code selection needs to reflect this.

Two of the claims in the study were determined not to support the billing of an E/M service based on the documentation forwarded by the providers for review. If I had to venture a guess, I would say that these were related to encounters in which a minor procedure was planned via scheduling, the patient presented for the procedure and the physicians in question billed both a procedure and an E/M service.

Poor Physician Response

The remaining 35 claims represent a different kind of hurdle for physician practices. These claims were denied outright because the providers did not submit requested documentation of services within the allotted 45-day period. This study included only 100 claims. If we expand that number out by a few zeroes and then extrapolate that 35 percent of physician complex review requests either will be mishandled or ignored, the obvious conclusion is that by virtue of their faulty internal practices, physicians are doing the RACs' work for them. Who knew doctors had this level of time and altruism on their hands?

Previous Studies

It is important to note that this news comes on the heels of two other service-specific WPS probes of CPT code 99233 (level 3 subsequent hospital visit) for the specialties of cardiology and internal medicine. In the cardiology probe, a stunning 97.24 percent of services were billed incorrectly based on the documentation for the service. Of the incorrect claims, 25.5 percent were denied for insufficient or incomplete information in received documentation, 16.3 percent were re-coded to a lower level of service and a whopping 54.6 percent were denied for lack of response to the documentation request. The remaining 3.6 percent of claim errors in the cardiology study were deemed not to be subsequent hospital visits but a completely different category of E/M service.

The internal medicine probe revealed 75.7 percent of services reviewed being billed in error. Of the incorrect claims, 29.3 percent were denied for insufficient or incomplete information in received documentation and 5.5 percent were re-coded to a lower level of service. The percentage of services denied for lack of response to the documentation request topped out at 65.2 percent.

Part A providers knew the RACs were coming, and any facility worth its salt set up processes long ago to respond to requests. It is my personal belief that a connection can be made between provider readiness for RAC audit requests and the as-yet high success rate of appeals of RAC decisions by Part A providers. A physician practice, in most cases, lacks the organizational infrastructure to prepare to respond in the same way, however. A solution to response readiness is not - and in many ways, cannot - be a one-size-fits-all proposition. A good start would be educating administrative staff to be able to recognize a RAC request upon receipt.

With a 48 percent error rate in this limited probe, it is safe to say that high-level established patient visits now officially are warming up in the RAC bullpen. A surprise occurs when you never see it coming. Like the relief pitcher who replaces the obviously tired starter, we saw them warming up.

The RACs, in the same manner as the next pitcher jogging in from the outfield, are easy to see.

About the Author

Paul Spencer is the Compliance Officer for Fi-Med Management, Inc., a national physician practice financial management company based in Wauwatosa, WI. Paul has over 20 years of experience across all facets of healthcare billing, including 6 years spent with insurance carriers. In his current role with Fi-Med, he acts as a physician educator on issues related to E/M level of service and documentation audits by CMS and other outside entities. Paul has carried the CPC and CPC-H credentials from the American Academy of Professional Coders since 1998.

Contact the Author

fcohen100From the perspective of undergoing an audit by a RAC (or any entity, for that matter), it is important to understand the drivers that pointed to your organization in the first place. Was it due to overuse of certain codes? Were there some aberrant billing patterns that grabbed someone's attention?

Maybe you just have a large practice and the auditing agency knows that due to the overwhelming complexity of merely operating it, you provide a gold mine of possible coding and billing errors. But after the audit has been conducted, knowing the "why" somehow seems to lose importance once you are facing the possibility of a large overpayment demand. In the movie "Dennis the Menace," after Dennis had created a mess (as he usually did), Mrs. Wilson was telling Mr. Wilson about how sometimes, things just happen. But Mr. Wilson responded as many of us feel, saying "in a crisis of this magnitude, there must be someone to blame." And while at some point you will want to address this in order to manage future risk, the task at hand is to mitigate whatever damage already has been done.

