The Medicare Recovery Audit Contractor Program: A Survival Guide for Healthcare Providers

The Medicare Recovery Audit Contractor Program A Survival Guide for Healthcare Providers

The Medicare Recovery Audit Contractor Program A Survival Guide for Healthcare Providers

Duane C. Abbey

Productivity Press Taylor & Francis Group 270 Madison Avenue New York, NY 10016 © 2010 by Taylor and Francis Group, LLC Productivity Press is an imprint of Taylor & Francis Group, an Informa business No claim to original U.S. Government works Printed in the United States of America on acid-free paper 10 9 8 7 6 5 4 3 2 1 International Standard Book Number: 978-1-4398-2100-8 (Paperback) This book contains information obtained from authentic and highly regarded sources. Reasonable efforts have been made to publish reliable data and information, but the author and publisher cannot assume responsibility for the validity of all materials or the consequences of their use. The authors and publishers have attempted to trace the copyright holders of all material reproduced in this publication and apologize to copyright holders if permission to publish in this form has not been obtained. If any copyright material has not been acknowledged please write and let us know so we may rectify in any future reprint. Except as permitted under U.S. Copyright Law, no part of this book may be reprinted, reproduced, transmitted, or utilized in any form by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying, microfilming, and recording, or in any information storage or retrieval system, without written permission from the publishers. For permission to photocopy or use material electronically from this work, please access www.copyright.com (http://www.copyright.com/) or contact the Copyright Clearance Center, Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400. CCC is a not-for-profit organization that provides licenses and registration for a variety of users. For organizations that have been granted a photocopy license by the CCC, a separate system of payment has been arranged. Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging‑in‑Publication Data Abbey, Duane C. The Medicare Recovery Audit Contractor Program / Duane C. Abbey. p. ; cm. Includes bibliographical references and index. ISBN 978-1-4398-2101-8 1. Medicare Recovery Audit Contractor Program (U.S.) 2. Medical audit--United States. 3. Medicare fraud. I. Title. [DNLM: 1. Medicare Recovery Audit Contractor Program (U.S.) 2. Fraud--prevention & control--United States. 3. Medicare--economics. 4. Financial Audit--United States. 5. Guideline Adherence--United States. 6. Medicare--legislation & jurisprudence. WT 31 A134m 2010] RA399.A3.A23 2010 362.1068--dc22 Visit the Taylor & Francis Web site at http://www.taylorandfrancis.com and the Productivity Press Web site at http://www.productivitypress.com

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Contents Acronym Listing...............................................................................................................ix Chapter 1 Introduction.................................................................................................. 1 Synopsis..................................................................................................................... 2 Conventions Used throughout the Book.............................................................. 5 Chapter 2 Purpose, Structure, and Intent€of€the€RAC Audit Program...................... 7 Introduction.............................................................................................................. 7 RAC Demonstration Project................................................................................... 8 Selection and Utilization of RACs......................................................................... 9 CMS and the RAC Operations............................................................................. 10 Payment of the RACs............................................................................................. 10 Summary and Conclusion.................................................................................... 11 Chapter 3 RAC, OIG, and Medicare Audits............................................................... 13 Introduction............................................................................................................ 13 General Categories of Audits................................................................................ 14 Medicare Audits..................................................................................................... 15 OIG and DOJ Audits.............................................................................................. 15 Medicare CERT Program...................................................................................... 17 OIG Guidance: Federal Register.......................................................................... 18 RAC Audits............................................................................................................. 19 What Happened to the Underpayments?............................................................ 20 CMS’s Approach for the RACs........................................................................ 21 Summary and Conclusion.................................................................................... 21 Chapter 4 Brief Review of Healthcare Payment and Payment Systems.................... 23 Introduction............................................................................................................ 23 Claims Adjudication Requirements..................................................................... 24 Covered Individual/Covered Services............................................................ 25 Proper Orders with Appropriate Diagnostic Justification........................... 25 Qualified Facility or Practitioner.................................................................... 26 Appropriate Documentation............................................................................ 27 Medicare Billing Privileges.............................................................................. 27 Correct Claim, Filed Timely............................................................................ 28 v

vi  •  Contents Medicare Payment Systems.............................................................................. 29 Medicare Fee Schedules.................................................................................... 29 Medicare Prospective Payment Systems........................................................ 32 Medicare Payment System Interfaces............................................................. 33 Summary and Conclusion.................................................................................... 34 Chapter 5 RAC Audit Issues........................................................................................ 37 Introduction............................................................................................................ 37 Underlying Compliance Areas............................................................................. 38 Medical Necessity.............................................................................................. 41 Payment System Interfaces............................................................................... 43 Inadequate Guidance........................................................................................ 44 Confusing Guidance......................................................................................... 47 Sample Problem Areas by Provider Type............................................................ 52 Hospitals............................................................................................................. 52 Critical Access Hospitals.................................................................................. 53 Physicians and Clinics...................................................................................... 55 Other Healthcare Providers............................................................................. 55 Summary and Future Issues................................................................................. 55 Chapter 6 RAC Processes............................................................................................. 57 Introduction............................................................................................................ 57 Problem Identification, Data Mining, and Probe Audits................................. 57 Automated Reviews................................................................................................ 59 Complex Reviews................................................................................................... 59 Extrapolation.......................................................................................................... 61 RAT-STATS Example........................................................................................ 65 Stratified Sampling............................................................................................ 68 Using Extrapolation in Reverse....................................................................... 68 Summary and Conclusion.................................................................................... 71 Chapter 7 Understanding the RAC Appeals Process................................................. 73 Introduction............................................................................................................ 73 Appeals Process.......................................................................................................74 RAC Discussion..................................................................................................74 Request for Redetermination............................................................................74 Reconsideration................................................................................................. 75 Administrative Law Judge................................................................................ 75 Medicare Appeals Council............................................................................... 76 Federal District Court....................................................................................... 76 Pursuing the Appeals Process.............................................................................. 76

Contents  •  vii Developing Organizational Resources................................................................ 77 Case Development.................................................................................................. 78 Hierarchy of Medicare Guidance.................................................................... 79 Clarifying Guidance.......................................................................................... 79 Ambiguous Guidance....................................................................................... 80 Incorrect Guidance........................................................................................... 80 Requesting Guidance and the Federal Register............................................ 81 Coding/Billing versus Adjudication/Payment.............................................. 82 Directives Inherent in the Payment System................................................... 84 Interpretation of Guidance............................................................................... 85 Other Issues........................................................................................................ 85 MMA 2003 Protection Provisions.................................................................. 88 Addressing Extrapolation Cases.......................................................................... 88 Summary and Conclusion.................................................................................... 90 Chapter 8 Meeting the RAC Audit Challenge............................................................ 93 Introduction............................................................................................................ 93 Reviewing and Assessing Current CBR Compliance Program....................... 94 Adapting Your CBR Compliance Program........................................................ 95 Budgeting and Financial Impacts........................................................................ 96 Internal RAC Program Training.......................................................................... 96 Summary and Conclusion.................................................................................... 98 Index................................................................................................................................. 99 About the Author........................................................................................................... 107

Acronym Listing A significant part of being able to read, study, and decipher issues relating to coding, billing, and reimbursement compliance issues is the fundamental knowledge of both acronyms and specialized terms. For CBR compliance personnel this means understanding and communication in the 1500 A/P A/R ABC ABN ACC ACEP ACHE ACS ADA AGPAM AHA AHIMA ALOS ALJ ALS AMA AO AOAA APC APG ASC ASCII ASF BBA BLS BPR CAH CAP

language of acronyms from several different disciplines, including clinical healthcare, law, Internet, and computers. CMS maintains a web site for the acronyms used within the Medicare program. Do a Goggle search on “CMS acronyms” and you should be able to find the current Internet address.

See also CMS-1500 Accounts payable Accounts receivable Activity-based costing Advance beneficiary notice Ambulatory care center American College of Emergency Physicians American College of Healthcare Executives Ambulatory care services Americans with Disabilities Act American Guild of Patient Account Managers American Hospital Association American Health Information Management Association Average length of stay Administrative law judge Advanced life support (ambulance) American Medical Association or American Management Association Advisory opinion American Osteopathic Association Accreditation Ambulatory Payment Classification Ambulatory Patient Group Ambulatory surgery center American Standard Code for Information Interchange Ambulatory surgical facility Balanced Budget Act (of 1997) Basic life support (ambulance) Business process reengineering Critical access hospital Capitated ambulatory plan ix

x  •  Acronym Listing CBA CBR CBRCO CC CC CC CCI CCO CCR CCU CD or CD-ROM CDM CERT CEU CF CFO CfP CFR CHAMPUS CHAMPVA CHC CHCP CIA CIO CIS CM CMI CMP CMS CNP CNS CON COO CoP CORF CPT CQI CSF CSW CT CVIR CWF CY

Cost-benefit analysis Coding, billing, and reimbursement CBR compliance officer Carbon copy (computer) Coding clinic Complication or comorbidity (see DRGs) (HCFA’s) Correct Coding Initiative Chief compliance officer Cost-to-charge ratio Critical care unit Compact Disk Read-Only Memory Charge description master (see chargemaster) Comprehensive Error Rate Testing Continuing education unit Conversion factor Chief financial officer Condition for payment Code of the Federal Regulations Civilian Health and Medical Program of the Uniformed Services Civilian Health and Medical Program of the Veterans Administration Community health center Coordinated home health program Corporate integrity agreement (see also settlement agreements) Chief information officer Computer information system Chargemaster (see also CDM) Case mix index Competitive medical plan Centers for Medicare and Medicaid Systems (previously HCFA) Certified nurse practitioner Clinical nurse specialist Certificate of need Chief operating officer Condition for participation Comprehensive outpatient rehabilitation facility (see also ORF) Current Procedural Terminology (see HCPCS Level I) Continuous quality improvement Critical success factor Clinical social worker Computer tomographic Cardiovascular interventional radiology Common working file Calendar year

Acronym Listing  •  xi DBMS DED DHHS DME DMEPOS DMERC DNS DOJ DOS DP DRG E/M EBCDIC ECG ED EDI EEO EEOC EGHP EKG E/M EMC EMG EMI EMTALA EOB EOMB EPA EPC EPO ER ERISA ESRD FAC FAQ FBI FDA FEC FFS FFY FI FL FLSA

Database management system Dedicated emergency department (see EMTALA and ED) Department of Health and Human Services Durable medical equipment DME prosthetics, orthotics, supplies Durable medical equipment regional carrier Domain Name System (Internet) Department of Justice Date of service Data processing Diagnosis-related group Evaluation and management Extended Binary Coded Decimal Information Code (computer) Electrocardiogram Emergency department (see also ER) Electronic data interchange Equal Employment Opportunity Equal Employment Opportunity Commission Employer group health plan See ECG; German for elektrokardiogramm Evaluation and management (see CPT manual) Electronic medial claim Electromyography Encounter mix index Emergency Medical Treatment and Active Labor Act Explanation of benefits Explanation of Medicare benefits Environmental Protection Agency Event-driven process chain Exclusive provider organization Emergency room Employment Retirement Income Security Act End-stage renal disease Freestanding ambulatory care Frequently asked question Federal Bureau of Investigation Food and Drug Administration Freestanding emergency center Fee for service Federal fiscal year Fiscal intermediary Form locator (see UB-92) Fair Labor Standards Act

xii  •  Acronym Listing FMR FMV FQHC FR FRG FTC FTP FY GAF GAO GI GMLOS GPCI GPO GSP HBO HCFA HCFA-1500 HCPCS

Focused medical review Fair market value Federally qualified health center Federal Register Functional-related group Federal Trade Commission File Transfer Protocol (Internet) Fiscal year Geographic adjustment factor Government Accountability Office Gastrointestinal Geometric mean length of stay Geographic practice cost index Government Printing Office Global surgical package Hyperbaric oxygen (therapy) (see also HBOT) Health Care Financing Administration HCFA billing form (see CMS-1500) Healthcare Common Procedure Coding System (previously HCFA’s Common Procedure Coding System) HFMA Healthcare Financial Management Association HHA Home health agency HHMCO Home health managed care organization HICN Health insurance claim number HIM Health information management HIPAA Health Insurance Portability and Accountability Act HCO Healthcare organization HMO Health maintenance organization HOCM High osmolar contrast media/material HOPPS Hospital Outpatient Prospective Payment System (see APCs) HPMP Hospital Payment Monitoring Program HPSA Health personnel shortage area HTML Hypertext Markup Language HTTP Hypertext Transfer Protocol (Internet) HURA Health underserved rural area HwH Hospital within a hospital I&D Incision and drainage ICD-9-CM International Classification of Diseases, 9th Revision, Clinical Modification ICD-10-CM International Classification of Diseases, 10th Revision, Clinical Modification (replacement for ICD-9-CM Volumes 1 and 2) ICD-10-PCS–ICD-10 Procedure Coding System (replacement for ICD-9-CM Volume 3) ICU Intensive care unit

Acronym Listing  •  xiii IDS IDTF IG IOL IP IPA IRO IRS IS ISP IV IVIG JCAHO KSAPCs LCC LCD LOCM LOS LTCH LTRH MAC MAC MCE MCO MDH MDS MEI MFS MIP MIS MMA Modem MOG MPFS MRI MS-DOS MSA MSE MSOP MSP MUA MVPS NCCI

Integrated delivery system Independent diagnostic testing facility Inspector general Intraocular lens Inpatient Independent practice arrangement/association Independent review organization Internal Revenue Service Information systems Internet service provider Intravenous Intravenous immune globulin Joint Commission on Accreditation of Healthcare Organizations Knowledge, skills, abilities, and personal characteristics Lesser of costs or charges Local coverage decision (previously local medical review policy [LMRP]) Low osmolar contrast media/material Length of stay Long-term care hospital Long-term rehabilitation hospital Medicare administrative contractor Monitored anesthesia care Medicare code editor Managed care organization Medicare-dependent hospital Minimum data set Medicare economic index Medicare fee schedule Medical Integrity Program Management information system Medicare Modernization Act Modulator-demodulator (computer) Medicare outpatient grouping Medical Physician Fee Schedule (see RBRVS) Magnetic resonance imaging Microsoft disk operating system (computer) Metropolitan statistical area Medical screening examination Market-service-organization-payment Medicare secondary payer Medically underserved area Medicare volume performance standard National Correct Coding Initiative (see also CCI)

xiv  •  Acronym Listing NCD NCQA NCQHC NF NM NPI NPP NTIS NUBC OASIS OBRA OCE OIG OMB OP OPR OR OT OTA PA PAM PBR PEN PERL PET PHO PI PMPM POC POS PPA PPO PPP PPR PPS PRB PRO ProPAC PS&E PSN PSO PT PTA

