Hospitals on the RAC

The American Hospital Association has filed a mandamus complaint to force HHS to honor its statutory Medicare claim appeal deadlines.  According to the AHA, there is a current backlog of 460,000 Medicare claims appeals in the system, essentially creating gridlock for all Medicare beneficiary appeals at the fair hearing stage in front of an administrative law judge. This is concerning for any individual Medicare beneficiary claim appeals caught in this mess but certainly caught my attention vis a vis hospitals as well.

What caused the bottleneck? The AHA points to the flood of recovery audit program claims on appeal — with 192,000 RAC claim appeals filed in 2013 alone (up from 20,000 in 2007).  Of course when you consider the fact that the RAC program has only been in full flower for a few years, comparisons to 2007 data may not be the most instructive.  What everybody does agree on is that the number of ALJs handling these matters has not been significantly increased during the run up to the current backlog.

Recovery audit procedures are the part of fee for service Medicare (and, under a different program, Medicaid) programming designed to retrospectively identify Medicare overpayments and underpayments to providers as a sort of budget reconcilliation process.  Kicking around for close to a decade, recovery audit has only fairly recently been rolled out nationwide. CMS contracts out for each of the four regional RACs and compensates the RACS on a commission basis where RACs receive anywhere from 9-12.5% (as high as 17.5% for durable medical equipment).

What went wrong? Part of it may be the original plan appears to have been to monitor appeal and reversal rates in the hope that they would actually spike in the beginning and then move on a downward trajectory as both providers and RAC reviewers became more familiar with the program. Well, the monitoring has taken place but the downward trajectory in appeals, not so much. And I do have to wonder if the AHA-reported 72 percent reversal rate at the ALJ stage has something to do with this.

Most of the provider-generated appeals come from the primary targets of the RAC contractors: acute care hospitals. No wonder, then,the acute care hospitals are raising the hue and cry about appeal timelines.  Oh, and did I mention the recovery audit contractors get paid before the final resolution of the dispute (though those payments are themselves subject to a reconcilliation process of their own)?

The part that puzzles me is the AHA's implication that the RAC program is a kind of game of adminstrative "gotcha" because it uncovers inaccurate billing at a far higher rate than it does fraud. Actually, both Medicare and Medicaid have separate fraud and abuse laws for that. Even more, the kinds of billing and coding errors identified by RACs  are the meat and potatoes of Medicare overpayment. And their annual total recovery numbers are sobering.

Three acute care hospitals are also named plaintiffs in the mandamus complaint joined by the American Hospital Association.  Each of them is heavily Medicare dependent. This includes plaintiff Baxter Regional Medical Center with Medicare responsible for 65% of its gross revenue.  Putting aside the concern about the long term financial stability of a smaller hospital with this kind of payor mix and patient draw from a two state area — one of which is a non-Medicaid expansion state– it is possible to see how such a heavily Medicare dependent facility might mourn the loss of pay all askers and ask no questions Medicare.

But, whatever you think of RAC, that ship has sailed.

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