RACs Are Coming to YOUR Town: How Can You Prepare for the Review?

Brad Ericson, CPC, CPC-ORTHO

A new federal auditing program is coming to city near you.

The Recovery Audit Contractor (RAC) program, created in 2004 through the Medicare Modernization Act (MMA) to safeguard the Medicare Trust Fund, identifies Medicare and Medicaid overpayments and requests repayments from facilities, physician practices, and DME providers. A demonstration project begun three years ago in Ariz., Calif., Fla., Mass., N.Y., and S.C. recovered $357.2 million in overpayments for the six states in the federal government’s 2007 fiscal year.

CMS is delighted with the success of its pilot program, which identified and collected overpayments not previously caught by Medicare Affiliated Contractors (MACs). The cost to the government is 22 cents for each dollar returned to the Medicare program, a worthwhile payoff by anyone’s standard. The hope is that by recovering these costs, short-term gains will be followed by long-term cost savings for Medicare providers and members alike. “We need to ensure accurate payments for services to Medicare beneficiaries and by taking this important step, people with Medicare can be assured they are being charged correctly for their share of their health care services,” acting CMS administrator Kerry Weems said recently.

CMS announced in March that the RAC program will be operational in 2009 and will name four regional RACs this spring. The RACs will be private companies equipped with proprietary Medicare edit systems, and they will earn a percentage of collected refunds. The only states exempt from participation will be those undergoing a Medicare Administrative Contractor (MAC) transition, and they will be exempt only during the transition period.

RAC isn’t the same as Medicare’s Comprehensive Error Rate Testing (CERT) program that was implemented in 2003. In CERT, Medicare contractors’ work is evaluated for their ability to detect errors. CERT evaluates program performance while RAC evaluates individual provider compliance. CERT continues to operate as a parallel program as RAC ramps up.

How Does RAC Work?

In the RAC program, it’s all about the money. Auditors aren’t looking for perpetrators of fraud; they’re reviewing claims to uncover errors in code selection or medical necessity requirements. Contractors working in the RAC program run Medicare claims through proprietary editors that identify practices where coding and billing errors occur or practices with high frequencies of procedures targeted by the Office of Inspector General (OIG). In either case, the targeted practices are required to respond to RAC requests for patient records and other information.

For facilities, the RACs review medical records for which diagnosis-related groups (DRGs) were reported. For providers, the RACs inspect medical records filed under Part B. For most Medicare Part A and B situations, the RAC sends a request to the provider or facility for a photocopy of the entire medical record for the encounter and payment in question.

A recipient of the letter shouldn’t redact the requested records, as RACs are authorized by CMS to view this information. A response to the RAC request must be delivered within 45 days. The RAC has 60 days to review the record and notify the provider of the outcome of the review. A request may ask for one specific record or multiple records. It’s critical that the record is photocopied in its entirety for the RAC, as incomplete records could result in additional findings of insufficient documentation.

In some cases, the contractor’s data mining systems determine claims that clearly don’t meet the requirements of Medicare policies and don’t require medical records because it is so obvious an overpayment occurred. CMS reviews a percentage of these determinations before the letters are sent.

Good Coding is the Best Prevention

CMS says bad coding is the biggest cause of the problem, even though the error rate determined through CERT has dropped from 14.2 percent in 1996 to 3.9 percent in 2007.

During the pilot program, almost half of repayments resulted from incorrect coding. According to a press release from CMS, the types of inadvertent errors leading to improper payments found by the RACs include the following examples:

  • A health care provider billed Medicare for conducting three colonoscopies on the same patient on the same day;
  • Payments were made for services that were coded incorrectly—for example, Medicare was billed for a certain procedure but the medical record shows that a different procedure was actually provided;
  • A health care provider was paid twice because the provider submitted duplicate claims;
  • A claim was paid using an outdated fee schedule.

In these examples, the RAC would issue a repayment request for the amount paid for the extra service or the incorrect coding. If the beneficiary paid wrong copayment amounts, the health care provider would need to reimburse the patient for those copayments.

How Can You Prepare?

What can you do to prepare before you receive a letter from your RAC?

Assess the situation. Perform your own retrospective audit, going back as much as three years to see what you uncover. Don’t focus on E/M leveling, as this is a topic that has temporarily been excluded from RACs as CMS considers an AMA proposal to change the way these services are reviewed. However, the auditors will still look at duplicate billings, global rules, and procedures on the same day as an E/M, new vs. established patients, and consultation issues.