National coverage decision National Committee for Quality Assurance National Committee for Quality Health Care Nursing facility Nurse midwife National Provider Identifier (see HIPAA) Nonphysician provider or nonphysician practitioner National Technical Information Service National Uniform Billing Committee Outcome and Assessment Information Set Omnibus Reconciliation Act Outpatient code editor Office of the Inspector General Office of Management and Budget Outpatient Outpatient payment reform Operating room Occupational therapists Occupational therapist’s assistant Physician’s assistant Patient accounts manager Provider-based rule Parenteral and enteral nutrition (therapy) Practical Extraction and Reporting Language (Internet) Positron emission tomography Physician Hospital Organization Paramedic intercept (ambulance) Per member per month Plan of care Place of service or point of service Preferred provider arrangement Preferred provider organization Point-to-Point Protocol (Internet) Physician Payment Reform Prospective Payment System Provider review board Peer review organization Prospective Payment Assessment Commission Provider Statistical and Reimbursement (reports) Provider service network Provider service organization Physical therapy Physical therapy assistant

Acronym Listing  •  xv QA QFD RAC RAP RBRVS RC RFI RFP RFQ RHC RM RO RRH RVS RVU S&I SCH SCT SDS SGML SI SLIP SMI SMTP SNF SOC SOW SSA SUBC TLA TPA TQD TQM TSC UB-04 UCC UCR UHC UHDDS UNIX UPIN UR

Quality assurance Quality function deployment Recovery Audit Contractor Resident assessment protocol Resource-Based Relative Value System Revenue Code; from the UB-04 manual (may also be Revenue Center Code [RCC]) Request for Information Request for Proposal Request for Quotation Rural health clinic Risk management Regional office (see CMS) Rural referral center Relative value system Relative value unit Supervision and interpretation (see radiology) Sole community hospital Specialty care transport Same-day surgery Standardized General Markup Language (Internet) Status indicator (see APCs) Serial Line IP Protocol (Internet) Service mix index Simple Mail Transport Protocol (Internet e-mail) Skilled nursing facility Standard of care Scope of work Social Security Act State Uniform Billing Committee Three-letter acronym Third-party administrator (acronym also has a medical meaning) Total quality deployment Total quality management Transaction Standard/Standard Code Set Rule Universal Billing Form–2004 (see also CMS-1450) Uniform Commercial Code Usual, customary, reasonable University Health System Consortium Uniform Hospital Discharge Data Set Not an acronym, but a play on the word eunuch (Computer) Unique Physician/Practitioner Identification Number Utilization review

xvi  •  Acronym Listing URL USC VDP VSR WWW XML

Uniform Resource Locator (Internet address) United States Code Voluntary Disclosure Program Value stream reinvention World Wide Web (Internet) Extensible Markup Language (Internet)

1 Introduction

The Medicare Recovery Audit program is the subject of this book. While we will discuss the mechanics and machinations involved in this program, the real intent of this book is to enhance your understanding of the Recovery Audit Contractor (RAC) program by studying and examining many of the underlying circumstances that can generate improper payments under the Medicare program. The details of the RAC activities will undoubtedly change over time. For instance, the number of records that can be requested over a period of time for a particular provider type will likely change each year. The appeals process may be changed or the approval process used by the Centers for Medicare and Medicaid Systems (CMS), allowing the RACs to investigate a specific issue will change. The key to success with a comprehensive program such as pursued by the RACs is to fully understand all of the underlying issues and circumstances that can lead to improper payments, particularly overpayments. Thus, while we discuss the processes, our main intent is to give you the tools and understanding of the myriad issues that can and will arise. There are many specific issues and circumstances in which overpayments may arise. We will discuss many different issues, but the important point is to have a way to classify the underlying causes of these issues so you can then extend your understanding to similar issues that may not have been identified. The most difficult work for healthcare compliance personnel in the coding, billing, and reimbursement (CBR) area is to identify what will be an issue in the coming years, because now is the very time that you can adjust your coding, billing, and documentation processes to address the anticipated issue. Also, this book is an addendum to a more comprehensive work, Developing a Coding, Billing and Reimbursement Compliance Program. The Medicare RAC program is a specific instance and amalgamation of various issues that include coding, billing, and reimbursement compliance. This more general book will be referenced throughout our discussions of the Medicare RAC program. If at all possible, readers should have the more general CBR compliance program book available for reference and further guidance. 1

2  •  The Medicare Recovery Audit Contractor Program

Synopsis The Recovery Audit Contractor program is one of the largest auditing programs initiated by the Medicare program. Instead of developing an extensive bureaucracy and hiring hundreds of auditors, CMS has decided to have outside auditing and consulting firms perform the studies and audits and then pay these firms a percentage of improper payments either recouped or paid. While healthcare providers might argue that paying these firms on a contingency basis provides an improper incentive to find overpayments, real or otherwise, this is the reality we must accept. Starting in 2009 CMS is moving the RAC program to a full nationwide basis. This comes after a rather extensive demonstration project devoted mainly to New York, Florida, and California. From CMS’s perspective, the pilot program was a significant success, garnering approximately $1 billion in repayments from healthcare providers. Note also that most of the recoupments were from hospitals with relatively small amounts from other healthcare providers. Most likely, CMS fully anticipates huge sums of recoupments by going to all states and then eventually extending this process to all types of healthcare providers. Given the fact that the RACs are coming and that they will find overpayments (and theoretically, underpayments), what can healthcare providers do in order to prepare? The simple fact is that healthcare ­providers should not really have to do much more than enhance their already current coding, billing, and reimbursement (CBR) compliance program. By adjusting procedures and reconfiguring resources, and possibly increasing resources, within your current

CBR compliance program, you should be able to meet the demands from the RAC audits. Alright, back to reality! The simple fact is that healthcare providers have devoted some resources to corporate compliance programs and then to the major component of compliance involving coding, billing, and reimbursement, but the resources and programs developed generally are not broad enough in scope or intensive enough in depth to meet the challenges from the RACs. Many healthcare organizations will need to significantly gear up activities, enhance personnel resources, and develop new policies and procedures to address some very difficult CBR compliance issues. We will discuss many specific issues that are addressed by the RACs through automated review and complex reviews. In all fairness, the RACs do not address anything that is really new. Over the years, other governmental entities such as the Office of the Inspector General (OIG), Department of Justice (DOJ), and Medicare contractors along with the Comprehensive Error Rate Testing (CERT) program have all conducted many audits on a wide variety of issues. Typically, these are small audits affecting only a handful of healthcare providers on any given issue. The OIG issues an annual work plan that describes issues of concern to the OIG, which then result in limited audits and eventually in reports. These work plans are valuable to healthcare providers in that we already have guidance on the types of issues that are of concern. For instance, the OIG frequently includes various audits for hospital emergency departments (EDs) in which there have been too many diagnostic tests. The basic premise is that some of these tests are not medically necessary and the Medicare program has paid many millions of dollars for

