Updated on: June 22, 2012

The RAC “Freeze” on Medical Necessity Reviews

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Original story posted on: June 3, 2009
dennisJones

By Dennis Jones


On Thursday, May 28, the AHA News Web site broke the following bit of happy news: "The Centers for Medicare & Medicaid Services does not expect its Medicare recovery audit contractors to conduct complex reviews for medical necessity of hospital services until 2010."


"This is great," you might have thought. "Finally, CMS and the RACs are showing a little common sense and (dare I use the word) empathy. They have recognized the plight of the providers and have cut us all a break by deciding to wait until 2010 to introduce the complex issues involved in medical necessity review, recoupment and appeal."


Although this is indeed good news, let's not get carried away estimating the benevolence of CMS and the RACs. If George Costanza were a spokesperson for CMS, he would assure you, "It's not about you, it's about me."


First, let's note that this also is not exactly news. CMS went on record almost a year ago with the statement that the permanent RACs would begin with automated reviews. In a presentation at the National RAC Summit in Washington D.C. this past February, the RACs stated that they would start with "black and white" issues. Pressed for what that meant, David Yim, vice president of DCS, stated that DCS intended initially to address automated reviews and clearly incorrect coding issues.


What CMS has done in announcing that they do not "expect" the RACs to conduct medical necessity reviews until 2010 is to semi-officially define for us how long the start-up time for the RACs will be. It seems that 2009 will represent the warm-up period, and in 2010 we will get a better idea of what the RAC Audits will be in the long run.


Why Wait until 2010?


So if they aren't simply being considerate to providers, why are the RACs "expected" to wait until 2010 to begin medical necessity reviews?


To begin with, the compressed RAC implementation schedule that was forced by the PRG-Schultz/Viant contract protest has to be putting quite a strain on CMS and the RACs. With each RAC orchestrating a virtually constant implementation between now and the end of 2009, participating in RAC Outreach Education and dealing with MAC/RAC "blackouts,"
they will be hard-pressed to meet the January 1, 2010 implementation date required by the Tax Relief and Healthcare Act of 2006. Automated reviews require only the understanding of Medicare and related guidelines (no 10-account samples are required to be approved by Provider Resources, Inc. (PRI), the RAC Validation Contractor) and some good old-fashioned data mining. Then the demand letters go out and the revenue (around 9 percent to 12 percent, anyway) comes rolling in: simple, clean, and most importantly, with very few opportunities for appeal.


This is critical for the RACs. Did you ever wonder how in name of Gregory House, M.D. the RACs' medical directors are going to be able to handle the "discussion" calls and appeals from the seven to 17 states in their RAC regions? Well, so have they. And in the early stages of RAC implementation, they have decided to stick with the practically undeniable "black and white" recoupment issues. Payment for three colonoscopies in one day? That will be on the list. Line sepsis coded as anything other than the principle diagnosis? That's on the list. A 67-year-old named Stanley giving birth via caesarian section? That's definitely on the list (with the rest of the medically unlikely edits.)


Even assuming that most communications in the "discussion" process will not be carried out by the RAC's medical director (they won't, because they can't), the RACs and their subcontractors will be hiring nurses and certified coders for quite some time to handle complex reviews and "discussions."  But now they have until 2010 to get fully staffed and operational.



Reason for Change


Perhaps the major reason that the RACs are in no rush to conduct medical necessity reviews, I would venture to guess, is related to a major change between the RAC demonstration and the permanent RAC methodology.  As we all know, during the RAC demonstration, RACs got to keep their contingency fees if the recoupment was overturned at any level other than the first level of appeal. We saw the result of this policy: the RACs were very aggressive and perhaps a little too reliant, in some cases, on technicalities. Everyone has heard the anecdotal story of the hospital that lost millions of dollars to the recoupment of inpatient stents and ICDs, only to recover most of those millions in the appeal process. If the RACs gets to keep their cut of the original recoupments, they just might keep on auditing these cases until someone stops them.  But if you have to return your contingency once the recoupment is overturned at any level, what would be the point?


This issue certainly has not eluded the folks in the RACs' finance departments, and be assured, the RACs have been presented something much better than the anecdotal accounting of the medical necessity issues available to providers (has anyone seen an updated, dollarized revision of the RAC demonstration appeal statistics?) CMS has maintained a RAC-Identified Overpayment Vulnerabilities Report that breaks out, issue-by-issue, the gross and net recoupments collected by each of the demonstration RACs.  This report lists an issue (e.g., ASC list violation) and then breaks out the number of cases and dollars recouped; the number of cases and dollars appealed and decided at each level of appeal; and the resulting net dollars collected during the cumulative RAC demonstration.


As providers got savvy to the RAC appeal process, they began to submit and win many more medical necessity appeals. These results, especially those coming late in the RAC demonstration process, probably have presented the RACs with some difficult decisions.


To recoup or not to recoup? For many medical necessity issues, this may not have been a question for 2009, but for the entire future of the RAC program.


About the Author


Dennis Jones is a billing and reimbursement consultant. While Dennis is recognized as a leading RAC issues expert, his expertise covers a wide variety of topics including Managed Care, Uncompensated Care, Medicare and Medicaid Compliance, HIPAA, and Process Improvement. As a result he has spoken previously for NJHA, World Research Group, and various state chapters of HFMA, AAHAM, and AHIMA.


Dennis is a past-president of the New Jersey Chapter of AAHAM and has held senior management positions in provider, IT vendor and reimbursement consultant arenas. He is a graduate of the Pennsylvania State University with a degree in Health Planning and Administration and hopes to be able to afford season football tickets some day.

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