Centers for Medicare and Medicaid Services tighten reimbursements

Medicaid RACs add another layer of scrutiny

If you're not paying as much attention to documentation and medical necessity for Medicaid patients as you do for those covered by Medicare, your hospital is likely to suffer when the Medicaid Recovery Audit Contractor (RAC) program starts on Jan. 1, 2012.

"If case managers haven't been focusing on Medicaid patients, they've done their hospital a disservice. CMS is tightening up on Medicaid reimbursement and the rules are different from Medicare rules," says Charleeda Redman, RN, MSN, ACM, executive director of corporate care management for the University of Pittsburgh Medical Center, an integrated care delivery system.

Hospital case managers may not be scrutinizing Medicaid patients as closely as they do Medicare patients if their state does not have a process that requires utilization review and authorization, Redman points out. "Case managers need to put processes in place to ensure that Medicaid patients receive the same types of medical necessity reviews as Medicare patients and that it is clearly documented in the record," Redman adds.

Hospitals have been on notice that implementation of the Medicaid RACs was in the works since CMS issued a proposed rule for the program in November, 2010, Redman points out. In January 2011, the agency delayed the proposed April 1, 2010, implementation date to give the states time to prepare for the new program. (For more information about the rules, see related story, below.)

Victoria Choate, RN, CCM, RN-BC, CCP, CPHQ, vice president of performance excellence and chief quality officer for Cheyenne (WY) Regional Medical Center, urges case management directors to take a proactive approach to reimbursement changes and be aware of what new initiatives payers are considering. In the past, hospitals have written off denials as the cost of doing business, but with shrinking reimbursement, they can no longer afford to do so, Choate adds.

"Gone are the days when case management directors don't have to be acutely aware of everything that is happening in regards to reimbursement. If they want to avoid being blindsided, case management directors can no longer leave it to the chief financial officer or the chief operating officer to keep up with payer rules and regulations. When we know what payers are considering for the future, we can plan for it," she says.

Brian Flood, managing director for KPMG, the U.S. audit, tax and advisory firm, with headquarters in New York City, points out that historically, hospitals have not given Medicaid programs the same focus as they give Medicare programs when it comes to compliance programs and financial audits. However, provisions in the Patient Protection and Accountable Care Act have caused the Medicaid program to experience historic growth, which translates into more patients on Medicaid and larger pools of funds to be reviewed by the Medicaid RACs, he adds. "Hospitals need to implement oversight and review mechanisms commensurate to the growing risk and catch up from the historical lag within the industry," Flood says.

This change means that case managers have to give the same attention to evidence-based documentation for Medicaid patients as they have been doing for patients covered by Medicare, he says. Because commercial insurers are likely to follow suit and start their own RAC-like audits, case managers also have to carefully scrutinize the medical necessity and documentation for privately insured payers, Flood adds.

Hospital-based case managers should work closely with the Medicaid case managers who come in to review the charts and make sure their documentation is meeting the Medicaid requirements, says Elizabeth Lamkin, MHA, chief executive officer and partner in PACE Healthcare Consulting, Hilton Head Island, SC. "Case managers should treat Medicaid patients exactly as they do Medicare patients and review the charts concurrently while the patient is still in the hospital. They need to make sure that medical necessity is documented on the front end and get their physician advisors involved when there is a question," Lamkin says. She also recommends that hospitals have clinical documentation specialists review the documentation in the charts on an ongoing basis.

If you use InterQual or Milliman medical necessity criteria sets, you have set yourself up to mount an appeal if there is a denial, Lamkin says. "If case managers and clinical documentation specialists understand criteria and review the charts concurrently, the hospital should have few take backs," she says.

Redman recommends that hospitals put a process in place to clearly document authorization for admitting patients and how the authorization was obtained. "Our Medicaid provider uses InterQual criteria as a guideline and typically, if a patient meets InterQual criteria, the patient's stay is authorized as an inpatient stay. If the patient doesn't meet InterQual criteria, the case is referred to the Medicaid physician for secondary review/authorization," she says. If after the secondary review, the inpatient stay is denied, the hospital can ask for a peer-to-peer review to authorize the patient stay as inpatient.

The hospital record should be clearly documented to reflect that the reviewing Medicaid physician authorized the patient's stay as inpatient admission in order to avoid a denial from the integrity auditor or the RAC auditor, Redman says. "We have had an opportunity to overturn cases retrospectively denied by an auditor when we could produce documentation that a Medicaid physician approved the stay as an inpatient stay, following a peer review," she says.

Clear documentation is particularly important in the case of Medicaid patients who are admitted because of the absence of care and support in the community, Redman says. "If there is a clinical issue that needs to be addressed, but the patient doesn't meet InterQual criteria, our physician contacts the Medicaid provider's physician to provide additional information as to why the patient should be an inpatient," she says. "If we believe that patients need to be admitted because of a combination of clinical and social reasons, we initiate the peer-to-peer review."

The University of Pittsburgh Medical Center has been undergoing retrospective audits of hospital records by the Pennsylvania Department of Public Welfare, which oversees the Medicaid program for more than five years. The contract that has been used by the Pennsylvania Department of Public Welfare has been awarded the Medicaid RAC contract in Pennsylvania.

