May 3, 2012

RAC Audits and Appeals: A Case to Disband the RACs

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This morning I read a great RACMonitor.com article, titled "What Happens when RACs Don't Hold Up Their End of the Deal?, and it just fueled my already stimulated adrenal glands.

Even within the business of healthcare, there should be a type of mystical harmony that follows the flow of the universe. Ok, maybe not quite that dramatic; but it would seem that the RACs, just like the providers, should be required to follow the rules. In this article, Amanda Berglund of Pace Healthcare Consulting (pacehcc.com) expressed, in far more calm and eloquent terms than I could hope to, the inequity and injustice regarding RAC rules and regulations.

Unsurprisingly, the article indicated, while providers are held to the letter of the law, the RACs are not. It would seem that, in representing the concept of complementary rather than opposing forces, the rules and regulations would lead to a sort of equanimity within the system. See, if a provider, which has expended resources to provide quality care to a patient, makes a coding mistake connected to a certain service or procedure, the RAC swoops in to make sure that they don't get to keep the money they received. And in a system in which there seem to be more rules and regulations than protons in the known universe, it is virtually impossible to get it right all the time.

It is important to note, however, that just because some administrative error occurred, it doesn't mean that the provider didn't provide a benefit to the recipient - only that the provider didn't report that service or procedure appropriately (whatever that means!) You would think that, with so many calls for civility in government, when an agency responsible for stealing hard-earned dollars from healthcare providers commits an error in the process, the provider would be given the benefit of the doubt in turn.

But when you are a commissioned salesperson (the RAC auditor) and your livelihood depends on how much money you can squeeze out of the doctor or the hospital, I can understand why there is no "benefit" to such doubt. It would seem that the rule of thumb is to err on the side of the RACs, even when they are responsible for the "err."

At the Fi-Med RAC Summit held in Milwaukee last week, my friend (and brilliant litigator) Thomas Force, Esq., gave the best demonstration of how to deal with these types of situations by reenacting a scene from what should be his new hit television series (called "Small Claims Court with Tom.") The bottom line is this: even when we are right, the force (not Tom) is against us. There is a Yang without the Yin, and not only does that fail to fulfill the purpose of the RACs, which is to recover payments that were legitimately made to providers in error, it just increases the trust gap (or chasm) that continues to grow between the government and healthcare providers. In fact, the majority of the presenters at the conference were there to help providers understand what to do when their rights are violated. How sad! You'd think we could focus more of our time on ways to improve quality or to become more efficient or increase accessibility of care. Instead we filled nearly two full days with more important issues, like how to defend against a finding of impropriety, how to make sure that an auditor isn't jacking up an overpayment demand by "lying with statistics," or even how to prepare yourself for the audit crisis before it even happens.

There's good news, though! There is a point to all of this, and here it comes. Recently I completed a survey on RAC audits and appeals to try to get a handle on just how out of control this whole RAC process has become, and while not necessarily surprised with the results, I was disappointed.

First, I wanted to know how many practices had undergone a RAC audit specifically for medical necessity issues during the past year. Fifty percent of all practices subject to a RAC audit were audited on medical necessity. In fact, when the survey results were compared to those of our survey conducted in February 2011, we saw a statistically significant increase in the number of practices subject to a RAC audit for any reason. For each audit, the median number of claims reviewed was right around 30. About 63 percent of respondents said that overpayment demands originated from one or more medical necessity questions.

Importantly, I also wanted to know to what extent practices appealed the overpayment findings, the costs of the appeal and the overall outcome. Thirty-four percent said they appealed between 91 and 100 percent of all findings, with an average of around 50 percent of all overpayments findings being appealed. When asked about the cost of appealing a single claim, the range was pretty wide, with responses ranging from under $25 to more than $200. By weighting the results of this question, I calculated the average cost per claim to be around $110.

And to top it off, in somewhere around 50 percent of appeals, the finding of overpayment was reversed in favor of the provider! But that's not the part that got my adrenaline pumping. Forget the fact that the RACs are wrong in their findings half the time. Looking at the 2011 survey and using a bit of mathematical ballet, I estimated overpayments per claim to be $86.  Do the math: that means that the average impact of a SUCCESSFUL appeal still COSTS the practice $24. No wonder there are so few practices that actively appeal the claims. Take a minute to really let this sink in. RACs are not bound to the rules like providers are. They are paid a commission to recover as much as possible. They have no incentive whatsoever to conduct themselves in an honest and ethical manner. And they push the limits to such extremes that half of their findings are reversed on appeal. This is so wrong on all levels that my real surprise is that it continues unabated.

Let's put this calf back in the barn. According to a study conducted by SK&A (a Cegedim company), there are approximately 230,000 medical practices in the United States. Conservatively speaking, if only 25 percent were subject to a RAC audit, this would equate to 57,546 practices.

 


 

Based on our survey, this would mean that approximately 1,726,402 claims would be reviewed, with a finding that 1,329,329 were paid in error, for a total overpayment of $114,322,373 (excluding any additional results of extrapolation audits). Fifty percent of these (664,665) would be appealed at a cost of $73,113,095, resulting in a net loss of $15,951,960. The bottom line is this: when you factor in the cost of the audit and the net loss to the practice, the unchecked and unsupervised actions of the RACs increase the cost of doing business for a typical medical practice by $641. While this may not seem like a lot, remember that the purpose of the RAC was to recover dollars that were paid inappropriately, thereby reducing the overall cost to the government for the Medicare program. We haven't even addressed the issue as it pertains to hospitals, where the reversal rate on appeal is closer to 70 percent and the cost of appealing is significantly higher.

I don't oppose the concept of audits to recover truly improper payments. In fact, I support doing everything we can to improve the quality of healthcare, reduce costs and increase access - as long as everything is legal, ethical, moral and fairly applied. And from what I see, putting a system like that in place completely eliminates the RACs! My recommendation, besides beating a pillow with a bat, is in line with those suggested by Ms. Berglund in her excellent article. Report any and all violations and suspected violations to CMS, the RA and the MAC. In addition, take advantage of physician advocacy groups like the American Medical Association, American Hospital Association, Medical Group Management Association and others.

Unless providers do something to combat what I see as probable RAC fraud and abuse, it will not only continue, but it will get worse.

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.

Contact the Author

frank@frankcohengroup.com

To comment on this article please go to editor@racmonitor.com

Frank D. Cohen, MPA, MBB

Frank Cohen is the director of analytics and business intelligence for DoctorsManagement, a Knoxville, Tenn.-based consulting firm. Mr. Cohen specializes in data mining, applied statistics, practice analytics, decision support, and process improvement.

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