Educate your team about RAC. Who opens the mail at your practice or facility? If a letter from RAC isn’t immediately identified, precious time could be wasted, hobbling your response. The mail room, front office, back office, finance team, receptionist, or unlucky intern should all be aware of the RAC program and alert to any RAC correspondence.

Employ certified coders. CMS is requiring RACs to use certified professional coders in their reviews. If you aren’t using certified coders, consider hiring some, or certifying those you have. Certified coders can talk peer-to-peer, which is an advantage to use  during an audit. The other plus is the knowledge and professionalism certified coders will bring to your office.

Pick a single RAC point person. Your office should have one person charged with managing any RAC queries when they come. This person will document all correspondence, perform concurrent review of records that are sent to RAC, and keep management apprised.

Keep one for each of you. Be sure to keep a copy of every page you turn over to the RAC; and, while you can’t amend or change the records, you can submit an addendum explaining why something was billed a particular way.

Study the 2008 OIG Work Plan. Many of the targets for RACs are taken directly from the OIG Work Plan, which can be downloaded at www.oig.hhs.gov/publications/docs/workplan/2008/Work_Plan_FY_2008.pdf. Some of the issues in the 2008 work plan include the following:

“Incident to” services provided by non-physician practitioners. Medicare has very specific rules regarding reporting services provided by physician assistants (PA) or nurse practitioners (NP). A PA or NP can be paid at 100 percent of the physician rate if the physician establishes a treatment plan for the patient and is in the office at the time of the encounter. Otherwise, the PA or NP is reimbursed for services at 85 percent of the rate paid to a physician. Not adhering to these rules can be very expensive if your practice is audited and you are found noncompliant.

Check place of service codes. If you perform surgery in an ambulatory surgical center (ASC) or outpatient hospital, ensure that you are reporting the correct place of service code for these surgeries. If you report these surgeries with the code for your own office rather than an ASC or outpatient hospital, you will be overpaid for the services.

Observe global periods. Ensure you aren’t billing for follow-up office visits occurring within the global period of the surgery. These visits are considered part of the surgical package and shouldn’t be separately reported.

Watch unbundling of procedures. Keep current with the National Correct Coding Initiative (NCCI) to ensure your office isn’t billing for more procedures than is appropriate. For example, if during a diagnostic colonoscopy the physician removes some polyps by snare, the code for the colonoscopy with snare retrieval of polyps is the only code reported. The diagnostic colonoscopy is bundled into the primary procedure.

Assure Medical necessity. Ensure that the services provided to the patient meet the medical necessity requirements found in the National Coverage Determinations (NCDs) accessed on the Medicare website and Local Coverage Determinations (LCDs) approved by the MACs. Ensure the diagnosis is adequately documented in your medical record for the patient. “Rule out” diagnoses are never acceptable diagnoses and be sure coders can find a “real” diagnosis in the record. For example, “rule out pneumonia” may be a reason for a chest X-ray, but the chart should describe why pneumonia was suspected. Fever, cough, and chest pain all can be coded and all meet the medical necessity rules for the chest x-ray; “rule out pneumonia” cannot and does not.

Confirm units of service. From x-ray services to pharmaceutical injections, ensure that the correct unit number is reported in the claim. One of the common errors cited in the RAC report involved billing for pegfilgrastim. In the past, one unit of the HCPCS Level II code for pegfilgrastim was reported for each milligram of drug delivered, but CMS changed the fee schedule and rules several years ago, and providers were told to bill one unit of the HCPCS Level II code for each vial of drug delivered. Because the cost of one vial of pegfilgrastim costs more than $2,000, recovery from misreporting of administration of this drug was significant.

Know Medicare rules. RAC contractors will be monitored by CMS, but it’s always possible that a contractor will misinterpret the local and national coverage decisions regulating how you bill for a particular service. You can help the RAC contractors—and yourself—by clarifying particular situations. Knowledge is power.

When Will You See It?

If you’re not in one of the demonstration states, you have time to prepare.

While CMS admits the dates are flexible and that some states may not see RACs if they’re undergoing a MAC transition, they expect the following states to begin RAC this spring. In addition to the demonstration states (save for Calif.): Ariz. Mont., Wyo., N.D., S.D., Minn., Colo., N.M., Ind., Mich., N.H., R.I., and Maine. States looking at fall implementation include Calif., Hawaii, Nev., Okla., and Texas. The rest will see RAC in 2009 at the very latest.

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