Improve documentation, fine-tune admissions process before RACs arrive

Avoid denial rates that occurred in demonstration project

As the Centers for Medicare & Medicaid Services (CMS) rolls out the Recovery Audit Contractor (RAC) program nationwide, case managers are in a position to help their hospitals stay ahead of the curve by keeping patients out of the hospital if they don't need to be admitted and ensuring that the documentation in the medical record for inpatient or observation admission supports medical necessity.

"In order to ward off the 40%-45% denial rates in the RAC demonstration project, it is imperative that hospitals better control utilization of services and improve medical documentation while patients are still hospitalized. Case managers should play a bigger role in gatekeeping than what I have seen in the hospitals I have visited," says Randi Ferrare, RN, BSN, MHA, MEd, president of Optima Healthcare Consulting in Tampa, FL.

In a three-year demonstration project, RACs identified $993 million in overpayments to hospitals. About 85% of the overpayments were collected from inpatient hospitals. According to CMS, only 4.6% of RAC determinations were fully or partially overturned on appeal.

Of the overpayments collected, 40% were for care that was not medically necessary or occurred in the wrong setting; 35% was due to incorrect coding; and 8% were due to insufficient or no documentation. Other errors included: incorrectly following fee schedules, submitting duplicate claims, or billing separately for services already included in other payments.

CMS was slated to identify four permanent RACs this fall and has announced its intention to have the program operational throughout the country by Jan. 10, 2010.

The RACs use proprietary software and data mining methodology to analyze Medicare claims data and identify records for review. The RACs perform two types of reviews. In some instances, they may determine that a hospital has been overpaid by merely analyzing data ("automated review"). In other instances, they may request medical records from the provider or send an auditor on site to review the records ("complex review"). The RACs can go no further back than Oct. 1, 2007, in their audits.

Since most of the improper payments were cited because of incorrect coding or because the claim did not meet Medicare medical necessity criteria, hospitals need to beef up their admissions review processes and clinical documentation review efforts, says Lorraine Larrance, BSN, MHSA, CPHQ, CCM, senior manager with Pershing Yoakley & Associates, a health care consulting firm with offices in Knoxville, TN; Atlanta; Tampa, FL; Charlotte, NC; and Austin, TX.

"Effective case managers serve an increasingly critical role in ensuring patients are admitted to the appropriate level of care, that physicians document for medical necessity, and that accurate admission orders are on the chart," Larrance adds.

The audits are going to be challenging for acute care hospitals, especially if they are operating on a narrow margin, since the auditors are largely focused on recouping Medicare program funds that have been reimbursed incorrectly, says Carol H. Eyer, RHIA, CHC, senior manager of clinical compliance with Pershing Yoakley's Atlanta office.

Concurrent medical review system critical

The upcoming RAC audits are just one more reason hospitals must have sound case management processes in place, as well as some method for concurrent medical record review, Eyer says.

"Together, these are an effective combination to address lack of documentation and issues with medical necessity. The medical necessity and case management piece fall right in with the RAC area of focus," Eyer says.

"The days of vague physician documentation such as 'admit,' without identifying the level of care, should be history. Otherwise, organizations are placing themselves in jeopardy," she adds.

Make sure that there is sufficient information in the medical record to support every admission, Larrance adds.

When patients do not meet admission status, the case manager should actively intervene with the attending doctor or ask the utilization review committee or physician advisor to handle the situation on a physician-to-physician basis.

In addition, when inpatient or observation orders follow an outpatient procedure, make sure the documentation correctly reflects severity of illness and intensity of service needs to support the admission status, she adds.

Now that CMS is rolling out the RAC program nationwide, case managers need to pay the same kind of attention to Medicare patients that they have been paying to managed care patients, Ferrare says.

"In the past, case managers have tended to review the charts of Medicare patients every few days instead of every day. Times have changed, and Medicare patients should be treated no different than a managed care patient. Case managers should be reviewing the charts of Medicare patients as frequently as they do patients with managed care payers even though they may not have to call and give daily reports," she says.

CMs in EDs imperative

In addition, the RAC program makes it imperative for hospitals to have a robust clinical documentation program and case managers in the emergency department to keep inappropriate admissions out of the hospital, Ferrare adds.

"Without an emergency department case manager, the appropriateness of an admission may not be addressed until the patient is in a bed. By then, it may be too late and the hospital could admit someone whose stay will be denied at a loss of thousands of dollars," she says.

Ferrare recommends that hospitals expand their case management staffing in order to improve documentation and decrease the potential for denials from the RAC auditors.

"Most case management departments across the country are grossly understaffed and case managers simply have too many balls in the air. Case managers are being asked to do more and more, and when they are under the crunch, some duties fall by the wayside," she says.

Ferrare recommends a caseload of 15-20 patients per case manager in order to maintain the financial health of the hospital.

Based on the shared experiences of clients involved in the RAC demonstration project, Eyer suggests that hospitals develop a solid tracking mechanism for all RAC requests.

"Hospitals need a centralized, consistent method to track the process from the time the request is received to the time the various levels of appeal are denied or approved," she says.

Put together a revenue cycle team that includes the compliance officer, the risk manager, and representatives from case management, hospital information management, the business office, and finance, Larrance suggests.

She also suggests analyzing a selection of medical records as if you were a RAC auditor.

"By going over what will happen when the facility goes through the RAC process, hospitals can get a clear picture of where their vulnerable points may be as well as how they stand based on the risk points identified in the demonstration project," Larrance says.

Use the information to make improvements in your processes, she advises.

For instance, if you determine that some of your patients did not meet medical necessity criteria, the case managers may need to beef up their reviews of patients or the physician advisor may need to be more involved in reviewing cases with the admitting physicians.

If you have a lot of one-day stays, drill down to determine whether those patients met admission criteria and review your process for determining if patients should be in inpatient or observation status, she suggests.

Once the RAC audit process starts, the group should look at what records are being requested, what the auditor's findings are, and what is happening when the cases are appealed.

Look for trends and patterns and drill down to look for problems that occur and where the processes have broken down.

That's where case managers can be most helpful, she adds.

For instance, if the auditors frequently find that one-day stays did not meet medical necessity, the case managers may be able to provide data that show which physicians admit the most patients who do not meet admission criteria.

In the past, the state quality improvement organizations and other private contracts conducted limited RAC-type audits of hospital records along with their other duties, Larrance says.

"The permanent RAC initiative will be much more focused. The RACs have no other duties but to review hospital records for a post-payment determination to ensure that CMS was billed appropriately and the hospital was paid appropriately," Larrance says.

Following input from the public and an analysis of the demonstration project, CMS has announced some changes in the RAC program. For instance, the permanent RACs will be required to have a medical director and certified coding experts on the staff and will be limited to the number of records they can request based on the size of the facility.

(For more information, contact Carol Eyer, senior manager, clinical compliance with Pershing Yoakley & Associates, e-mail: ceyer@pyapc; Deborah Hale, president of Administrative Consultant Services LLC, e-mail:; Lorraine Larrance, senior manager, Pershing Yoakley & Associates, e-mail:; Randi Ferrare, president, Optima Healthcare Consulting, e-mail: