Medicare RACs are just the first wave of a full-scale healthcare audit invasion, and while finance managers are still adjusting to the new concept, similar initiatives for Medicaid and commercial payers will soon follow.

Add to the mix the conversion of ICD-9 codes to ICD-10, and it amounts to frenzied times for hospital accountants, coders and claims handlers.

Sandy Newstein, senior consulting manager for Chadds Ford, Pa.-based IMA Consulting, declares, “We ain’t seen nothin’ yet” when it comes to the volume of different audits coming down the pike. So far, though, she said hospitals have handled the RAC process “pretty well.”

However, “in the future I expect this will become more resource-intensive for them and the worst is coming even though they are keeping up now,” Newstein said.

To handle the anticipated audit onslaught, larger hospitals are typically appointing a designated person as RAC coordinator while also looking to hire extra staff.

“Between this and the ICD-10 conversion, it is a very busy time,” Newstein said. “We expect a big increase in workload and staff will be needed, with increased demand for trained auditors, inpatient coders and nurse auditors. The RACs are hiring as well – some have added whole offices. Both sides have to work diligently to find and train staff and to assimilate the huge data load that comes to them from CMS.”

There are measures hospitals can take to bolster their preparedness, Newstein said, and none are more effective than simply reading about the types of claims RACs are requesting for audits.

“All the RACs have posted information on their websites about where they are looking, so that should give you a sense of what to expect,” she said. “Look at all regions – even if something isn’t approved for your region, it will be eventually.”

With a RAC background, Newstein is familiar with their operations and says they are judicious in their approach to auditing.

“There are certain things that raise red flags, such as improbability and problems for one reason or another,” she said. “It behooves them to work smart and not waste their time if there is no benefit. Time is money.”

Racking up RACs

Audit requests are coming in steady, but at a slower pace than expected, said Laura Van Yush, RN, RAC coordinator for DeKalb Medical Center in Decatur, Ga.

RACs can ask for 1 percent of total Medicare discharges for the previous year, broken out into sequences of eight every 45 days. “Surprisingly, they haven’t asked for as many records as they are entitled to,” Van Yush said.

With the DeKalb system for 22 years, Van Yush traded her role as lead case manager for the RAC coordinator position in October 2009. From the outset she said she knew “the stakes were high” and that RACs would spread from Medicare to Medicaid and commercial insurance.

“My position was to pull from the people in case management, coding and billing for particular issues,” she said. “Technology is helping us, especially electronic medical records. We use RAC tracking software to review the records and scan them electronically.”

In the months leading up to the RAC reality, Van Yush put her team through its paces, conducting self-audits for mock patients. The RAC for Region C issued its first record request at DeKalb in December 2009, which Van Yush remembers as “a small one, which was a good way to test the processes in a real situation.”

The biggest challenge to date is with “inconsistency” in the claims adjudication process, Van Yush said. While some claim issues were resolved quickly, she says others have been slow to move through the pipeline.

Under control – for now

Cucharras Martin, vice president of revenue enhancement for St. Joseph Medical Center in Houston, has been dealing with RACs for the past year. If there is one consistency she’s seen, it’s that the notification letters come every 45 days like clockwork.

“I don’t expect that to change,” she said. “Although I haven’t received a letter in 2011, I expect one any day now. And I know audits for Medicaid and other payers will be coming in the near future.”

As the vice president in charge of the process, Martin is the first point of contact for the RACs and is responsible for generating the workflow. The Region C RAC pulled approximately 60 claims for St. Joseph last year, and Martin says she has been able to “stay on top of the situation” so far. She concedes, however, that the RAC audits have added to her workload burden.

Deploying auditing software from Alpharetta, Ga.-based Compliance 360 has made the process easier, Martin said, because it has “helped us stay on top” of the audit process.

“The big piece was having the ability to review the claim before it goes out the door,” she said. “That way we know which ones might have some issues. It is built into the workflow so that when the response from the RAC comes back, all the necessary parties are notified, there are no missing dates or missed deadlines and we can generate appeals if necessary.”

Protecting revenues

John Brooke, Compliance 360’s general manager for healthcare, understands the anxiety RAC audits are causing for hospital managers because “they have the ability to take away your legitimately earned revenue.” Therefore, the company’s mission is to help hospitals guard against revenue loss from audits, he said.

Successfully defending claims is “a team sport requiring participation by an entire group of people – not just compliance, but health information management, billing and patient finance – it’s everybody,” Brooke said.

Justifying contested claims “requires a lot of participation,” added Scot McLeod, vice president of marketing for Compliance 360. The company’s recent survey of 342 providers, he said, found that the “the challenge most frequently mentioned in protecting revenues was holding everyone in the hospital accountable for the appeals process.”

Overall confidence is running fairly high, with 46 percent of respondents indicating they are “confident” in the hospital’s handling of RAC audits, while 9 percent stated they are “highly confident.” Conversely, only 5 percent said they had “no confidence at all.”

Medical necessity factor

While RAC audits can concentrate on certain facets of a claim, they can also question the validity of the entire claim by challenging its medical necessity.

Matt Seefeld, CEO of Atlanta-based Interpoint Partners, said he has seen “a huge rise in denials for medical necessity” and “inpatient versus observation” cases. At issue is whether admitting a patient is warranted when placing that patient “under observation” would suffice.

RACs are studying systemic patterns, drawing links between clinical decisions and outcomes. To address this approach, Interpoint has created a model that looks at RAC accounts under audit, ascertaining patterns and building algorithms that trigger anytime a patient is discharged.

Having an operable electronic medical record system is ideal for handling RACs and the other audits coming down the line, Seefeld said. At this point, providers will benefit financially from automation tools, he said, because “the government is not going to stop trying to get its money back” and that IT helps hospitals “connect to the continuum of care and generate the necessary information for accurate reporting.”