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Survey shows increase in RAC activity

March 22, 2013

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Hospitals continue to experience rapid growth in recovery audit contractor (RAC) reviews, according to the latest results from the AHA’s quarterly RAC-Trac survey. The survey is based on information submitted by 1,233 hospitals during the fourth quarter of 2012.

Medical records requested by RACs rose nearly 10% to 720,590 during last year’s fourth quarter, compared to 662,710 during the third quarter of 2012. RACs denied $1.3 billion in claims, up from $1.1 billion at the close of the third quarter. Survey respondents appealed 41% of those fourth quarter denials, with 72% overturned in their favor.

Of the $1.3 billion in denied claims, 96% came from complex reviews where RACs comb through Medicare claims databases for evidence of incorrect payment amounts, incorrectly coded or duplicate services and uncovered services, including claims that are deemed not reasonable and necessary. Some services are deemed by the RAC to be so
improper that a demand for repayment is sent to a provider through an automated procedure without an auditor ever laying eyes on a medical record.

But most actions center on a complex review, where RACs can ask for specific medical records to determine whether a payment error occurred. Every 45 days, it can ask for additional records to supplement its initial investigation and launch a broader review of other instances like it.

The most commonly cited reason for a complex denial was a short stay that was determined to be medically unnecessary. Nearly two-thirds of these denials were for care found to be provided in the wrong setting, not because the care provided was medically unnecessary. For example, RACs will deny payment on hospital claims if they believe a patient should have been treated in an outpatient facility, rather than being admitted as an inpatient (see related story on page 1).

Inpatient coding was the second most common reason for a complex denial, followed by insufficient documentation in the medical record, according to the AHA survey.

Outpatient billing errors (44%) were the largest source of RAC automated denials. Outpatient coding errors (13%) were the second largest source of automated denials. An automated review uses computer software to analyze Medicare payments to detect improper payments.

The survey also found that 75% of all appealed claims are still in the appeals process. It can cost about $2,000 to appeal each claim and it takes an average of 18 to 24 months to complete the appeals process – a long time for hospitals to go without payment.

The survey shows that hospitals are spending a considerable amount of resources dealing with the audit process. Of those responding to the survey, 55% reported increased administrative costs. According to the survey, 63% of hospitals spent more than $10,000; 43% spent more than $25,000 and 13% spent more than $100,000 managing the RAC process during the fourth quarter of 2012. For more on the survey, click on: http://tinyurl.com/cd7zglg.

RACs are intended to identify Medicare overpayments and underpayments. They receive a percentage of the overpayments they collect from providers.

The web-based RACTrac survey helps the AHA and its hospital members monitor the impact of RACs and advocate for needed changes to the program. For more information, visit www.aha.org/rac.

The AHA has invited hospital representatives to a free March 26 webinar to review recent RAC policy developments, the survey results and updates to questions in survey. To register, click on: http://tinyurl.com/c79nhq9.

The tables on this page are from the RACTrac survey.