Redman is working with the Pennsylvania Department of Public Welfare state department of welfare to get an idea of what the Medicaid RAC program will be like in her state. "Pennsylvania providers have been exposed to the Medicaid audit process through the state audit program but there are still a lot of details for the Medicaid RAC program that CMS has left up to the individual states," she says.

Lamkin points out that hospitals that have successfully managed the Medicare RAC audits have set up RAC committees to develop ways to prepare for the RACs and handle appeals. You don't have to create a different Medicaid RAC committee, but you need to expand the existing committee to include the RACs, she says.

A computerized process for tracking Medicaid RACs is imperative, Lamkin says. "With the Medicaid RACs, each state can define the records limits, the timing of appeals, and other details of the program. Hospitals have to understand and follow the rules of each state where their patients reside," she says.

Medicaid RACs — whole new ballgame

States can create their own rules

Just as hospitals are learning to deal with the Medicare Recovery Audit Contractors (RAC), along comes the Medicaid RAC program with a different set of rules and an expanded focus.

"The Medicaid RACs will have the same mission as the Medicare RACs: to take back inappropriate payments," says Victoria Choate, RN, CCM, RN-BC, CCP, CPHQ, vice president of performance excellence and chief quality officer for Cheyenne (WY) Regional Medical Center. "But there are differences in the program and case managers need to be aware of them," Choate adds.

Historically, Medicare RACs have focused on inpatient claims. The difference is that the Medicaid RACs are going to take a broader scope and identify inappropriate payments for outpatient services, home care, durable medical equipment, home health, hospice, and behavioral health, Choate says. "The Medicaid RACs are going to expand their audits to the outpatient arena and hospitals need to make sure that all outpatient procedures are medically appropriately and coded correctly," she says.

When the Medicare RAC program was developed, the Centers for Medicare and Medicaid Services (CMS) issued mandates that apply to all the states, and divided the country into four RAC regions. Not so with the Medicaid RACs. States are allowed to contract with one or more RACs to identify overpayments and underpayments and have a lot of leeway in developing the program.

Elizabeth Lamkin, MHA, chief executive officer and partner in PACE Healthcare Consulting in Hilton Head Island, SC, says: "Instead of a being a regional RAC with one set of rules that applies to everyone in the country, the Medicaid RACs are state-driven and each state will be able to set its own rules. Hospitals that treat patients from multiple states are going to have multiple sets of rules to follow, which could be a logistical nightmare."

Many hospitals are struggling to get ready because the rules for Medicaid RACs are not necessarily clear and they will vary from state to state, says Charleeda Redman, RN, MSN, ACM, executive director of corporate care management for the University of Pittsburgh Medical Center, an integrated care delivery system. "Our facilities have patients who come from New York, West Virginia, and Ohio, as well as Pennsylvania," Redman says. "All the rules are different, and each state has a different appeals process. It's important for facilities to partner with their Medicaid providers to get a better sense of how the RAC program will be deployed in that state and to give them suggestions based on their experiences with the Medicare RACs."

Lamkin suggests that case managers and other hospital officials urge their congressional representatives and senators to develop a more standardized approach for the Medicaid RACs and the proposal to limit Medicaid reimbursement for hospital-acquired conditions. "Unless there is a standardized approach by all states, some providers are going to suffer," she says.

When the Centers for Medicare and Medicaid (CMS) issued the final rule for the Medicaid Recovery Audit Contractor program (RAC), the agency made it clear that it wants the Medicaid RACs to be proactive in turning in cases of potential fraud, Lamkin says. "In the demonstration project, the RACs uncovered $1 billion in improper payments and identified only two cases of potential fraud. CMS has upped the ante for the Medicaid RAC program," she says.

Any pattern of errors could be considered a disregard of the law and the hospital could be turned in for fraud and abuse, Lamkin says. "It could be something as simple as not updating the charge master for two years but if the RAC sees a pattern, they could report it," she says.

The final rule states that organizations can be turned into the Health and Human Services Office of the Inspector General, the U. S. Department of Justice, the Federal Bureau of Investigation, state Medicaid fraud control agencies, and state and federal law enforcement agencies.

Brian Flood, managing director for KPMG, the U.S. audit, tax and advisory firm with headquarters in New York City, adds: "The Medicare RACs don't have any incentives to refer cases to law enforcement because they do not receive contingency fees for those referrals. CMS has told the states to design their programs to ensure that the Medicaid RACs are required to refer cases to state and federal law enforcement agencies."


For more information, contact:

  • Victoria Choate, RN, CCM, RN-BC, CCP, CPHQ, Vice President of Performance Excellence and Chief Quality Officer, Cheyenne (WY) Regional Medical Center. E-mail:
  • Brian Flood, Managing Director for KPMG, New York, NY. E-mail:
  • Elizabeth Lamkin, MHA, Chief Executive Officer and Partner, PACE Healthcare Consulting, Hilton Head, SC. E-mail:
  • Charleeda Redman, RN, MSN, ACM, Executive Director of Corporate Care Management, University of Pittsburgh Medical Center. E-mail: