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Don’t Leave Payments Behind: RAC Audit Questions to Ask

Bob Zimmerman, RCM Solutions Manager, Hyland, creator of OnBase
Bob Zimmerman, RCM Solutions Manager, Hyland, creator of OnBase

Healthcare providers’ revenues and profit margins are presented with a significant risk due to Medicare Recovery Audit Contractor (RAC), Medicare Administrative Contractors (MAC) and other medical claims audits. These audits often include limited information to indicate the account being adjusted. In addition, automated recoupment of funds commonly represents a complex appeals process with substantial penalties. Before your next RAC audit, here are a few questions you should ask.

Am I automatically capturing and tracking RAC Audits?

RAC audits include two types of reviews: automated and complex. Like their names suggest, automated reviews are more easily identified and submitted using Denial Remark Codes [N432] in the ANSI x12 835 Electronic Remittance Advice file. Complex reviews are sent via standard mail as correspondence, creating unnecessary manual work in the process. The American Hospital Association’s (AHA) January 2014 RACTRAC Survey results show that nearly 50 percent of respondents indicate on-going communication problems with CMS RAC Auditors.   

Reported RAC process issues Respondents reporting issues
Not receiving a demand letter informing the hospital of a RAC denial 49%
Long lag (greater than 30 days) between date on review results letter and receipt of demand letter 48%
RAC is rescinding medical record requests after you have already submitted the records 42%
Problems reconciling pending and actual recoupment due to insufficient or confusing information on the remittance advice 41%
Demand letters lack a detailed explanation of the RAC’s rationale for denying the claim 40%
RAC not meeting 60-day deadline to make a determination on a claim 39%
Receiving a demand letter announcing a RAC denial and pending recoupment AFTER the denial has been reported on the remittance 35%
Long lag (greater than 15 days) between date on demand letter and receipt of demand letter 33%
RAC is mailing medical record requests to wrong hospital or wrong contact at your hospital 16%
Problems with remittance advice RAC code N432 15%
RAC is issuing more than one medical record request within a 45-day period 9%
RACs auditing claims that are older than the 3 year look-back period 9%
RAC is auditing a particular MS-DRG or type of claim that is not approved by CMS 4%
Problems with postage reimbursement 3%
Other issues/problems 12%

* Includes participating hospitals with and without RAC activity

The list above shows why an audit compliance management solution capable of handling all medical audit types is critical to maximizing reimbursements. Healthcare providers need the ability to capture, process, access, integrate, measure and store audit requests and their associated costs throughout the entire appeal process, giving them full control of the entire audit process.

Some facilities record and track audits electronically but in a manual fashion, such as a Microsoft Excel spreadsheet. Spreadsheets will identify the information that needs to be captured but it is manual and time intensive. Spreadsheets are a silo of information, preventing visibility into potential lost revenue from accounts under audit. Lacking automation capabilities, spreadsheets also require manual data entry for every audited transaction. An enterprise content management (ECM) and audit compliance management solution will automate this process and save significant time and resources. All of the required documentation, along with the pertinent audit data, is accessible within the ECM system, which also properly routes the audit transaction to the appropriate people within the organization.

How can we better manage the RAC audit appeals process?

AHA recently released a study that showed more than 50 percent of reporting organizations are spending over $25,000 a year to manage the RAC process and 12 percent are spending more than $100,000. These organizations likely have mechanisms in place to follow up on appeals.

The study also indicated 32 percent of organizations spend less than $10,000 to manage the RAC process, likely demonstrative of little or no appeal follow up activities. This is a ‘red flag’ for potential lost revenue due to the lack of an effective appeal and tracking process.

AHA reports show only 49 percent of all RAC denials were appealed, which is a staggering statistic considering organizations realized a 64 percent success rate in overturning appealed audits. Conversely, 32.6 percent of RAC denials could be successfully appealed if organization would simply track and appeal their RAC audits. An automated appeal process would help organizations across the country realize millions more per quarter in otherwise lost revenue.

Barring another delay, ICD-10 is scheduled to arrive in October of this year. This will likely increase coding audits as the specificity of the new codes makes it easier for auditors to identify miscoded charges. In addition, errors are more likely while staff members continue to get acclimated to the new code set. In anticipation of ICD-10, it’s critical to ask if there are systems in place to provide quick and timely feedback to prevent future audits.

How can I identify process improvements to reduce RAC audits?

The best way to reduce RAC audits is to eliminate manual correspondence notifications. This ranks top on the list of reported RAC process-related issues and is a simple fix – identify accounts similar to the automated appeals through a unique denial remark code. Another alternative would be to have RAC auditors provide this information electronically through their websites instead of through paper-based correspondence. These options automate the appeals process and focuses on the root cause of the denial.

Numerous software solutions are capable of automating the work associated with corresponding denial codes. Workflows capture electronically identified denials and record the release of information and other data necessary to create the claim appeal. However, a complete audit management solution will provide more in-depth tools, including risk assessment dashboards, e-mail notifications, time-sensitive escalations, activity reporting and cost tracking. Access to this content enables organizations to find processing bottlenecks and determine trends and weaknesses in their ability to respond to audit requests and requirements.

A majority of RAC audits can be resolved by simplifying processes to help identify and eliminate issues on the front-end of the billing process to prevent these problems from occurring. The chart below shows the reasons for complex denials, which can easily be avoided with early and automated identification.

Reason for complex denials Rate of denails
Short stay medically unnecessary 50%
Other medically unnecessary 22%
Incorrect MS-DRG or other coding error 12%
All other 8%
No or insufficient documentation in the medical record 3%
Medically unnecessary inpatient stay longer than three day 2%
Incorrect discharge status 2%
Incorrect APC or other outpatient coding/billing error 1%

Answering these questions will help providers comply with varying Medicare billing rules, lower error rates and protect future Medicare beneficiaries. Electronic data exchange drives additional improvements and further reduces errors, lag times and the administrative burden for RAC auditors and providers. Implementing an electronic data workflow solution for audits, billing, payment, eligibility, claims status and other HIPAA transactions should be the goal of every organization.