Introduction  •  3

Case Study 1.1: CAT* Scan for Sinusitis An elderly patient has presented to the Apex Medical Center’s Emergency Department with a headache. He has had the headache for several days and the pain is getting worse over time. The ED physician does a complete workup, including lab tests and plain film radiology. There are no definitive results. The ED physician decides to perform a CAT scan as a final check. The final diagnosis is sinusitis and a decongestant is prescribed.

supporting clinical documentation. The RACs do not address the overall reimbursement cycle.† When consultants work with hospitals, clinics, skilled nursing facilities (SNFs), and other healthcare providers, the overall reimbursement cycle is examined for possible improvement. This includes: • • • • • • •

Patient encounter Services provided Charge capture Documentation Coding Billing and claim generation Reimbursement and claim remittance information

* CAT stands for computerized axial tomography.

unnecessary services. This concept clearly illustrates that medical necessity is a subjective issue that is much easier to address after the fact than it is before the fact. Clearly, after the fact, the expensive CAT scan was probably not necessary. Of course, this is after the fact! Do you suppose that a RAC auditor in reviewing this case might question the propriety of the CAT scan? During the demonstration project, the RACs found overpayments that amounted to nearly $1 billion. While the RACs look for improper payments, which should include underpayments, more than 95% of the improper payments were overpayments. Only a small percentage involved underpayments. Healthcare providers can legitimately ask the question, “Where did the underpayments go?” As we will discuss in greater detail, the underpayments didn’t really go anywhere. They are still there. However, the techniques used by the RACs address only the end product, that is, the claim, possibly the itemized statement, and then the

In other words, the consultants look at the process along with the final product that is generated. For RAC audits, only the final product (i.e., claim and itemized statement) is examined, and then possibly the supporting documentation. If anything is amiss, then there was probably an overpayment. Using this process, about the only time that an underpayment will be identified is if there actually was a coding error, or a charge and associated code are missing that would normally have been used together. In the companion book, Compliance for Coding, Billing and Reimbursement, three different types of audits are discussed: • Prospective • Concurrent • Retrospective Prospective audits address the systematic processes used to generate claims; that is, † We will use the phrase reimbursement cycle as a significant subset of the revenue cycle. Our concern is with reimbursement gained by filing a claim and then being paid through a Medicare fee-for-service payment system.

4  •  The Medicare Recovery Audit Contractor Program the overall system is studied for improvements. Concurrent audits comprise a combination of looking at the systematic processes along with a sampling of current claims. This means that to some degree the end products of the systematic processes are examined to ensure quality and compliance. Retrospective audits typically go back in time and review only the final product, that is, the claim, itemized statement, and supporting documentation. The systematic processes that might be generating incorrect claims are not typically examined. RAC audit procedures are generally retro­spective in nature. Current claims may be examined, but virtually all of the claims reviewed will be paid claims. Because of this limited orientation, the majority of the findings for the RACs will be overpayments, that is, payments that are not fully supported by the documentation, diagnosis codes, procedure coding, proper adjudication, and the like. Unfortunately, one of the major areas for the RACs is the whole issue of medical necessity. This is a subjective issue that requires judgment, typically on the part of a physician or nonphysician practitioner or, at least, some sort of ­healthcare provider. For the Medicare program we do have the whole advance beneficiary notice (ABN) process, in which we can have a Medicare beneficiary sign a statement indicating that he or she, the Medicare beneficiary, will be liable for the services if the services are deemed not medically necessary. This process has very limited usefulness. In our brief case study in the ED with sinusitis, there would be no reasonable process to ask the beneficiary to sign an ABN relative to the CAT scan. ABNs should not be used in circumstances in which the beneficiary is under any sort of distress, perceived or real.

When a RAC gains approval to pursue a specifically identified problem, audits are conducted either through computer analysis, that is, automated reviews, or actual audits of medical records, the complex reviews. If an improper payment is found, most likely an overpayment, the RAC will send a letter indicating that a determination has been made and then request recoupment of repayment. The healthcare provider can then use the RAC appeals process to assert that there actually was no overpayment. The RAC appeal process is closely aligned to the Medicare appeals process, although there are differences. Pursuing the entire appeals process can, literally, take years. Medicare has a number of different, highly complex payment systems. Improper payments can result from providers misunderstanding the requirements of a given payment system or from ambiguous guidance given by Medicare itself. The more you know about the specific payment system or systems used by your healthcare provider, the more you will be able to discern possible problem areas. A rich source of problem areas is where two different payment systems come together in some form. For instance, a surgeon performs outpatient surgery at a hospital and then files a professional claim form with Current Procedural Terminology (CPT) code(s) indicating the surgery. The hospital also codes the surgery with CPT code(s). Is there a possibility that the CPT codes are different? Note:  A singular difference with the RAC program relative to other auditing programs is that the RACs will have access to a database of paid claims from all providers within a geographic area. Thus, the RACs will have the ability to study service patterns, such as by patient by dates of services.

Introduction  •  5 This means that services provided by different providers can be checked for appropriate correlation. Automated reviews and complex reviews are the mainstay for the RACs. However, there is another methodology that the RACs can pursue: extrapolation. Extrapolation is a highly sophisticated statistical process whereby a limit set of cases can be examined, an error rate determined, and then the error rate is applied to a much larger universe of cases. While the extrapolation process is quite technical, the potential identification of overpayments can easily run into hundreds of thousands of ­dollars. While the RACs in the demonstration project did not use extrapolation, this process is fully available to the RACs pursuing improper payments nationwide. A legitimate concern for healthcare providers is the potential for significant financial impacts. Healthcare providers must gear up for the RACs by increasing internal infrastructure to meet demands for medical records, study and appeal recoupment demands as appropriate, and track activities. While healthcare providers have strived to code, bill, and file claims correctly, overpayments will probably be detected. Thus, there is also the financial impact of repayments, most likely through recoupment, in which future payments are withheld. While we will discuss all of these issues throughout this book, the RAC program itself will evolve over time. Healthcare providers should anticipate that this program will continue for many years. Watch carefully for developments. For instance, where will the RACs draw the line relative to referring overpayment for consideration as fraud in the False Claims Act? Also, what if ­during a complex review the RAC discovers that

besides the problem being investigated, there are other possible overpayment issues?

