Appeals are costly for hospitals, but denials overturned before they enter the formal appeals process are not reported to CMS and recovery audit contractors stand to lose very little. Hospitals stand to lose a lot more, research suggests.
Increased scrutiny and denial of hospital inpatient claims by Medicare's recovery audit contractors over the last few years has been followed by growing numbers of denials being overturned in the hospitals' favor.
But instead of being more careful and selective about which claims to audit, three separate RAC agencies have continued to audit ever larger numbers of Medicare claims.
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Ann Sheehy, MD |
A study published in the April edition of the Journal of Hospital Medicine suggests that the RACs are acting on the hope that hospitals will be too overwhelmed to fight back using the appeals process.
Three academic medical centers that participated in the study say the burden of RAC audits has been unfair: the University of Utah Hospital, Johns Hopkins Hospital, and University of Wisconsin Hospital.
The authors of the study say that auditors have virtually nothing to lose if their claim denials are overturned except their contingency fees, which are between 9% and 12% if denials are not overturned. There is no penalty to discourage RACs from issuing denials.
In general, Medicare pays hospitals for an inpatient stay about three times what it pays for an outpatient stay, and hospitals usually lose more money when they have to rebill at the lower rate than they would have had they billed at inpatient rates.
"That's our concern," says Ann Sheehy, MD, head of the division of Hospital Medicine at the 592-bed University of Wisconsin Hospital in Madison and lead author of the study. "Our hospitals were being audited at an 8% rate, which is 25 times the rate the Centers for Medicare & Medicaid Services says are audited nationally, which is at 0.3%," she says, adding that she questions the accuracy of the CMS figure.
Increasingly, denials are being overturned because they are incorrect, amounting to a waste of time for everyone involved, Sheehy says.
The study documents that between 2010 through and including part of 2013 at the three hospitals, a rising number of RAC-denied claims were overturned during what is called the "discussion" phase. This is a settlement period prior to the three-tiered appeals phase available to hospitals.
Meanwhile, the number of denied claims overturned during the discussion phase has surged.
When a denial is overturned during the discussion period, but not in the formal appeals process, the error rate is not reported to CMS, so any potential scrutiny is avoided, Sheehy explains. RACs stand to lose very little, but hospitals stand to lose a lot more, she adds.
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A Costly Defense
Fighting back has been expensive, costing each hospital about $500,000 a year. "That's a ton of money," she says. The American Hospital Association has called for a halt to "excessive" and "inappropriate" numbers of denials by RACs. In March it released a report on the national impact of the RAC program on hospitals.
Sheehy says that each of the three hospitals participating in the RAC impact study looked at how much time it took for various staffing levels to prepare for the pre-appeal discussion period. Each facility employed about 5.1 full time workers, including a part-time physician, to research each denied case and make the argument that the denial was wrong. These are extra full-time equivalent staff, and exclusive of "all the case managers who reviewed the cases every day," Sheehy says.
Because of enormous backlogs and pressure from frustrated hospitals, CMS and Congress have put recovery audits on hold three times, first in late September of 2013, again with the sustainable growth rate patch in April of 2014, and currently with this year's SGR repeal, which extends through September.
SGR is Dead. What Happens Next?
Sheehy emphasizes that for the three hospitals in this study, no claims were reversed on grounds that Medicare patients didn't need to be hospitalized or that the care being billed was not received. Rather, all claims were disputed on the basis of whether patients were classified as inpatients or outpatients.
Hospitals don't only want "much greater transparency" in how RACs decide to audit a claim and deny it. They also want RACs to be required to say how long the appeals process will take, Sheehy says.
For the hospitals in the study, the mean time each one spent waiting for a decision on an appeal was 555 days, and some decisions took more than three years. CMS and RAC officials testified in a Congressional hearing last year that they believed the appeals process was much shorter.
'Publish the Data Honestly'
"If this data is never published, Congress and CMS will never know the extent of the problem. We're not asking for a huge bundle of money to fix the RAC program; we just want them to publish the data honestly," she says.
MedPAC: Gut Two-Midnight Rule; Punish Aggressive RACs
Recommendations discussed in the April 2 MedPAC hearing include fining RACs that erroneously deny hospital claims.
"I think [this is] extremely important," Commissioner Warner Thomas said, referring to non-public materials the commission used to make its recommendations. "[Those materials] talked about a 1% reduction for RACs that see high overturn rates. I would just encourage us to make sure it is a material impact to the RACs, because depending upon the rates you look at, between 65 (%) to mid-70 or high 70s of appeals, essentially overturn the RAC review."
That is, he said, "a big issue for providers and certainly puts the beneficiary in the middle as that whole process is being considered."
That's because when a claim for an inpatient stay must be rebilled as an outpatient stay, a Medicare beneficiary then pays 20% under Part B, and is not eligible for coverage for subsequent skilled nursing care.
Sheehy says that if the 1% penalty against RACs goes through, "it's too small to be prohibitive against RACs' aggressive auditing, especially when they know how to fix the problem in the 'discussion' [phase]," she says "The RACs' strategy can still be to audit aggressively, knowing it will recruit more money than the 1% they'll lose. They can overwhelm a hospital system and make up that 1% fairly easily."