Recovery Audit Contractor Audits: What You Need to Know

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Recovery Audit Contractor Audits:

What You Need to Know

August 19-21, 2009

Gulfport – Hattiesburg – Meridian – Jackson – Kosciusko



• PowerPoint Presentation

• Index of Exhibits to PowerPoint Presentation

1. Medicare Recovery Audit Contractors: Effect on Part B Providers, prepared by Amanda B.

Wallis, Esquire, Phelps Dunbar LLP

2. Recovery Audit Contractor Contact Information

3. CMS RAC Program Information from the Connolly Healthcare Website

4. Provider Contact Information Worksheets from the Connolly Healthcare Website

5. Medical Records Submission Requirements from the Connolly Healthcare Website

6. Key Connolly RAC Personnel

7. CMS-Approved Audit Issues published on the Connolly Healthcare Website

8. RAC Medical Record Request Limits published by CMS (for FY 2009)

9. Sample Region C Recovery Audit Contractor Demand Letter for Complex Reviews

10. Sample Region C Recovery Audit Contractor Demand Letter for Automated Reviews 11. Flow Chart of Medicare Appeals Process

12. Medicare Appeals Process Brochure published by CMS dated January 2008

13. Medicare Learning Network Matters No.: MM6183 Revised Dated September 12, 2008 addressing the Limitation on Recoupment for Provider, Physicians and Supplier



What The RAC Auditors

Want To Do To You!


Recovery Audit Contractor

Program Mission

• RACs detect and collect PAST improper payments so CMS and carriers, fiscal intermediaries and Medicare Administrative

Contractors (MACs) may implement actions that will prevent FUTURE improper payments

• Educational as well as financial purposes

– Providers can avoid submitting claims that do not comply with Medicare rules

– CMS can lower its payment error rate

– Tax payers and future Medicare beneficiaries are protected


Authority for RAC Audits and

RAC Contingency Fees

• Medicare Modernization Act of 2003, Section 306

– Required the 3-year RAC demonstration program (2005-2008)

• Tax Relief and Health Care Act of 2006, Section 302

– Required a permanent and nationwide RAC program by January 1, 2010

• RACs are paid contingency fees ranging between

9 and 12.5% of improper payments identified (depends

on terms of negotiated RAC contract)




RAC Demonstration Project

• The RAC demonstration project initially included

California, Florida and New York, and was expanded to

include Massachusetts, South Carolina and Arizona

• Approximately $992.7 million in overpayments were

returned to the trust fund between 2005-2008

• Approximately $37.8 million in underpayments were

returned to health care providers


Breakdown of $992.7 Million

Demonstration Project Recovery

• Provider or supplier type

– Inpatient hospital – 85% – Inpatient rehab – 6%

– Ambulance/laboratory – 5% – Physicians – 2%

– Skilled nursing facilities – 2%

• Basis for recovery

– 40% medical necessity – 8% lack of documentation – 35% improper coding


Top Physician Services Identified in Demonstration

Project with RAC-Initiated Overpayment Collections

(Net of Appeals) Through 3/27/08

Description of Item or Service Overturned on Appeal (Million Dollars)Amount Collected Less Cases Number of Claims with OverpaymentsLess Cases Overturned on Appeal Pharmaceutical injectables (incorrect coding) 5.8 18,930

Neulasta (medically unnecessary) 3.0 56

Vestibular function testing (other error type) 1.4 13,805 Duplicate claims (other error type) 1.0 11,165

Source: The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of the 3-Year




Who is Covered by the RAC Audits?

• If you bill Medicare

fee-for-service programs, your claims will be subject to review by the RACs (Part A and Part B)

– Hospitals – Physicians

• Solo practitioners • Group practices

– Skilled nursing facilities

– Inpatient rehabilitation facilities – Hospices


RAC Time Frames

• Mississippi is located in RAC Region C

• Claims are available for analysis as of August 1, 2009

• RACs and CMS have scheduled provider outreach programs for Mississippi hospitals and physicians on September 24 in Jackson and September 25 in Hattiesburg

• September 24, 2009, 1:00 p.m. to 5:00 p.m., Jackson, Mississippi – TelCom Center

• September 25, 2009, 1:00 p.m. to 5:00 p.m., Hattiesburg, Mississippi – Lake Terrace Convention Center

