May 20, 2009

Preparing for RACs: Take Your Financial Vital Signs

By

sdonio120dsgkelleyBy Samuel A. Donio, Jr., MBA, and George L. Kelley, MS, MBA

 

As the reality of RAC reviews sets in, concern for identifying a tangible dollar impact is beginning to move to the forefront of the minds of the C-Suite.

 

Up to this point, impacted facilities have used various means of gauging such impacts - ranging from somewhat "scientific" methods to throwing darts at the wall.

 

Most have not been very effective. As the reviews get closer, now is the time to take a more formal approach to establishing this elusive number. Based on our experiences, a good approach to "dollarizing" your RAC risk should have the following components:

 

  • Establish vulnerabilities: make a solid estimation of the number of at-risk cases for your facility based on known RAC targets

 

  • Ask yourself: how do you stack up when it comes to your facility's performance? Do the cases meet criteria, and will they "pass" RAC review?


  • Determine your ability to "harden": for those cases that initially do not meet criteria, do you have the resources to "harden" those records?



  • Using these guidelines, establish a range of sensitivity upon which to base your dollar amount

 

Employing these methods can help put you on the right path to establishing a realistic, fact-based financial estimate.

 

Establish Vulnerabilities

 

The first step in understanding your financial exposure to the RAC review process is to establish what services, DRGs and cases are at risk for being targeted. Without this important step, any financial analysis amounts to nothing more than a "shot in the dark."  Understanding specific areas of vulnerability enables you to remedy them and begin to better identify and assess risk areas.

 

How Do You Stack up?

 

The next step is to evaluate how your areas of vulnerability actually hold up under the scrutiny of review. Even though your facility may have a significant number of problem areas, this does not necessarily indicate that all of the cases identified will require a payback. The only way to determine where your facility truly has a financial vulnerability is to thoroughly review each identified case to establish a level of exposure.

 

Ability to "Harden"

 

Once you have established specific problem areas and have a good idea of the number of cases for which your facility may be financially vulnerable, the next question to ask is "How many of those cases can be "hardened?" A review may indicate that a large number of cases, as they currently are presented, do not meet criteria. The process of "hardening" a record enables a facility to collect and present existing documentation in support of the case to demonstrate to an outside reviewer why a course of action was taken for a patient. Often times, some information that would support such actions is not readily available in the patient's record, were never included in the record, or are not an official part of the record -- but the information does exist. The goal in this step of the process is to determine how many of the cases that do not meet criteria can be strengthened to hold up under review.


 

Establishing a "Range of Risk"

 

In our experiences with many facilities nationally that have undergone this process, we easily can establish a range of risk once a review of data has been conducted.

 

Based upon identification of cases in each area of vulnerability (i.e. inpatient coding, medical necessity, outpatient services), the level of estimated risk and range of risk (established specific risk levels for each area, established range of risk for each area), and an overall reimbursement amount, dollar ranges can be assigned.

 

Assume that a facility has 149 out of 987 cases, or 15.1 percent, in a certain sample that trigger a risk variable.  Within this sample, there is a low and high range of risk. Based upon our experience and the facility's mix of cases in each area of vulnerability, on the low risk range, 28 cases (2.8%) likely would fail audit, while on the high risk range 65 (6.6%) cases likely would fail. Annualized, this translates into a low range risk of 165 cases and a high range risk of 388 cases.

 

Low Range Risk                                                            High Range Risk

Sample                         987                                                   987

Risk                               149                                                   149

Likely to fail                    28                                                     65

Percentage fail            2.8%                                                 6.6%

Annualized                   165                                                   388

Estimated Reimb.         $5,640                                            $5,640

 

Risk                        $  930,673                                               $2,188,491

 

This range of risk can be stratified further by applying the findings of your "hardening" review. If the facility has good documentation and average organization, assume that "hardening" would work in 80 percent of the cases. If its documentation is average and its organization is not any better, assume "hardening" will work in 60 percent of the cases. If its organization is good, but its documentation is poor, assume "hardening" will work in 20 percent of the cases. If you feel that "hardening" will not help in most cases, assume no adjustment.

 

Hardening Low Range Risk                             High Range Risk

Risk                      $  930,673                              $2,188,491

80% Improve        $ 186,135                                      $   437,698

60% Improve        $ 372,269                                      $   875,396

20% Improve        $ 744,538                                      $1,750,793

No Improve           $ 930,673                                      $2,188,491

 

For this facility, the range of exposure varies greatly based on how well-prepared it is for RAC review, existing volume in the targeted RAC areas, and how well it fares when cases are reviewed. The financial exposure without any record "hardening" can vary from $900,000 to $2.1 million. When such adjustments are factored in, the exposure can range from as little as $186,000 to as much as $1.7 million.

 

The reality of RAC financial exposure lurks in the details. A detailed analysis presents realistic tangible ranges upon which the C-Suite can base a financial exposure. Without this level of analysis, a guesstimated financial impact remains just a shot in the dark.

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About the Authors

 

Samuel A. Donio, Jr., MBA, is the President of CBIZ KA Consulting Services, LLC. An authority on sound and compliant healthcare financial management, Mr. Donio has developed numerous products and services to meet the ever-changing needs of healthcare providers.

 

George L. Kelley is the Chief Operating Officer for CBIZ KA Consulting Services, LLC. He is a nationally recognized speaker noted for his expertise in discussing the many topics that impact healthcare financial professionals including the Medicare outpatient prospective payment system, Recovery Audit Contractor (RAC) Preparation and HIPPA Readiness.  Additionally, he assists clients in increasing net revenues by recovering managed care underpayments and recalibrating charging structures to ensure his clients receive the highest level of reimbursement.

Samuel A. Donio, Jr., MBA

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