From the RAC's perspective, there are two principle components to an audit: qualitative and quantitative. Qualitatively, they review the charts and/or other medical records and documentation.  Quantitatively, they determine how much was paid to the practice in error, which translates to how much they say the practice needs to pay back. These two principle components contain a plethora of far more complex tasks, and while both are of equal concern, I will leave the first to the more qualified coding community. In this article, I want to discuss the second component: determining the damage estimate.

Three Step Process

Step 1:

There are three major steps involved in performing the overpayment estimate, and interestingly enough, the first step begins long before the documentation review is initiated. The RAC begins by selecting what they often refer to as a Statistically Valid Random Sample (SVRS). "Statistically Valid" refers to the sample size (whether it is large enough to be representative) and type (whether it is aggregated or stratified), and "Random Sample" refers to the method used to select which entities will be reviewed.

Rarely have I seen an audit that actually was genuinely statistically valid, and surprisingly, I have almost never seen one for which the sample was truly random. As it pertains to the latter, if the sample is not random, it can have a huge effect on the outcome of the audit. The audit could be focused on claim lines, on claims (which contain the claim lines), members (which could contain multiple claims), or even treatment events (which could contain multiple members). After the sample is selected, the audit begins, involving a qualitative analysis of any number of criteria. Most recently, I have seen audits through which the RAC representative is determining the medical necessity for the diagnostic test or treatment. In many cases, they are looking to see whether the documentation is adequate enough to support the reported procedure code. In any case, the purpose is to make a judgment as to whether the amount paid was done so appropriately or in error.

Step 2:

We now begin the second part of the damage analysis: calculating the point estimate for overpayments. To many, this seems like a pretty straightforward and simple process: add up the estimated overpayments and divide by the number in the sample, then calculate the average. For example, let's say that 30 charts are selected for review. Of these, the RAC finds that 15 of them resulted in a combined overpayment of $4,275. What does this mean? Well, it could mean that the average overpayment is $142.50 per chart. Or it could mean that there is an average overpayment of $285 per overpaid chart, which, in our example, is about 50 percent of all charts. In some cases, the auditor may extract the number of claims per chart or, when claims are the target of the audit, the number of claim lines per claim. As another example, let's say that, in the sample selected, there is an average of 4.6 claims per chart reviewed. The auditor then might estimate that there is an average overpayment of approximately $31 per claim (138 total claims in the sample divided into the overpayment amount of $4,275). My experience is that the auditor normally will use whichever method biases the results in their favor since they are, after all, paid a commission on what they recover. On many occasions, I have asked the RAC to tell me about its methodology, and the answer I normally get is that this is a "trade secret" - hardly the response I would have expected from an unbiased federal contractor.

Step 3:

The final step is to extrapolate the results of the audit to the universe of charts (or members, or claims, or claim lines, etc.) of the entity being audited. Let's follow up on our example above to see just how an extrapolation audit might occur. Let's say that, for this practice, there are a total of 3,600 charts within the practice universe and of these 30 had been selected for review. If we accept the estimate of $142.50 per chart as the overpayment amount, then we would multiply this figure by the total number of charts in the universe (3,600) to get a total overpayment estimate of $513,000. If we were to use the overpayment estimate of $285 for each damaged chart, which accounted for 50 percent of all reviewed charts, our point estimate would be the same ($285 X (3,600 X 50 percent). Even if we were to use the estimate of claims per chart, we would end up with about the same (4.6 claims per chart X 3,600 charts = 16,560 claims X $30.97 per claim).

It's in this step, the extrapolation estimate, that we see how the entire model begins to break down. First of all, what if the sample was not random? For example, what if, in our sample, the number of claims per chart was significantly higher than it was for the universe? For example, in the sample we saw 4.6 claims per chart, but what if, in the universe of charts for our practice, the average number of claims per chart was only 3.2? More than likely that would mean that the overall estimate of overpayment per chart is less than what was estimated using the sample. How significant is that?  Well, if we estimated $31 per claim and there were only 11,520 claims, instead of the 16,560 estimated from the sample, the damage estimate would have been $356,774 instead of $513,000. And if the number of claims lines per claim (and hence per chart) was even smaller, the estimated overpayment of $513,000 would be even more egregiously overestimated. Even if the sample was in fact random and did in fact accurately represent the universe for the practice, there is always the risk of sample error, which mostly is dependent on the size of the sample.

