Introduction to RACs – Questions and Answers [01-27-10]

Filed under: Industry Updates — Editor @ 2:54 pm

[Please note – This post contains information from CMS as well as opinions of Marden.]

Q:  What is a RAC?

A: It is a Recovery Audit Contractor (RAC) that works for CMS.

Q:  Why are there RACs?

A: CMS considers RACs part of an aggressive new step (their words) to enhance Program integrity and fight fraud, waste and abuse.  CMS announced the launching of the RAC program on October 6, 2008.  Their use was first authorized by Congress as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) and made part of the Tax Relief and Health Care Act of 2006 (§ 302).

Q:  What do RACs do?

A: CMS is consolidating its efforts with new program integrity contractors (RACs) that will look at billing trends and patterns across Medicare.   The RACs review paid claims for all Medicare Part A and B providers and suppliers to ensure their claims meet Medicare statutory, regulatory and policy requirements and regulations.  They will focus on companies and individuals whose billings for Medicare services are higher than the majority of providers and suppliers in the community. In other words, they do a lot of statistical sampling to see if services are “off trend”, presumably meaning there may be some overpayments to recover.  If a provider is appropriately running higher utilization than is typical in their area, such as a SNF with a well developed, fully staffed therapy department, they may be compared to lesser programs and subject to RAC review because of their utilization.

Q:  How do they do it?

A: The RACs will use their own proprietary software and systems as well as their knowledge of Medicare rules and regulations to determine what areas to review.  If the RACs find that any Medicare claim was paid improperly it will then request repayment from the provider if an overpayment was found or request that the provider is repaid if the claim was underpaid.

Q:  So it’s just like any other denial – right?

A: Wrong.  Typically, denials are patient specific and you defend, through the medical record, your actions and subsequent charges.  Sometimes you win and sometimes you lose, typically as a result of the quality of your documentation.  With RACs it’s a whole new ballgame:  Your error rate in reviewed claims is extrapolated over all of your similar claims.  This means, for instance, if the error rate is determined to be 10% for a particular type of claim, that same error rate will be assumed for all other similar claims, resulting in repayment for claims that were not reviewed.  You will be “statistically guilty”.

Q:  I work with a big staff (or organization).  A couple errors on my part shouldn’t be any big deal.  After all, everyone makes mistakes.

A: Actually, the actions of a single care giver may have a profound effect on an overall RAC review and create financial penalties for the provider far in excess of the pre-RAC denials process.

Consider a large therapy staff in a SNF with 10% of the therapists, for whatever reason, providing inadequate documentation in the review period.  The error rate of these poorly documenting therapists is 20% for a particular type of claim.  Therefore, the overall error rate of total  services is 20% of 10% or 2%.  But, if in the RAC review, if these poorly documenting therapists have greater visibility, say 30% of the reviewed claims, the extrapolation could go like this:  30% of the therapist have an error rate 20% of the time.  Therefore the overall error rate of the services, according to the RAC audit is 20% of 30% or 6% – three times greater than the actual error rate.  As the RAC software is proprietary as sanctioned by CMS, it is unknown as to what extent any RAC has the ability to produce an accurate extrapolation.  But, since they are paid based upon the money they recover (see below), their incentive is undeniably to make the recovery as large as possible and the extrapolation as favorable as possible to them,  to the detriment of the provider.  Its easy to see how any provider or staff will only be as strong as its weakest link, as individual errors may exacerbate the predicted overall error rate.

Q:  How are RACs paid for their services?

A: The RACs will be paid on a contingency fee basis on both the overpayments and underpayments they find.  In other words, they don’t get paid unless they find something wrong with the claim(s) and recover money.  This will likely make the approach “aggressive”.  It is interesting to note that CMS and OIG typically frown on contingent collection payments for providers and suppliers, but the RAC approach at least tacitly acknowledges that contingent fee arrangements (or percent of collections) are the most effective approach.

Q:  What’s my best defense?

A: Quality documentation (as always).  Additionally, providers should enhance their documentation training, reviews and internal audits.  Individual care givers continue their unique responsibility to ensure their documentation is at the highest level and to take the professional responsibility to constantly improve their documentation skills.  Moreover, weak links in any staff need the attention and direction of its more senior members as after all, you are all in the same fox hole, and their errors have the possibility of affecting the group in a meaningful way.   Finally, professionals need to stay at the cutting edge of changes in CMS’ requirements.   As example, when the change occurs next year around new documentation and billing standards for concurrent therapy,  you have to get it right – right from the beginning – or you will create low hanging fruit for the RAC.

Q:  Should I be concerned?

A: Absolutely.  One main reasons deals with the proprietary software of the RACs that permits them to extrapolate a small statistical sampling of an error to “prove” that all similar claims have the same error rate.  This problem is really more about mathematics than Medicare.  As example, a RAC can extrapolate a denial rate.  In other words, if a provider was found in error in the sample reviewed by the RAC (e.g. 10% of the claims were not medically necessary), the RAC may assume that same error rate applies across the board to the non-sampled charges. Example:  A Home Health Agency incurred a 15 % denial rate of the sample review for skilled nursing observation and assessment.  The RAC used extrapolation to apply the penalty to all applicable claims.  Additionally, a RAC can apply extrapolation in cases where there is evidence of a sustained or a high level of payment error or when documented educational intervention by the intermediary or the Medicare Administrative Contractor failed to correct the payment error.  This can be a nightmare for medical necessity denials, which may be quite unique to individual patients.

Q:  What Should I Do?

A: It is essential to review every RAC denial so that you don’t get “extrapolated” out of business.  RAC denials, at least initially until the process is better understood, should have the prompt attention of senior management because there is a great deal at stake.

If you can successfully defend the denial, you should appeal the determination.  That is because every denial that is overturned “extrapolates” backwards, reducing the predicted overall error rate. You want to avoid getting “extrapolated” up to a big dollar amount.  But, if you do, you’ll have to construct a defense that shows that the applied statistical analysis was wrong; which means in addition to furnishing care, providers and suppliers have to be pretty good mathematicians.  In the event you prevail in the appeals process, the RAC has to return its contingency fee, which will likely make the appeals process more dynamic than it is now – after all, who wants to give money back?

For more from CMS, click here.

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