Healthcare Business News

Medicaid RAC overkill

Reviews of medical treatment worry hospitals

By Rich Daly
Posted: September 19, 2011 - 12:01 am ET

Hospitals fear Medicaid's new audit program could mean multiple examinations of the same issues from different reviewers, as well as more reviews of the medical necessity of hospital care.

The final rule establishing a Medicaid recovery audit contractor program addressed some concerns raised by hospitals over an earlier draft, but not all of them.

The new program, set to begin Jan. 2, 2012, under regulations issued last week, comes as the Obama administration pushes various initiatives to reduce waste, fraud and abuse in federal healthcare programs. Several Republican members of the deficit reduction supercommittee last week called for more such efforts as a way to reduce healthcare spending (Strengthening Medicare).

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Recovery audit contractors, which are paid contingency fees to identify improper payments, were deployed first in Medicare and extended to Medicaid by the Patient Protection and Affordable Care Act. They are expected to recover $2.1 billion from Medicaid providers over the first five years of the program, with the amount increasing in succeeding years, according to administration estimates. About $668 million has been recovered so far this year in the Medicare version of the program, according to a CMS official.

The CMS official said he expected that Medicaid RAC auditors, who will be paid by states, will receive 10% to 12% of recovered funds, about the same percentage as the CMS pays Medicare contractors.

The Medicaid audit program will allow states to design their own programs, with federal officials providing final approval.

Hospital advocates praised the final rule for directing states to create proper appeal processes for providers to dispute “adverse determinations” from the contractors and for encouraging contractors to focus on Medicaid underpayments, as well.

Another revision that drew positive reviews was the additional requirement that each contractor employ a full-time medical director. However, hospitals remain concerned that the regulations do not require those physicians to have any knowledge about the state's Medicaid program.

“As everyone knows, every state Medicaid plan is incredibly complex and very unique,” Xiaoyi Huang, assistant vice president for policy at the National Association of Public Hospitals and Health Systems, said in an interview.

Hospitals also are troubled that the federal rules only “strongly encourage”—but don't require—states to adopt rules aimed at avoiding duplicative audits. Without such limitations, hospital advocates worry about the time and costs those healthcare facilities will bear if auditors pursue the same areas already reviewed by separate state and private investigators, such as those from the Joint Commission.

“If another Medicaid auditor has accomplished what the RAC program is trying to accomplish, then it is not needed,” Huang said. “Every time one of these audits happens, it's all hands on deck and that's time taken away from patient care.”

Another concern with the final rule is the inclusion of the Medicare RAC program's controversial practice of allowing reviews of the medical necessity of hospital's treatment decisions.

Such reviews have unintended consequences, hospital advocates say. The Medicare RAC program, they say, has caused some reluctance to admit patients because of the accompanying vulnerability to medical-necessity reviews, and patients end up paying a much larger share of subsequent nursing home stays out of pocket because their hospital care was categorized as observational.

The rule for the Medicaid RAC program leaves it up to states to decide whether to allow hospitals to resubmit bills under observational status if a RAC audit determines the costlier inpatient status wasn't necessary. The Medicare RAC program does not allow such rebilling, and that type of seemingly small detail could have substantial financial implications for hospitals, said Elisabeth Wynn, senior vice president for health finance and reimbursement at the Greater New York Hospital Association.

Another source of unease is that states will decide whether to limit the number of records RACs can request as part of an audit, as does the Medicare version. “We've learned that when they don't set those limits the RACs will request more than can be provided,” said Don May, vice president for policy at the American Hospital Association.

The Medicaid program also allows auditors to review up to three previous years of claims. Such multiyear “look backs” are complicated by the frequent rule changes states undertake to their Medicaid programs, which increase the likelihood that auditors will apply outdated reimbursement rules to an audit, May said. The AHA had urged the CMS to limit reviews to one year.

The leeway allowing each state to customize the program could create much bigger problems for providers than any provision of the federal rule. “It's hard to draw clear connections between the Medicare and Medicaid RAC programs because it is unclear at this point what the states are ultimately going to do,” Wynn said.

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