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Hospitals report increased RAC payment denials

According to the American Hospital Association's first quarter RACTrac Survey released last month, hospitals continue to report an increase in Medicare recovery audit contractor (RAC) payment denials.

The average hospital facility appealed more than 80 RAC denials and 83 percent of the more than 2,200 hospitals that were surveyed had experienced some RAC activity, according to the survey. In addition, among facilities with 200 or more beds, 94 percent had experienced some RAC activity.

[See also: RAC compliance: Bundled Payments coming, RACs in hot pursuit]

Centers for Medicare & Medicaid Services (CMS) RACs conduct automated reviews of Medicare payments to healt care providers - using computer software to detect improper payments. RACs also conduct complex reviews of provider payments - using human review of medical records and other medical documentation to identify improper payments to providers. Improper payments include: incorrect payment amounts, incorrectly coded services, non-covered services and duplicate services.

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Medical necessity denials are the top reason RACs have denied claims since first-quarter 2010, according to the survey. The majority (65 percent) of these medical necessity denials were for one-day stays found to be in the wrong setting, not because the care was medically unnecessary.

Through the first quarter of 2012, hospitals have reported a total of 50,395 automated denials, up sharply from the 38,444 reported through the fourth quarter of 2011. Complex denials jumped more than 50 percent, to 124,055 through the first quarter of 2012, up from 81,667 during the previous quarter.

The average number of medical records requested by RACs also rose sharply. Region A hospitals, (those in the Northeast), received an average of 773 requests per facility, compared to 480 for hospitals in the other regions, according to the survey.

[See also: RAC program causing concern]

"Through quarter four 2011, RACs found no errors for 65 percent of their medical record audits for RACTrac respondents. Yet, hospitals face significant burden for 100 percent of RAC audits. Through quarter four 2011, respondents experienced a 75 percent rate for overturning RAC denials through the Medicare appeals process," said Rochelle Archuleta, senior associate director of policy for the AHA. "Through quarter one 2011, the volume of hospital resources being allocated to RAC functions continues to shoot up. Fifty-five percent of respondents experienced increased administrative costs in quarter one 2012, a 7 percent increase from the prior quarter. A growing majority of respondents spent more than $10,000 on RAC processes, 35 percent spent over $25,000 and 7 percent spent over $100,000."

Overall, RACs targeted $1.1 billion in Medicare payments during the first quarter of 2012, compared to $876 million during the fourth quarter of 2011. Hospital respondents also report that over two-thirds of medical records reviewed by RACs did not contain an improper payment.

"We're very concerned that RACs have a growing focus on auditing and denying hospital short-stays. Medicare guidelines to distinguish criteria for short inpatient stays, outpatient care and observation services are often unclear, yet RACs are regularly denying these cases. The prevalence of short stay denials grew 10 percent from the prior quarter," said Archuleta. "We continue to urge CMS to ensure that RACs improve their service, despite substantial documentation of persistent errors and untimely responses to hospitals. Forty-four percent of respondents rate RAC responsiveness and overall communication as 'fair' or 'poor.' Hospitals are penalized for missing audit and appeals deadlines, but RACs regularly miss deadlines with no apparent penalty."

The AHA RACTrac Survey collects data from hospitals on a quarterly basis to assess the impact the Medicare RAC program on hospitals nationwide. AHA developed RACTrac in response to the lack of data and information provided by CMS on the impact of the RAC program on providers.

[See also: RAC audits aren't yet as bad as predicted]