June 1, 2011

Top Reason for RAC Denials: Lack of Medical Necessity in Wrong Setting

By

spencerCThe American Hospital Association (AHA) continues to collect and report valuable data from its web-based RACTrac survey.

 

As summarized below, its May 20, 2011, report includes new findings from the first quarter of 2011, including the fact that lack of medical necessity is the top reason for claim denials by Recovery Audit Contractors (RACs).

The number of hospitals participating in the survey continues to increase, and 1,960 have submitted data since the start of the project in January 2010. Of that total, 84 percent reported RAC activity in the first quarter of 2011.

 

Most RAC activities continue to occur in general medical and surgical acute care hospitals (1,317) with critical access hospitals coming in next (212). Audits of the following types of hospitals are minimal at the moment: long-term acute care, inpatient rehabilitation, psychiatric, children's, and "other" types (such as cancer and other specialty hospitals, etc.).

 

As always, the AHA collects data on denials from automated reviews, which use computer software to detect improper payments, and denials from complex reviews, which use human evaluation of medical records and other documentation. The survey also asks for data on the number of medical records RACs are requesting, underpayments, appeals, and the administrative burden on providers of the reviews.

 

Complex Reviews: Top Denials

 

Medical necessity denials came in at 57 percent in the last quarter of 2010, and now they're 84 percent. In the last quarter of 2010, inpatient coding led the way in reason for denials with 81 percent of total reported. That percentage dropped 10 points to 71 percent for the first quarter of 2011.

 

As the AHA stated in its Executive Summary, "The majority of medical necessity denials reported were for 1-day stays where the care was found to have been provided in the wrong setting, not because the care [was] medically unnecessary." Statistics also showed these denials were due to the following:

 

  • Short stay (53 percent-change from 33 percent);
  • Other (25 percent-change from 19 percent); and
  • Longer than three days (7 percent-change from 5 percent).


Denials due to inpatient coding errors declined in the first quarter of 2011 (to 71 percent from 81 percent in the fourth quarter of 2010) as did outpatient coding errors (to 4 percent from 5 percent). The following were the other reasons given for complex denials:

 

Discharge status (a new reason reported)-15 percent;

 

Other-only 2 percent in the first quarter of 2011, down from 15 percent in 2010; and

 

No documentation-down to 9 percent from the 12 percent in the fourth quarter of 2010.

 

MS-DRGs Cited

 

All hospital survey responders indicated that the top MS-DRG denied by RACs for lack of medical necessity was MS-DRG 312-syncope and collapse-with 16 percent of total denials. The second-highest denial (8 percent) in this category came from MS-DRG 313-chest pain. The following came next:

 

MS-DRG 69-transient ischemia (6 percent);

 

MS-DRG 249-percutaneous cardiovascular procedure with non-drug-eluting stent without MCC (5 percent); and

 

MS-DRG 192-chronic obstructive pulmonary disease w/o CC/MCC (5 percent).

 

MS-DRG 312 also had the largest number of denials (6 percent) under the entry "all other complex denials," and the ones listed below were only slightly behind:

 

MS-DRG 166-other respiratory system OR procedures with MCC (5 percent);

 

MS-DRG 981- extensive OR procedure unrelated to principal diagnosis with MCC (4 percent);

 

MS-DRG 189-pulmonary edema and respiratory failure (4 percent); and

 

MS-DRG 813-coagulation disorders (3 percent).

 



 

The reason for medical necessity denials by length of stay among hospitals during the first quarter of 2011 breaks down as follows:

 

For a one-day stay, 78 percent ($37.9 million) of the claims were denied due to the service being provided in an inappropriate setting. Medical necessity denials related to one-day stays came in a 22 percent ($10.7 million) of claims denied.

 

For more than a one-day stay, the reasons are reversed:  63 percent ($5.9 million) were medical necessity denials, and the number of denials for services performed in an inappropriate setting was 37 percent ($3.4 million).

 

Automated Reviews: Top Denials

 

Under automated reviews, the highest number of denials identified by automated reviews was for outpatient billing errors (at 55 percent). In the last quarter of 2010, outpatient billing errors made up 70 percent of the denials.

 

Next up for the first quarter of 2011 is the "all other" category at 20 percent (down from 25 percent) and "outpatient coding errors" at 12 percent (down from 25 percent). For duplicate payments, it's 4 percent this quarter (down from 10 percent) and incorrect discharge status (also 4 percent), down slightly from 5 percent. Inpatient coding errors (MS-DRG) remain 5 percent.

 

Denials Reversed Through Appeals

 

In the category of appeals, the AHA added the percentage of hospitals with denials reversed during the discussion period. An average of 39 percent of the respondents fall into this category but 56 percent did not have reversals; the remaining hospitals "don't know."

 

Of the claims that have completed the appeals process, 71 percent were overturned in favor of the provider, and 60 percent are still in the appeals process. In dollars and cents, this comes out to $8.6 million for overturned denials nationwide.

 

Administrative Burden

 

In spite of hospitals' successes in the area of appeals, the RAC process is still taking its toll as this category reports. For example, 75 percent of the responding hospitals reported that RACs impacted their organization this quarter, and 49 percent reported increased administrative costs. Other high percentages of impact include the following:

 

Training and education (39 percent, down from 41 percent in the fourth quarter 2010);

 

Tracking software (33 percent, only slight up from last quarter's 31 percent); and

 

No impact (25 percent).

 

Note that, in the last quarter of 2010, the third highest reason for administrative burden was "initiated a new internal task force" with 21 percent, a burden that came in fourth for 2011 so far.

 

The AHA RACTrac Survey, 1st Quarter 2011 can be found at:  http://www.aha.org/aha/issues/RAC/ractrac.html.

 

About the Author

 

Carol Spencer, RHIA, CHDA, CCS, is a senior consultant with Medical Learning, Inc. (MedLearn®) in St. Paul, Minn. She brings more than 20 years of experience in health information management, coding, teaching, data quality and revenue integrity. She is an accomplished local, regional, and national speaker and author covering topics such as recovery audit contractors (RACs), payment audits, MS-DRG reimbursement systems, ICD-9-CM coding, and is an AHIMA-approved ICD-10-CM/PCS Trainer. Ms. Spencer is a thought-leader in data analytics and an expert on compliance in coding, query, and clinical documentation improvement strategies.


Contact the Author

 

cspencer@medlearn.com

 

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

 

 

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