The concept is actually quite simple: the smaller the sample, the greater risk for potential error when inferring to the universe. Conversely, the larger the sample size (assuming randomness, of course), the lower the risk for potential error is. For example, if I want to figure out who Americans are going to vote for in the next presidential election, I only would have to survey 783 people to have a 5 percent margin of error either way. If I wanted to narrow that to 3 percent, I would need to nearly triple the sample size to 2,178 people, and if I wanted to be accurate to within 1 percent, I would have to ask 19,620 people. In the case of a RAC audit, these estimates of sample error come after the audit (aposteriori) and not in advance (apriori). As such, our point estimate of overpayment, no matter how it is calculated (charts, claims, claim lines, etc.), is subject to sample error - and the smaller the sample, the greater the potential error. Because of this, most auditors will base their overpayment demands on the lower boundaries of what is called the Confidence Interval, or CI. The CI is an estimate of the level of confidence we have that the number we have calculated is accurate. For example, when the auditor calculated that the average overpayment per chart was $142.50, s/he based this on their findings of the total overpayment divided by the number of charts (30), which in this case is our sample size. Using a statistical package such as SAS, MiniTab, SPSS or even MS Excel, we would calculate that, using a confidence interval of 90 percent, the range of our estimate is actually somewhere between $113.10 and $171.90. We also can say this in two ways. For one, I can say that I am 90 percent confident that the real average overpayment per chart for the universe of charts in my practice is somewhere between $113 and $172. Another way to look at this would be as follows: if I took 100 samples of 30 charts and conducted the same tests, for at least 90 of those samples the true average would be somewhere between $113 and $172.

In its simplest form, this means that there isn't any statistically significant difference between these values. As such, for most government audits (and private audits, for that matter), the auditing agency tends to favor using the lower boundaries of the confidence interval to estimate the overpayment demand, as this eliminates much of the need to negotiate based on the statistical part of the audit (at least from their perspective). So, in our example, instead of a point estimate of $513,000, the overpayment demand more likely would be $407,160 ($113.10 X 3,600).


In summary, there is a lot a practice can do to defend itself against improper use of statistics when undergoing a RAC audit. First of all, you can do a basic test to determine the randomness of a sample. Try this: calculate the average paid amount per unit within the sample and compare it to the universe of units. Let's say you calculate that the average paid amount per claim for your practice is $525, but in the sample, it's $750: that's a problem. In this case, it is likely that the overpayment estimate per claim for the sample will be biased upwards, resulting in an overpayment demand that is unreasonably high. I would do the same with other metrics, such as claims per event, or claim lines per claim, or even RVUs per event. The second point is to make sure you validate the point estimates that are being reported by the auditing agency. Know when to use a median rather than a mean. Make sure that an estimate is based on the total sample, not just the portion for which the units were found to be overpaid. Finally, verify the extrapolation calculations. Make sure that they include a confidence interval calculation and verify that it was done correctly. Demand the data in a usable format such as an Excel file rather than some fuzzy, poorly imaged PDF file that many prefer to provide (for obvious reasons).

It's up to you to decide just how far you want to go to defend yourself against a RAC audit. If the numbers are low, you may choose to go down without a fight. But if they are high and you have as much to gain as you do to lose, consider working with a statistician or someone who is experienced with statistical analyses.

It's your money, and it's your choice, but as my attorney friend would always end his letters, govern yourself accordingly.

About the Author

Frank Cohenis principal and Senior Analyst for The Frank Cohen Group, LLC.  He is a certified Black Belt in Six Sigma and a certified Master Black Belt in Lean Six Sigma. As a consultant and researcher, his areas of expertise include data mining and analysis, predictive modeling, applied statistics and evidence-based decision support.

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