Monday, February 25, 2013, 2:58 PM

Dealing with RAC Audits and Denials: How Healthcare Providers Can Manage Medicare Recovery Efforts

Executive Summary: Medicare RAC (Recovery Audit Contractor) audits are becoming increasingly aggressive, creating delays in payment for healthcare providers. Certain strategies can help mitigate delays caused by RAC audits and denials.

Medicare Recovery Audit Contractors ("RACs") are charged with identifying, on a retrospective basis, overpayments made by Medicare to healthcare providers. Because a substantial percentage of all Medicare payments are made to hospitals, they are often the targets of RAC audits. Increasingly, overpayment determinations made by RACs involve issues relating to the medical necessity of inpatient services previously provided by hospitals, as ordered by attending physicians.

"Medical necessity" is often a far more complex matter than auditors recognize, and providers must often expend considerable time and effort to ensure that RACs do not inappropriately recover funds from them. Providers who have in good faith provided needed care to patients should consider appealing adverse determinations. This is particularly important in reviewing denials, as RACs may issue denials for inpatient admission status, not the medical necessity (and therefore Medicare coverage) of services. Administrative Law Judges ("ALJs") have concluded that in cases where inpatient admissions may not have been documented, the hospital providers should be reimbursed under Part B for all services, including procedures and observation care. In response to these ALJ decisions, in July 2012, CMS issued a directive to contractors to permit rebilling so that providers could be reimbursed for procedures, services and care under Part B, not merely for ancillary services.

Recently ALJs have remanded cases back to contractors involved at lower levels of the appeals process (i.e., to a Qualified Independent Contractor ("QIC") or to the Medicare Administrative Contractor ("MAC"). In their remand orders, ALJs direct that the QIC or MAC calculate an appropriate Part B payment to hospitals for needed outpatient treatments. Importantly, these remands occur before an ALJ has convened a hearing in the appeal and must be decided before a hearing can be set.

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