Hospitals in 2012 Increased RAC Appeals, Overturned More Denials

Centers for Medicare & Medicaid Services (CMS) Recovery audit contractors (RACs) are denying more claims than ever and issuing documentation requests at a record pace. But at the same time, healthcare providers are becoming more adept at winning appeals for reimbursement.

The American Hospital Association released its latest “RACTRAC,” the organization’s quarterly survey of hospitals and their interaction with RAC auditors. The most recent edition, covering the final quarter of 2012, found no abatement in the ever-growing number of Medicare reimbursement claim denials and Medicare record requests.

But healthcare providers are fighting back, and with success. In 2011, hospitals appealed less than one third of all RAC denials; by the end of 2012, that percentage had increased to more than 40 percent. Hospitals won appeals 72 percent of the time, which is slightly less than the same period in 2011 (74 percent), but when one considers the increased volume of appeals this equate to more revenue overall.

What hasn’t changed is that hospitals report that 75 percent of all appeals have yet to be adjudicated within the quarter, continuing a trend where hundreds of dollars are held in limbo.

RAC auditors conduct automated reviews of Medicare payments, relying on data mining techniques to detect improper claims and payments, and then human reviewers to manage complex reviews of provider payments. The auditors are looking for:

• Incorrect payment amounts;
• Incorrectly coded services (including Medicare Severity diagnosis-related group (MS-DRG) miscoding;
• Non-covered services (including services that are not reasonable and necessary);
• Duplicate services.

During the final quarter of 2012, RACTRAC found the following:

• Nearly 60,000 medical record requests have been requested of survey respondents since last quarter.
• More than 30,000 complex audit denials have been issued to respondents since last quarter.
• Nearly two-thirds of medical records reviewed by RACs did not contain an overpayment, according to the RAC.
• Of hospitals, 94 percent indicated medical necessity denials were the most costly complex denials.
• Of medical necessity denials, 68 percent 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.
• More than 60 percent of all hospitals filing a RAC appeal during the 4th quarter of 2012 reported appealing short stay medically unnecessary denials.
• Nearly three-fourths of all appealed claims are still sitting in the appeals process.
• Some 63 percent of all hospitals reported spending more than $10,000 managing the RAC process during the fourth quarter of 2012, 43% spent more than $25,000 and 13 percent spent over $100,000.
• Over one-third of participating hospitals reported having a RAC denial reversed through utilization of the discussion period.