• The earliest RACs may send correspondence to physicians in Mississippi is August 1, 2009

• According to CMS, RACs may not begin reviewing claims until there is provider outreach program in the state


Two Types of RAC Audits

• Automated Review – Occurs when a RAC makes a claim

determination at the system level without a human

review of the medical record

– Example – Duplicate claims or pricing mistakes

• Complex Review – Occurs when a RAC makes a claim

determination utilizing human review of the medical



CMS RAC Review Phase-In Strategy

as of June 24, 2009

• Earliest possible dates for RAC reviews in Mississippi

– Automated Review – Black & White Issues (August 2009)

– DRG Validation – Complex Review (October/November 2009) – Complex Review for Coding Errors (October/November 2009) – DME Medical Necessity Reviews – Complex Review (Fiscal Year



RAC Auditor for Mississippi

• Connolly Consulting, Inc.

– Phone No. 1-866-360-2507 – Fax No. 1-203-529-2995

– Send mail correspondence to:

Connolly Healthcare RAC Office The Navy Yard Corporate Center One Crescent Drive, Suite 300-A Philadelphia, PA 19112

– Website:

– E-mail:


CMS Contact Information for RACs

• RAC website:

• RAC E-mail:

• Or

• Connie Leonard – (410) 786-0627


RAC Medical Record Request Limits for

Fiscal Year 2009

• Physicians

– Solo practitioner: 10 medical records per 45 days

– Partnership – 2-5 individuals: 20 medical records per 45 days

– Group of 6 to 15 individuals: 30 medical records per 45 days

– Large group (16+ individuals): 50 medical records per 45 days

– If medical records are not produced within 45 days, RAC will automatically deny claim and it

will be considered an overpayment.

– See Exhibit 5 for how to submit medical records to the RAC and Exhibit 8 for medical record

request limits.

• Request limits are based on tax ID numbers, not NPI

• RACs may review records on-site or request that hard copies of records be forwarded to the RAC.

• Records may be submitted to the RAC on CD or DVD if the physician or Group Practice passes a testing process for transferring records with their RAC.


RAC Review Process

• Claims reviewed on a post-payment basis

• RACs use the same Medicare policies as carriers, FIs and MACs

– NCDs, LCDs, CMS manuals

• RACs may not review claims paid prior to October 1, 2007 • RACs may not look back more than 3 years at paid claims.

Therefore, the look-back period will not be applicable until after October 1, 2010.

• Example of look back period: On December 1, 2010, the RAC wants to look at a claim paid by Medicare on November 1, 2007. Paid claim is 3 years and 1 month old. RAC may not review this claim.


Extrapolation Process

• Process available to the RACs according to the CMS RAC Statement of Work

• Extrapolation process was not utilized during the demonstration project

• How extrapolation works

– For the physician’s universe of Medicare claims for a specific time period, RAC will examine a random sampling of a statistically valid subset of the cases and the RAC can then extend the identified error rate within the subset of claims to the entire universe of Medicare claims.


Collection Process

• Carriers, FIs and MACs issue remittance advices with remark code N432: “adjustment based on recovery audit”

• Carrier, FI and MAC recoup by offset from current or future

Medicare payments unless provider has submitted a check for the overpayment or files a valid timely appeal

• Demand letter is issued by the RAC, not the MAC, FI or carrier

– Must include detailed reasons supporting the denial

• RAC offers the provider an opportunity to discuss the improper


Options If You Agree with the RAC’s


• Pay by check on or before Day 30 (interest is not assessed) and do not appeal

• Allow recoupment (overpayment plus interest) on Day 41 and do not appeal

• Request or apply for extended payment plan (overpayment plus interest) and do not appeal


Options If You Disagree with the

RAC’s Determination

• Pay by check on or before Day 30 (interest not

assessed) and file appeal by Day 120

• Allow recoupment (overpayment plus interest) on

Day 41 and file appeal by Day 120

• Stop recoupment by filing an appeal prior to Day 30

(interest will be owed if you lose appeal)

• Request or apply for extended payment plan


Preparation for RAC Audits

• Establish a RAC Team

• Identify the focus of the RAC auditors in the

Demonstration Project (see Slide 9), issues approved

for review on the RAC website (see Exhibit 7) or issues

being reviewed in other RAC regions around the country

• Identify your own weaknesses in terms of claims denials

and improper payments

• Develop a process for responding to RAC medical record



Form a RAC Team

• Appoint a RAC liaison or lead person in your office to oversee and coordinate the RAC audit

• RAC Team should include some of the following individuals if available:

– Office Administrator – Compliance Officer – Coders and Billers

– Health Information Management Personnel – Physician Representative


Identify Areas of Focus by the RAC

• Issues to be reviewed by Connolly in RAC program must first be approved by CMS and posted on Connolly’s website.

• Target areas applicable to physicians as identified by Connolly on its website:

– Blood transfusions – CPT Codes 36430, 36440, 36450, and 36455 (excluding claims with any

modifiers) should be billed as one (1) per session, regardless of the number of units transfused on that date of service.

– Untimed codes – CPT Codes (excluding modifiers KX, and 59) where the procedure is not

defined by a specific timeframe (untimed codes), the provider should enter a one (1) in the units billed column per date of service.

– IV hydration therapy – Based on the definition of CPT 90760 (excluding claims modifier –

59), the maximum number of units should be one (1) per patient per date of service. Beginning January 1, 2009, Code 90760 was replaced with Code 96360.

– Bronchoscopy services – CPT Codes 31625, 31628, and 31629 should be billed with a

maximum number of units of one (1) per patient per day of service (excluding claims with modifier 59) should only be reported with one unit per date of service.

– One in a lifetime procedures – By virtue of the description of the CPT code, these codes can be performed only once per patient lifetime.

– Pediatric codes exceeding age parameters – Newborn/pediatric CPT codes being

applied/billed for patients which exceed the age limit defined by the CPT code.

– J2505: Injection, Pegfilgrastim, 6 mg. – By definition HCPC Code J2505 represents 6 mg per


Identify Areas of Focus by the RAC


• Issues currently affect South Carolina only.

• Because South Carolina is in Region C, these issues will most likely affect Mississippi once the audits begin in this state.

• Physicians should review these issues when conducting self audits to prepare for the RACs.

• Look at the issues reviewed by the RAC related to physician services during the demonstration project (see Slide 9).

• Look at physician issues identified by RACs in Regions A, B and D on their respective websites. If one RAC is looking at a certain


Physicians and Group Practices Should

Identify Their Own Weaknesses with Respect

to Coding and Improper Payments

• Physicians should review and track their denials to identify patterns

• Physicians and Group Practices should consider performing an internal audit to identify coding and documentation deficiencies, or should engage an outside consultant to identify coding

deficiencies and areas of weakness

– If a consultant is engaged to perform a RAC readiness audit, the

group should consider engaging the consultant through legal counsel to preserve the attorney-client privilege


Adopt a Procedure for Responding to

Medical Record Requests

• Provide your RAC with the precise address and name of the

contact person the RAC should use when sending medical record request letters (see Exhibit 4)

– Call your RAC or send your RAC a letter with this information

– Submit your contact information through the RAC’s website which must be up and running by no later than January 1, 2010

– Check on the status of your medical record submissions to the RAC – Did the RAC receive the medical records

– Call the RAC


Tracking the Audit and Appellate Process

• Physician should create an Excel spreadsheet or

purchase a software program that allows them to track

the dates of medical record requests, audit findings

and key appellate dates.

• Contact the American Medical Association to determine

if they can provide you with names of software



Additional Steps to Prepare and Respond to RAC


• Educate Employees

– Educate employees on the audit process

– Conduct monthly meetings to discuss the status of the audit

– Educate physicians and non-physician practitioners on documentation requirements

• Engage Legal Counsel

– If you engage a consultant to audit the RAC’s findings, have legal counsel engage the auditor to protect the audit under the attorney-client privilege – Legal counsel may provide assistance in high dollar appeals

• Review the RAC Audit Findings


Appealing RAC Auditor Findings

• Rebuttal

– Not part of appeals process

– Filed with RAC within 15 days of RAC’s determination of overpayment

– Rebuttal is a claim denying the RAC’s allegation that the provider or supplier was overpaid

– Rebuttal process is of limited benefit


Five Levels of Medicare Claims Appeal

• Redetermination

– Appeal to local Medicare Administrative Contractor, Fiscal Intermediary or Carrier

– 120 days to request appeal

– 60 days for decision

– Content of the appeal document must include beneficiary’s name, HICN, specific service

and/or item under appeal, date of service and name and signature of appellant or representative

Review is de novo – appellate body will review the evidence and law without deference to

the previous ruling

– Submit clear and concise position paper thoroughly documenting why an overpayment does

not exist

• Reconsideration

– QIC – consultant used by CMS to review claims

– 180 days to request

– 60 days for decision

Review is de novo

– Content of appeal document is the same as for a Redetermination except you must include

the name of the MAC or Carrier

– Early and full presentation of evidence to QIC

– You are prohibited from submitting new evidence after the Reconsideration level of appeal

except for good cause, so introduce all evidence at this level

– Submit clear and concise position paper thoroughly documenting why an overpayment does


ALJ Hearing

• File appeal with Office of Medicare Hearings and Appeals • 60 days to request

– In-person hearing – Video teleconference – Telephone

– On the record (briefs and records only)

• De novo review


Medicare Appeals Council

• 60 days to request • 90 days for decision


Federal District Court

• File a Complaint • 60 days to file

• Amount in controversy must equal of exceed $1,220 in Fiscal Year 2009

• Very expensive if you get to this level of appeal

• 2-3 year process if you appeal


Position Paper to be Submitted with Your Appeal

• Develop a clear and concise, but thorough position paper documenting why an overpayment does not exist

• Position paper should be a clear, concise persuasive argument including medical record documentation and cites to appropriate legal authorities, including, but not limited to, local coverage determinations, national coverage determinations, CMS manuals and applicable trade publications and authorities supporting your position that the claim is appropriate

• Position paper should be written in a manner such that it is geared to those that will be reading the file, which will likely be nursing staff and non-clinical personnel.


RAC Demonstration Project Appeal Statistics

• Providers appealed 22.5% of the RAC’s determinations • Only 7.6% of these appeals were successful

• Provider Appeals of RAC-Initiated Overpayments Through 8/31/08, Part B Claims Only


RAC OverpaymentClaims with Determinations # appealed to FI # appealed to QIC # appealed to ALJ # appealed to DAB # appealed (all levels) % appealed (all levels) # favorable to provider (all levels) % favorable to provider (all levels) % of all claims overturned on appeal Connolly 31,937 2,244 56 40 0 2,340 7.3% 1,455 62.2% 4.6% HDI 134,811 31,113 4,332 2,441 1 37,887 28.1% 16,578 43.8% 12.3% PRG 83,433 12,570 961 146 0 13,677 16.4% 2,642 19.3% 3.2%



• Redetermination

– Begins 41st day after overpayment demand unless appealed

• Reconsideration

– If appeal Redetermination findings within 60 days of decision, no recoupment will begin

– If you do not appeal by day 60 following the Redetermination decision, recoupment could begin on day 61.

– Begins 76th day after Redetermination unless appealed

– If you appeal and lose, recoupment will begin 30 days after the Reconsideration decision.

• Interest earned only on amounts recouped

– Interest is in the amount of 11-12%

• If there is recoupment and the physician wins the appeal, physician gets recoupment back plus interest in the amount of 11-12%


Cost/Benefit Analysis when Deciding to Appeal

• Emotional versus objective analysis • Is it an episodic or systematic error?

• If episodic and quantifiable, consider not appealing

• If it is a systematic error, then there may be repetitive demands for repayment

• Extrapolation cases can be very expensive and you should consider appealing to reduce the error rate (will likely require a consultant who is an expert in statistics)


Helpful Answers to RAC FAQs

• RACs will use their own proprietary software and systems as well as their knowledge of Medicare rules and regulations to determine what claims and providers/suppliers they want to review.

• RACs will review E&M services on physician claims under Medicare Part B.

• In certain situations, CMS is required to pay interest to a provider or supplier when an appeal decision is favorable to that provider or supplier.

• RACs will identify underpayments and overpayments. If a RAC identifies both

overpayments and underpayments, the RAC will offset the underpayment from the overpayment. If the RAC identifies only an underpayment, the RAC will inform the carrier or intermediary who will proceed with the claim adjustment and payment to the provider. RACs are not currently required to reimburse physicians for

reproduction of medical records.

• RACs are not currently required to reimburse physicians for reproduction of medical records.

• CMS will use calendar days (not business days) when determining the number of days a provider has to submit medical records.




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