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Recovery audit contracts could be headed your way.

By Lauren Himiak

If you aren't already aware of what RAC stands for, you will soon find out. In May 2005, the Centers for Medicare and Medicaid Services (CMS) launched the recovery audit contract (RAC) to identify Medicare underpayments and overpayments and recover overpayments.

The program was originally launched in three states, California, New York and Florida, but it is safe to say that it will soon be implemented nationwide. And although you may not agree with the way things are headed, it is time to embrace the RAC program and begin to prepare.

Understanding RAC

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 originally directed that the secretary of the U.S. Department of Health and Human Services demonstrate the use of RACs under the Medicare Integrity Program. This allows underpayments and overpayments to be identified and recouped.

A small percentage of those claims are examined during medical review and according to CMS, annual studies of the Medicare program have shown rates from 6 percent to 10 percent in claims payment error. Because many feel a large amount of money has been paid out by Medicaid, the pilot program was designed to determine whether or not the use of RACs would be a cost-effective way to ensure correct payments are being made to providers.

The program was confined to a three-state pilot and those selected were chosen because they are the largest states in terms of Medicare utilization. In November 2006, CMS released a status report identifying $303.5 million in payment errors. The report was released before the pilot was even done, which recently led Congress to expand the RAC program.

The Tax Relief and Health Care Act of 2006 was signed into law by President Bush in December 2006 and requires CMS to use RACs nationally no later than Jan. 1, 2010. But some providers worry that benefits of the RAC program may not outweigh the negatives.

Finding Value in RACs

"In the spirit of compliance, there's value to RACs," said Gloryanne Bryant, RHIA, CCS, corporate director, coding HIM compliance at Catholic Healthcare West in San Francisco. "We always want to be sure we are compliant with any regulation and the program has identified some variances. Ultimately, hospitals want to do their do diligence in making sure claims were correctly paid and if not, they want to make sure it gets paid correctly."

The piloted program is forcing many hospitals to be more proactive in how they perform and conduct reviews of DRGs (Diagnostic Related Groups).

DRGs were developed for Medicare as part of the inpatient prospective payment system to determine how much Medicare pays the hospital.

"We know what targets RAC is looking at so hospitals can examine targeted specifications both on the inpatient and outpatient side and have a sense of how vulnerable they are," noted Nancy Hirschl, president of Hirschl and Associates inLaguna Niguel, CA.

So what should the rest of the country do to prepare for the implementation of the RAC program?

Getting RAC Ready

The first option is creating a team to educate your facility.

"Create a RAC team within the hospital to make sure you have databases in place and processes to track appeals," suggested Hirschl.

This team will also be able to look at California, New York and Florida as examples of what the government is looking at.

"Other states should be looking at some of the same targets RAC is looking at," Bryant noted. "They should be looking at some of the focus areas such as rehab for admission criteria and medical necessity especially for joint replacement admissions to acute rehab. They should also be looking at inpatient DRGs to make sure the documentation is supporting the coding and some outpatient encounters as well."

Education is key and something all states should be focusing on. Coders, physicians and those involved with audits all need to increase their education of the RAC program.

"In our organization, because we have many hospitals participating with the RAC, we have set up a tracking mechanism with an Excel spreadsheet of each of the hospitals and it is updated monthly via the coding HIM compliance department," stated Bryant. "This allows us to know what the trends and patterns are. We know how many dollars are being taken away, how many dollars in addition we got, and how many dollars are being appealed."

"If you can provide coder and physician education and you can correct your claims, even if it means giving money back, your hospital may not fall out onto the RAC report card," added Hirschl.

Problems Still Looming

Although RAC is on the road to national implementation, it still has its kinks towork out. Most notably, the 2006 status report released by CMS revealed that Florida's overall improper payments, whether over or under, were drastically lower than California or New York.

"I imagine that coding practices identified by the RACs are fairly consistent nationwide," Hirschl noted. "My question, rhetorical as it may be is whether state RAC variances are reflective of the designated RAC contractor."

Many in the HIM field believe the RAC project should have tested in more states before national implementation. Comparing only three states may not paint the correct picture for the rest of the country.

The RAC pilot also creates a lot of work for hospitals. To report claims, hospitals must go back into their records, which may be kept offsite in storage. Then they must be copied and sent out for review. If there is a disagreement, an appeal must be drafted and sent in; all in all it is a process.

"Is this a lot of paperwork? Yes," Bryant stated. "It takes more staff and more time to do that. If there was a way where it wasn't so burdensome and cumbersome, that would be great."

The RAC pilot is still working out the kinks. According to some, it may be over-arching itself and creating more problems.

"The RAC has moved a little bit beyond coding and billing and into more of what's considered medical necessity," said Hirschl. "Large amounts of denials have been made on the inpatient rehab side stating the reason for denials is the patient doesn't meet the criteria for medical necessity. But there really isn't the rationale or background in RAC to make that judgment."

"In California I have heard from a group of rehab specialty group clinicians who feel that determination of RAC has been inappropriately made," added Bryant. "They are writing letters and appealing almost all of the cases. It's primarily due to medical necessity and meeting criteria to have the acute rehab level of care."

Making sweeping denials may bring larger challenges and bigger hurdles for hospi-tals to overcome in the future. Learning from any mistakes that have been made can help with future documentation and coding improvement.

The Future

It seems that the RAC program is unavoidable with the President's new mandate. The question that remains is how the government will roll out implementation in the remaining states. Many hope the pilot program will help work out the tribulations and create a smoother transition. Here's looking to 2010!

Lauren Himiak is an editorial assistant with ADVANCE.