Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Policy & Regulation News

60% of RAC Reviewed Claims Showed No Medicare Overpayments

An AHA survey found that six out of ten RAC-reviewed claims did not show a Medicare overpayment even though they were identified as an improper payment.

- Reducing healthcare fraud, waste, and abuse has recently been on the top of the CMS agenda, but some healthcare providers are questioning how effective some CMS initiatives are at identifying potential Medicare overpayments.

Six in ten reviewed claims did not have a Medicare overpayment

The American Hospital Association (AHA) continues to investigate the Recovery Audit Program (RAC), which aims to identify and correct improper Medicare payments. The program was designed to reduce Medicare spending by determining overpayments and collecting the differences from suppliers and providers.

However, the AHA found in its quarterly RACTrac Survey that six out of ten RAC-reviewed claims in the first quarter of 2016 did not have an overpayment despite being flagged as an improper payment.

“AHA developed RACTrac in response to the lack of data and information provided by CMS on the impact of the RAC program on providers,” stated AHA’s website. “RACTrac findings reveal many valuable insights for both the hospitals that reported the data and the AHA and state hospital associations who can use the information to educate the field and inform CMS and Congress of changes needed to the program.”

As the RAC program continues to misidentify overpayments, more hospitals are appealing RAC claim denials to ensure that they were reimbursed correctly. The survey showed that hospitals appealed almost half of all claim denials.

The top reason for automated denials was outpatient billing errors, which made up37 percent of denials. Hospitals also stated that these errors had the largest financial impact.

Other automated denial reasons included outpatient coding errors (25 percent), inpatient coding errors (9 percent), incorrect discharge status (4 percent), and other issues (25 percent).

In terms of more complex denials, 79 percent of hospitals cited inpatient coding errors as the main reason.

Some hospitals were able to correct possible claims denials in the first stages of the appeals process.

To avoid the formal Medicare appeals process, the RAC program allows RAC contractors and the hospital to discuss potential improper payments and resolve claim denials. During these discussion periods, 37 percent of hospitals reported having a denial reversed.

When hospitals chose to proceed with appealing claim denials, many participants stated that the process was time-consuming. Respondents reported that an administrative law judge took longer than the statutory limit (90 days) to make a ruling for more than 81 percent of appealed claims.

Despite the long wait, an AHA RACTrac report noted that hospitals have an 85 percent success rate in the appeals process.

Not only is the program time-consuming, managing the entire RAC program has also been expensive for the majority of hospitals, according to the survey. About 43 percent claimed to have spent more than $10,000 in the first quarter of 2016 on overseeing the RAC process.

Another 26 percent of respondents spent more than $26,000 and eight percent dished out over $100,000 in the first quarter of this year.

Hospitals are seeking ways to avoid Medicare payment errors and reduce RAC spending, but most have not been informed by CMS about how to decrease RAC denials. The AHA RACTrac report noted that 55 percent of participants have yet to receive any education on how to stop payment errors from CMS or its contractors.

Most hospitals may have to just better prepare their organizations for possible RAC vulnerabilities and continue to manage the program, explained the AHA. On their website, the AHA advised healthcare organizations to assemble an internal team dedicated to overseeing the RAC program and conduct self-audits to pinpoint risks.

“Once RAC audits begin, hospitals should internally track any and all RAC activity to minimize your financial risk and ensure that it responds to the RACs in a timely fashion to avoid technical denials,” stated the website. “An internal tracking system will help monitor the status of claims in order to preserve appeal rights on every claim that is identified as an overpayment.”

The AHA also reported that there are some vendors who have developed RAC activity tracking tools that can help hospitals manage the program and protect their payments revenue cycle.

In efforts to further reduce Medicare fraud, waste, and abuse, CMS has recently been targeting overpayments. Earlier this year, the agency published a final rule that stipulated Medicare Part A and Part B healthcare providers must report and pay overpayments within 60 days of when the improper payment was identified, or the due date of the corresponding cost report.

Under the regulation, healthcare providers also have a six-year window from the date they received the Medicare reimbursement to report the overpayment.

CMS developed the rule to help eliminate common overpayment issues that have increased Medicare spending. For example, a Utah-based medical center paid over $173,000 in Medicare overpayments in 2015 after an official audit found that the organization had not complied with Medicare requirements for billing inpatient and outpatient services.

While programs like RAC have helped Medicare retrieve lost money, CMS may need to assess the methodologies for determining overpayments and the lengthy process for appeals. As the survey showed, hospitals are unlikely to settle for claim denials that could negatively impact their revenue cycle and cause them to pay for potential overpayments.

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