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Insight: The case for revisiting denial rates

It's time to include recovery audit contractors in the mix.

Revenue cycle is the umbrella under which two separate teams may sit: denials management and audit management. When organizations fail to include recovery audit contractors and other governmental auditor denials within their overall denial rate, an important piece of the revenue puzzle remains missing.

Up to an additional 0.5 percent may be added to the overall denial rate when reimbursement take-backs from RAC, MAC, CERT, QIO and other auditors are added to the equation. Furthermore, intelligence gleaned from RAC denials and the organization's subsequent appeals process provides valuable guidance to improve documentation, coding and billing programs while also proactively mitigating future audit risk.

While dollars lost to recovery audits don't always make sense to include within overall denial rates, many times they do. This article explores the rationale for including RAC denials within the overall denial rate and revenue cycle key performance indicators (KPIs).

Lengthen the claims continuum

In order for a provider to improve the function of its audit program and reduce overall denial rates, the role of recovery auditor take-backs must be acknowledged as part of a much longer revenue cycle journey. Denied claims don't begin when a rejection notice is received, nor do they end once the claim is paid. Dollars lost to governmental and commercial recovery auditors are part of the entire reimbursement process.

The revenue cycle team must know every step in the claims process, including government and commercial audits. If the picture is incomplete, it is impossible to determine the true denial rate. Integrating audits and claims denial management within the entire revenue cycle continuum is an important first step in completing the picture.

Keep common sense in the equation

Most organizations are just starting to include dollars denied or taken back from audits as part of their overall revenue cycle KPIs. Revenue loss due to audits is sometimes included on the financial side of a hospital's books, but rarely included within the complete picture of denials or used for proactive education and monitoring.

However, hospitals must keep common sense in the equation. For example, some denials can't be controlled and shouldn't be considered for corrective action (such as a patient giving the wrong insurance card at registration). Also, some RAC cases are one, two or three years old. These cases are too aged to yield any valuable insights into current-day documentation, coding or billing processes unless you have not made any changes in that risk area.

As auditors become more timely in their reviews (typically within six months of discharge), cases escalate in value and should be incorporated within overall denial management efforts to paint a clearer picture of revenue loss. Including audit cases also improves return on investment for these efforts.

Drive a better return

Audits are expensive and labor intensive. Money tied up in RAC-related efforts continues to take its toll on organizations. And while they do show up on the finance side of the balance sheet, revenue cycle management is just beginning to capture audit denials as part of its processes snapshot. When calculating a return on investment for audit management teams, consider these important, bottom-line facts from the most recent AHA RACTrac national survey.

  • Fifty-five percent of hospitals report that RAC audits and delays in the appeals process have created significant issues with the availability of capital resources.
  • Forty-two percent say that RAC-related expenses have delayed other key priorities for the hospital. 
  • Fifty-three percent of all hospitals reported spending more than $10,000 managing the RAC process during the first quarter of 2015, 33 percent spent more than $25,000 and 7 percent spent over $100,000.

While hospitals are expending significant resources to manage audits, the rate of denials overturned continues to climb. Fourth quarter 2014 AHA data indicates that 69 percent of denials were overturned in favor of the provider. Even worse, 72 percent of appealed hospital Medicare Part A denials are fully overturned at the third level of appeal, according to AHA's September 2014 RAC Administrative Burden Survey.

This means hospitals often spend limited and valuable resources on auditing efforts rather than on critical patient care only to find out, after the fact, that their billing practices are compliant. Hospitals are never reimbursed for costs associated with staff time spent fulfilling an audit request.

To make the most of every audit dollar, proactive education regarding the ramifications of all types of audits is critical--eventually becoming imperative in maintaining the financial health of an organization. As the surge of government and commercial audits continues, focus on implementing solutions to provide process improvements, checklists, education and best practices that will work for all types of denials. Getting it right the first time yields greater cost savings throughout the entire claims continuum, while lessening the chances of future target audits.

RACs increasingly target providers with high claims denial rates

Mitigating risk is another key reason to recalculate overall denial rates--inclusive of an organization's RAC audits. Providers with high levels of claims denials may unknowingly find themselves the repeated targets of RACs looking for violations. And according to officials from the Centers for Medicare & Medicaid Services (CMS), even more focus will be placed upon repeat offenders in the future.

In a May hearing before the Senate Special Committee on Aging exploring the relationship between RAC audits and an increase in claims for hospital observation stays, senators urged CMS to shift the focus of RAC audits to providers with high levels of claims denials. CMS officials stated that they are already doing this, and that future RAC audits will increasingly target providers that have higher claims denial rates.

At the hearing, Sean Cavanaugh, CMS deputy administrator and director, said, "We've already begun with the current RAC contracts to require them to focus on providers where they find a high denial rate and to move on from providers who are consistently billing in accordance with our rules." So those who successfully navigate CMS's approved flight path are more likely to be able to continue to fly under the radar.

Of course, it's no secret that shifting even more of the focus of RAC audits to frequent violators could go a long way toward reducing the massive backlog of audit appeals CMS has accumulated, much to the chagrin of providers and lawmakers alike.

The big picture

Revenue cycle directors that ignore RAC results are missing out on an important population of average denial rates. Other government and commercial payer take-backs should also be considered for inclusion to paint a true picture of claims denials while also delivering valuable process-improvement and risk-mitigation insights.

Reducing audits is a proven, bottom-line, cost-reduction strategy. Fewer audits will mean fewer operational costs within the revenue cycle, especially in specific areas of CDI, coding, denial and audit teams.

For providers, this means that improving audit processes now not only helps the bottom line in the near term, it also reduces chances that the provider will be singled out through future related audits. As the old adage states: An ounce of prevention is worth a pound of cure. In other words, it's easier to stop something from happening in the first place than to repair the damage after it has happened.

Dawn Crump is Vice President of Audit Management Solutions at HealthPort.

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