Conventions Used throughout the Book As issues are discussed, often through simple case studies, whenever possible citations will be given to Medicare reference materials with a special emphasis on the Code of Federal Regulations (CFR) and the associated Federal Registers. While dates and pages for the Federal Register entries will be given, they will also be cited using a form such as 65 FR 18451. References to the Social Security Act (SSA) will be given as SSA §1861(s)(2). For the Code of Federal Regulations, we will use citations such as 42 CFR §413.65. CMS has an extensive, ever-growing set of manuals. We will refer to chapter and page numbers with a given manual, such as CMS Publication 100-04, the Medicare Claims Processing Manual. Also, public laws passed by Congress will be referenced by name, such as MMA 2003 or the Medicare Modernization Act of 2003. Various websites­ will be referenced with the http address. Note that the Internet is quite dynamic, so that website addresses may, and most likely will, change without notice. Throughout this book there are occasional notes that are highlighted. Sometimes after a discussion of a particular topic there may be a bottom line that summarizes the discussion. These are provided as an aid to more quickly understand and grasp given concepts. An acronym listing has been provided. Healthcare coding, billing, and reimbursement are a virtual alphabet soup for acronyms. The Medicare program itself

6  •  The Medicare Recovery Audit Contractor Program contributes hundreds of different acronyms along with special language and jargon. Many simple case studies are used in this book to illustrate concepts, and a listing of case studies is provided. These case studies are placed in the context of a fictitious community of Anywhere, USA. The main entities are the Apex Medical Center, a hospital; the Acme Medical Clinic, a physician clinic; and the Pinnacle Nursing Facility, which has both nursing facility services and skilled nursing services. Anywhere, USA, also has a home health agency (HHA), an ambulatory surgical center (ASC), and other healthcare

providers as needed. Note that the specific size, scope, and operation of any of these entities­ may be modified to meet the needs of a particular case study. The main fictitious individuals involved in receiving healthcare are Sarah, who has been eighty-seven years of age for the last five years, and her cousin Sam. Drs. Brown and Smith are the main physicians that are referenced as necessary. Note: Focusing on the word acme, can you determine the origin of this fictitious community? (Hint: Think in terms of Saturday morning cartoons.)

2 Purpose, Structure, and Intent of the RAC Audit Program

Introduction The Medicare Recovery Audit Contractor (RAC) program is a significant extension of other ongoing audits conducted by government agencies and Medicare contractors. In general, the RACs will not investigate anything that is really new, at least not at the beginning. Almost all of the issues that will be addressed have been identified in some form over the years. The really major change involves: • The scope of the audits • The payment process for the RACs The RAC audits will eventually affect virtually every healthcare provider that receives payment under any of the Medicare fee-for-service (FFS) payment systems. This includes the various fee schedule payment systems for physicians, clinics, durable medical equipment (DME), and independent diagnostic testing facilities (IDTFs), along with the various prospective payment systems (PPSs), such as diagnosis-related groups (DRGs)* and Ambulatory Payment Classifications (APCs).† Interestingly enough, critical access hospitals (CAHs), although paid on a cost basis, will also be subject to RAC activity. In theory, this means that rural health clinics (RHCs) and federally qualified health centers (FQHCs) may also be subject to RAC audits.

* The latest Medicare version for DRGs is referred to as Medicare severity DRGs (MS-DRGs). † Outside the Medicare program you will also encounter various forms of Ambulatory Patient Groups (APGs).

7

8  •  The Medicare Recovery Audit Contractor Program RACs are paid a percentage of the improper payments that are found and sustained through the appeals process. Interestingly enough, the Office of the Inspector General (OIG) has maintained that payment to consultants on a contingency basis is inappropriate. The OIG’s perspective relates to consultants that work on increasing reimbursement for healthcare providers, not those that are looking for overpayments. The overall objective of the Medicare RAC program is to identify improper payments relative to the Medicare fee-for-Â�service payment systems. Thus, a broad array of payment systems and associated types of healthcare providers are subjected to the scrutiny of the RACs. Also, the Centers for Medicare and Medicaid Systems (CMS) has divided the RACs into two general categories: • Claim RACs • MSP RACs The Medicare secondary payer (MSP) concerns are addressed through a different mechanism. While this book will not address the MSP situation, there is little doubt that the Medicare program improperly pays for services in which the Medicare program should be secondary or even tertiary in some cases. All types of healthcare providers can encounter situations in which Medicare is secondary, but the primary healthcare providers involved with MSP are physicians, clinics, and hospitals. CMS conducted a rather extensive RAC demonstration over several years to test and evaluate the RAC process. The initial states were California, Florida, and New York. In 2007 several additional states were also included. Based on what CMS

claims is a significant success, the RAC program has been expanded to all states, starting in 2009.

RAC Demonstration Project The three-year demonstration was from March 2005 to March 2008. CMS has issued several reports, including one from June 2008 and an update report in January 2009.* During the demonstration CMS started with three states (California, Florida, and New York) and then later added some additional states. From CMS’s perspective, the demonstration was a huge success, resulting in nearly $1 billion in recoupment. While there were significant recoupments, hospitals in the affected states would likely take exception to some of the techniques used during the demonstration. The demonstration project was directed by Congress through Section 306 of the Medicare Modernization Act (MMA 2003). The Tax Relief and Healthcare Act (TRHCA 2006) through Section 302 authorized CMS to expand the RAC program to all states with a deadline of January 10, 2010. The original source of concerns about improper payments resides with the Improper Payment Information Act (IPIA 2002 or Public Law 107-300). Thus, the RAC program is an outgrowth of ongoing concerns about improper payment in connection with Medicare payments. Note that there are ongoing efforts, such as the Comprehensive Error Rate Testing (CERT) and normal Medicare, OIG, and Department of Justice (DOJ) reviews, that * See http://www.hhs.gov/RAC.

Purpose, Structure, and Intent of the RAC Audit Program  •  9 have been conducted for years. Some, if not many, of the issues addressed by the RACs have long been identified through the OIG and have been included in the OIG annual work plans. Because there are multiple review agencies and multiple reviews, some care must be taken to ensure that a given healthcare provider is not having the same claims reviewed for the same issue by different government entities. While all healthcare providers, at least those paid on a fee-for-service basis, are subject to RAC audits, hospitals are, by far, the most heavily affected healthcare providers­, at least in the demonstration project. Here is summary breakdown: • Hospitals (inpatient and outpatient) • Inpatient rehabilitation facilities • Skilled nursing facilities • Physicians and clinics • Durable medical equipment • Ambulance, laboratory, other

89% 6% 2% 2% 1% <1%

Not all issues were available for the RACs participating in the demonstration project. For instance, physician evaluation and management (E/M) coding was not available for review by the RACs. As we will discuss­, in the full RAC program, anticipate that nothing will be off limits. Among other areas, E/M coding for both physicians and hospitals will be a major area of review for the full RAC program (see Chapter 5). In moving from the demonstration program to the full program, CMS has instituted a number of changes, many of which are intended to reduce the hassle factor for hospitals and other healthcare providers. Thus, the demonstration process served

several different purposes, including testing of audit processes, review of policies and procedures, healthcare provider objections to subjective issues, and the initial identification of viable overpayment issues.

Selection and Utilization of RACs CMS has selected the RACs through a competitive process. While the final selection of the four RACs was delayed slightly due to protests concerning the selection ­process, the selection of the RACs was completed in the spring of 2009. One of the first tasks for the RACs was to establish websites so that healthcare providers can track the development of issues and obtain any other information that might be provided by the RACs. You should identify your RAC or RACs if you are part of a system or chain of healthcare­providers. Information concerning the RACs themselves and their contractual arrangements with CMS are generally available from the CMS RAC website. Given that the RAC program is intended as a long-term operation, the organizations contracted as RACs may change over time. Generally, the RACs are consulting firms that have developed expertise and systems in this area. Note:  You should be careful to track your geographical RAC for any and all information. Be certain to also track the other RACs as well, just in case there is some unusual issue or situation that is announced at another RAC in advance of your RAC. This may give you a slight edge in addressing new issues.

10  •  The Medicare Recovery Audit Contractor Program

CMS and the RAC Operations CMS is the contracting entity with the RACs. Over time these contracts may well be renegotiated with the possibility that the RAC organizations may change as well. For specific, current information on the RACs, see the main CMS website: http://www.cms.hhs. gov/RAC. For a better idea as to the scope of work (SOW) for the RACs, these documents are all available from the CMS RAC website. CMS has made a number of changes in the permanent program relative to the demonstration program. CMS has a process utilizing yet another organization, the Validation Contractor. From CMS’s RAC website:* The RAC Validation Contractor (RVC) will work with CMS and the RACs to approve new issues the RACs want to pursue for improper payments, as well as perform accuracy reviews on a sample of randomly selected claims on which the RACs have already collected overpayments. The RVC is another tool CMS will use to provide additional oversight and ensure that the RACs are making accurate claim determinations in the permanent program.

The approval process for RAC issues is and will continue to be a very sensitive area for healthcare providers. As we will discuss with several examples, CMS has not always provided explicit, clear guidance on various coding, billing, and reimbursement issues. One of the best examples is with hospital technical component E/M under the Ambulatory Payment Classification (APC) payment system. CMS has failed to provide national guidelines for coding in this area * See http://www.cms.hhs.gov/RAC/03_RecentUpdates.asp.

for more than ten years. Thus, from a provider’s perspective, this whole area should be off limits for the RACs. Note: In reality, healthcare providers of any and all types should anticipate that virtually every situation that could possibly create an improper payment will be addressed at some point in the future. This will occur regardless of the quality of CMS guidance or cases in which there is conflicting guidance. CMS will also be setting limits on the number of medical record requests that can be made. Additionally, CMS will make certain that the claims database used by the RACs is properly adjusted so that after a given claim has been reviewed by some sort of government-based audit, the claim will not be reaudited. Given that the RAC audits are specifically problem focused, it is possible that a given claim may be reviewed for one issue but might also need to be reviewed for a different issue. Some changes have also been made to the appeals process and repayment or recoupment processes. Some standards relative to those individuals conducting audits have also been established. Because there will be some highly technical issues either within the payment system itself or relative to clinical judgment, the RACs must have fully qualified, competent personnel. Healthcare providers should anticipate that all of these processes will also change over time.

Payment of the RACs The recovery contractors are paid a percentage of the overpayments, actually improper payments, that are identified and then actually recouped. The actual percentage

Purpose, Structure, and Intent of the RAC Audit Program  •  11 amount varies by contract. This process is known as a contingency payment and consultants have it for many years. For instance, a consulting firm may provide some sort of inpatient MS-DRG improvement program through better documentation and coding. The consulting activities are provided, and then a percentage of the increased reimbursement is paid to the consulting firm, generally over a period of a year or more. The OIG has maintained that this type of arrangement with consultants is highly questionable and should not be allowed. In 1997, the OIG issued a fraud alert addressing this issue.* The basic idea is that if a consultant is paid on a contingency basis, then there is the distinct possibility that fraud and abuse might result because the consultants will push the envelope relative to proper coding and billing. Given the complexity of the different Medicare payment systems, gaps and loopholes in guidance might allow for gaming the payment, that is, maximizing reimbursement. Now what about the converse? That is, how can Medicare pay consultants on a contingency basis? If the consultants have overpayment identification and recoupment as the means by which they are paid, then will there not be an incentive to push the envelope in the other direction? Particularly in subjective areas, the consultants may maintain that services were not really medically necessary even though the physician ordered the service and the service was provided, documented, and so forth. Chapter 5 is devoted to discussing and classifying issues, although several other chapters also discuss additional issues. Many of the most sensitive issues * See OIG Fraud Alert 97-01.

revolve around subjective judgments generally involving medical necessity. Given the OIG’s concerns about compensating consultants on a contingency basis, paying the RACs on a percentage basis is certainly questionable. Just as the OIG claims that there is incentive for consultants hired by hospitals to push the envelope toward higher payment, there should certainly be an equal concern for the RACs pushing the envelope to find overpayments. The actual percentages for calculating the RAC payments vary by contract. Generally the percentages are in the 9 to 12% range. Given the success in the demonstration program, the permanent RACs could easily generate overall payments in the hundreds of millions of dollars. Note: Yes, this means that a great deal of money will be flowing from healthcare providers back to the Medicare program and the RACs themselves.

Summary and Conclusion Armed with significant success with the RAC demonstration program, CMS is fully anticipating that the establishment of permanent RACs that will address the entire country will generate significant amounts of recoupment. The establishment of the permanent RACs is a major step forward for CMS because CMS now has a process whereby almost every single healthcare provider submitting claims to Medicare that are paid under a fee-for-service payment system will be audited to some degree. For healthcare providers the RACs seem to be coming out of nowhere. However, the RAC program is a natural, but significant

12  •  The Medicare Recovery Audit Contractor Program enlargement, of many ongoing programs pursued by different governmental agencies. The early issues for the RACs will not

really be new. For instance, activities by the OIG over the last decade have identified many potential problem areas.

3 RAC, OIG, and Medicare Audits

Introduction In the healthcare world there are many different types of audits even delimiting consideration to coding, billing, documentation, and reimbursement issues. The Recovery Audit Contractors (RACs) use a different set of tools and approaches to the whole issue of identifying improper payments. Improper payments include both overpayments and underpayments. However, according to the Centers for Medicare and Medicaid Systems (CMS) January 2009 “Update to the Evaluation of the 3-Year Demonstration,” the underpayments amounted to only 3.67% of all the improper payments identified and addressed by the RACs. Why is this percentage so low? Are the RACs really looking for underpayments? The RACs are paid on a percentage basis or contingency basis for finding improper payments. Thus, in theory, the incentive to find underpayments is the same as for finding overpayments. However, as we will explore, the whole Medicare RAC program has really been constructed and organized in order to find overpayments, not underpayments. This fact is certainly obvious with the 3.67% figure from the CMS report. Healthcare consulting firms have worked for years to assist every type of healthcare provider to identify circumstances in which payments under a variety of systems can be increased. Sometimes the word ­optimize is used. The Office of the Inspector General (OIG) has frowned on using the word maximize because this suggests that consultants, particularly on a contingency basis, are incentivized to find underpayments where none may actually exist. Interestingly enough, it appears that the RACs can be incentivized on a contingency basis to find overpayments that may not actually exist. At the very least, overpayments may be claimed by the RACs on a subjective basis such as questioning medical necessity. 13

14  •  The Medicare Recovery Audit Contractor Program We will discuss different types of audits and also review some of the ongoing efforts from the OIG and the Medicare program itself. These many different types of audits have all uncovered significant issues that can generate improper payments. The OIG has issued guidance for healthcare providers through the Federal Register. While this compliance guidance is general in nature, a very large subset of this guidance concerns coding, billing, reimbursement, and the overall payment process. Also, the OIG issues an annual report listing various concerns, and then also issues many reports on their findings from limited audits. Certainly the RACs will review all of these activities, reports, and concerns in looking for possible improper payment activities.

General Categories of Audits There are many different types of audits. Chapter 15 of companion manual Compliance for Coding, Billing and Reimbursement discusses a number of these audits. Among others there are: • • • • • • •

Probe audits Prepayment audits Baseline audits Stratified audits Chargemaster audits Educational audits Evaluation and management (E/M) coding audits

The list can go on. Some audits depend on a given perspective. A third-party payer may conduct prepayment audits to ensure that inappropriate payments are not occurring.

Some audits are specialized; for instance, a hospital may have a chargemaster audit to ensure that the chargemaster is compliant and that charges are correct. For healthcare providers audits can generally be classified as: • Prospective audits • Concurrent audits • Retrospective audits Prospective audits address the systematic process of providing services, documenting services, and then coding and billing for services. The emphasis is on the systematic process and associated subprocesses throughout the reimbursement cycle.* Concurrent audits look at the systematic processes and then also look at samplings of current claims. Generally, current claims are in the 90- to 180-day range and may or may not be paid. The purpose of such audits is to identify weaknesses in the systematic process by analyzing the current end products, namely, the claims. If possible, reimbursement is also audited. A real advantage with current claims is that the claims can be corrected and refiled if errors or omissions are identified. Retrospective audits look back in time and consider only paid claims. Often the claims are so old that there is no opportunity to correct and refile them. If there is an overpayment found, then a repayment is appropriate. On the occasions where underpayments may be identified, generally these underpayments are lost. As we discuss different approaches to various governmental auditing programs, we will refer to this general framework. * We could use the phrase revenue cycle, but we are focusing on generating claims for which reimbursement is made.

RAC, OIG, and Medicare Audits  •  15

Medicare Audits Within the Medicare program there are a variety of audits that are conducted often in conjunction with the Medicare administrative contractors. Certainly, there are formal, postpayment retrospective audits to determine if overpayments (or underpayments) have occurred. At the claim processing and adjudication level there are also prepayment audits. In some cases, for a particular ­healthcare provider, there may be a percentage of claims that are automatically audited before payment is made. Healthcare providers are very much aware that if Medicare is conducting a 100% prepayment audit for specific services, for instance, physical therapy, then something is probably amiss. These types of audits are typically generated through some sort of data mining being conducted by the Medicare administrative contractor. A special kind of audit used by Medicare is termed educational audits. These audits tend to be conducted on site and may include review of documentation. Often these audits are triggered by some sort of data mining that shows inconsistencies in the claims. Typically, the auditors will conduct the audit and then educate the healthcare provider on the correct way to code, bill, document, and then be reimbursed. The most interesting aspect of these audits is that the fiscal intermediary (FI) or carrier does not go back to correct previous claims; the intent of the auditing process is to change the behavior of the healthcare provider. The educational audits by the Medicare administrative contractors represent a very interesting although unwritten approach. The basic idea is to identify when and where a healthcare provider is making mistakes,

audit to verify, and then correct the behavior on the part of the healthcare provider. As noted above, there is no backtracking to determine any overpayments or underpayments. Sometimes this same philosophical approach is used by the Medicare program itself. If there are payment mistakes, specifically underpayments, on the part of Medicare, then after the problem is identified and corrected Medicare does not go back and make additional payments for any underpayments. A good example of this was during the early years of the Ambulatory Payment Classification (APC) implementation, when CPT code 93508, coronary catheter placement for coronary angiography, was incorrectly classified as status indicator “N,” so that there was no payment. This error was corrected in 2002, establishing a payment of nearly $2,000.00. However, there was no process of going back to pay all the hospitals that had been underpaid for performing this service in 2000 and 2001. With the Medicare program implementing the RACs, will the RACs look for and possibly identify improper payments resulting from incorrect decisions or technical errors made by the Medicare program itself? Time and experience with the RACs will answer this question; however, it is not likely that the possible issue of mistakes on the part of the Medicare program itself will be a high priority for the RAC activities.

OIG and DOJ Audits OIG audits arise from suspected or identified issues that are published annually in the OIG Work Plan. Some issues may appear repeatedly over the years in different forms. For instance, the OIG has long

16  •  The Medicare Recovery Audit Contractor Program been concerned about too many diagnostic tests being performed in hospital emergency departments. DRGs (now MS-DRGs), APCs, and physician coding have long provided a rich source of possible compliance issues. In many cases, the RACs can look to the OIG for circumstances in which there might be improper payments occurring. Thus, the RACs do not have to start anew: they already have a fairly significant listing of potential issues. When an issue is identified by the OIG, a limited number of healthcare providers are audited to determine if there really is a problem. This may involve off-site audits or on-site audits, as the case may be. Due to staffing limitations, the OIG can only perform a limited number of audits. After the audits and studies are completed, a report is issued detailing the findings and recommendations for correction or improvement. For example, a simple issue is the correlation of surgical coding between hospitals and physicians. Physicians provide surgical services in hospitals, and then both the physician and the hospital report the services through surgical CPT coding. For the hospital the claim is on the CMS-1450 (UB-04), and for the physician on the CMS-1500 or, for non-Medicare, the 1500.* Let us consider another somewhat generalized case study. The OIG has investigated the use of two modifiers used by physicians,† and now with APCs, proper use by hospitals is being questioned. Both of these modifiers are payment modifiers; that is, they provide for separate payment when used. These two modifiers are: * See the FY2003 OIG Work Plan, p. 7. † See OIG, “Use of Modifier 25,” November 2005, OEI-07-03-00470, and “Use of Modifier 59 to Bypass Medicare’s National Correct Coding Initiative Edits,” November 2005, OEI-03-02-00771.

1. -25: Significant, separately identifiable E/M service in connection with another medical or surgical procedure. 2. -59: Separate procedure. The -25 modifier is used only on E/M codes. While there is a lengthy formal description of this modifier in the CPT manual, basically for a given date of service, a physician may encounter a patient, perform a medical or surgical procedure, and then also perform some sort of evaluation and management services that are either unrelated to the procedure or, if related, go above and beyond the usual E/M service associated with the procedure. As you can tell from the description, the use of this modifier is subjective. The major issue is when E/M services surpass the E/M services associated with the procedure. This subjectivity lends itself extremely well to the RACs. In the late 2000s the DOJ launched an investigation of hospital technical component use of the -25 modifier primarily in western Pennsylvania. The -25 modifier is used extensively with emergency department (ED) visits, and then also with provider-based clinic visits. As with some other APC issues, the mindset that is associated with physician coding and billing may carry over to the hospital side. Because hospital technical component coding is based on resources utilized while professional component coding is based on what physicians actually do, there can be some distinct differences. Consider Case Study 3.1. While this seems a simple case study, there are definitely some subtleties. Based on the description in the case study, the ED physician did not perform a general examination of the patient. The physician only addressed the laceration. Thus, for the

RAC, OIG, and Medicare Audits  •  17

Case Study 3.1: Simple Laceration in the Emergency Department An elderly male patient has presented to the Apex Medical Center’s ED. He cut his arm while washing his new car. The ED nurse performs a quick triage and then a more extensive assessment. There was no fall, dizziness, or other conditions, just the laceration on the arm. The nurse cleanses the wound, obtains the suture kit, and calls the ED physician in to perform the laceration repair. The physician examines the wound and performs the suturing. The nurse applies dressings and instructs the patient on taking care of the wound, and requests that the patient either come back to the ED in four or five days or go to his own primary care physician. physician coding there will be no E/M level because the physician’s activities were limited to the laceration repair. However, the ED nurse did perform an assessment that went beyond the laceration repair. Thus, the hospital will have an E/M level with the -25 modifier along with surgical code for the laceration repair. An auditor reviewing a case like this may very well think that there should be no technical component E/M level for either the hospital or the physician. The physician did not perform a separate E/M level; the physician’s evaluation was limited to the laceration. However, the hospital is required by the Emergency Medical Treatment and Active Labor Act (EMTALA) to perform a ­general medical screening examination (MSE). While this assessment may be performed by the physician, in certain circumstances, nursing staff can also be qualified to perform the MSEs.* Note:  When the DOJ or OIG conducts such audits, the results and conclusions from these audits will certainly be carefully studied by the RACs. The -25 modifier along with technical component E/M * Nursing staff that are so qualified through the hospital’s medical staff organization should be qualified by name along with written policies and procedures for providing such services.

levels will certainly become RAC issues as some point and may even involve the extrapolation process. See Chapter 7 for further discussions.

Medicare CERT Program The Medicare RAC program is really a result of the Comprehensive Error Rate Testing (CERT) program and the associated Hospital Payment Monitoring Program (HPMP). HPMP addresses the Quality Improvement Organizations (QIOs),† while the CERT program addresses carriers, durable medical equipment regional carriers (DMERCs), and fiscal intermediaries (FIs). Report and information concerning CERT go all the way back to 1996. Thus, there is significant information concerning types of errors encountered and then the overall error rate. The CERT methodology includes: • Randomly selecting a sample of approximately 120,000 submitted claims‡ • Requesting medical records from providers who submitted the claims † The old acronym was PRO for peer review organization. ‡ The number of claims may vary from year to year.

18  •  The Medicare Recovery Audit Contractor Program • Reviewing the claims and medical records for compliance with Medicare coverage, coding, and billing rules This general methodology has been approved by the OIG and is similar to the overall extrapolation process, except the number of cases reviewed is not large enough to really extrapolate on a statistically valid basis. As we will discuss, in some sense the CERT methodology is similar to the RAC’s complex audits in which the medical record along with the claim are reviewed. However, the RACs focus on an identified problem, whereas the audits in CERT can look for any type of error. In preparing for the RACs, a good exercise is to review and analyze the CERT reports. For instance, from the 2007 report there was a variation on the above general methodology, namely: CMS calculated the Medicare FFS error rate and improper payment estimate for Carriers, DMERCs, FIs, and QIOs€ for this€report using a methodology€approved by the OIG. This year, for the first time, some data on MACs will be included in this report. The CERT program will utilize the same methodology with MACs as it did with Carriers/DMERCs/FIs. This methodology includes: • CERT randomly selecting a sample of 133,333 claims submitted to Carriers/DMERCs/FIs during the reporting period. • HPMP randomly selecting a sample of 41,399 acute care inpatient hospital discharges. • Requesting medical records from the healthcare providers that submitted the claims in the sample. • Where medical records were submitted by the provider, reviewing the

claims in the sample and the associated medical records to see if the claims complied with Medicare coverage, coding, and billing rules, and, if not, assigning errors to the claims. • Where medical records were not submitted by the provider, classifying the case as a no documentation claim€and counting it as an error. • Sending providers overpayment letters/notices or making adjustments for claims that€were overpaid or underpaid. (Improper Medicare Fee-for-Service Payments Report, Long Report, November 2007)

The general result from this 2007 report is that there was an error rate of 3.9%. Extrapolating this result, there were overpayments amounting to $9.8 billion and underpayments of approximately $1.0 billion. It is interesting that the underpayments identified amounted to almost 10% of the overall amount of improper payments. (See the discussion below concerning underpayments.) For more information on CERT, go to the CMS website: http://www.hhs.gov/cert. Note: The CERT program is continuing even with the implementation of the RAC program. Thus, CMS must take measures to ensure that claims are not being reviewed by both the CERT contractor and the RACs. This process of excluding reviewed claims is being handled at the data warehouse level for the database of paid claims.

OIG Guidance: Federal Register Over the past decade the OIG has issued significant guidance to various types of

RAC, OIG, and Medicare Audits  •  19 healthcare providers through a series of Federal Register entries. While this guidance addresses general healthcare compliance concerns, a major part of these Federal Register entries address various coding, billing, and reimbursement issues. The hundreds of issues raised by the OIG will certainly be studied by the RACs as a source of situations in which overpayments have occurred. For all personnel involved in CBR compliance, these Federal Register entries must be studied carefully. Here is a listing by provider type: • Hospitals • February 25, 1998—63 FR 8987 • June 8, 2004—69 FR 32012 • January 31, 2005—70 FR 32012 • Nursing facilities • March 16, 2000—65 FR 14289 • September 30, 2008—73 FR 56832 • Ambulance • March 24, 2003—68 FR 14245 • Pharmacy • May 5, 2003—68 FR 23731 • DME/DMERC • July 6, 1999—64 FR 36368 • Home health • August 7, 1998—63 FR 42410 • Clinical laboratory • August 24, 1998—63 FR 45076 • Physicians/group practice • October 5, 2000—65 FR 57434 • Hospice • October 5, 1999—64 FR 54031 • Third-party medical billing companies • December 18, 1998—63 FR 70138 From this list you should be able to envisage hundreds of pages of rather detailed discussion about various compliance issues. A significant portion of these issues relate to various coding, billing, and reimbursement

issues. When you study the OIG’s compliance guidance, note the number of even smaller-print footnotes. In some cases the footnotes take up more space than the main text!

RAC Audits Now, where do the RAC audits fit into this overall picture? How are the RAC audits different from other auditing processes? We will discuss specific RAC audit approaches in Chapter 5 and a whole series of issues in Chapter 4. RAC audits are generally retrospective and deal with paid claims. Basically, unless the claim has been paid, the given claim will not be in the database of claims that the RACs can consider. Claims can be current in some sense. This means that a RAC could review a claim, assert that an overpayment has occurred, recoup the overpayment, and the healthcare provider would still have the opportunity to refile a corrected claim. For instance, if a RAC finds that a shortstay hospital admission should have been an outpatient observation, the RAC will recoup the entire MS-DRG payment. If the claim is current, that is, can still be refiled,* then the hospital can refile the claim and gain some, although limited, payment. The biggest difference with the RAC audits is the breadth and scope of the audits. Virtually every healthcare provider in the country will be subjected to some form of review or audits in the coming years. The OIG and DOJ activities affect only a limited number of healthcare providers. Medicare * See 42 CFR §424 for the rather convoluted algorithm describing how far back a claim can be corrected and refiled.

20  •  The Medicare Recovery Audit Contractor Program administrative contractors also have limited resources and tend to address more egregious issues. Also for the RACs, the breadth of topics that will be considered is limited only by the imaginations and creativity of the RACs themselves. While there is an approval process for issues that can be examined, CMS is most likely to approve almost anything that can possibly recoup any overpayments. The RAC audits are really a significant escalation in audits that have been, and will continue to be, made by various governmental entities. Thus, there is a significant foundation of known or, at least, suspected issues from which the RACs can launch their efforts.

What Happened to the Underpayments? As we discussed in Chapters 1 and 2, the main objective of the Medicare RAC program is to identify and correct improper payments. Logically, this means both overpayments and underpayments. However, according to the CMS January 2009 “Update to the Evaluation of the 3-Year Demonstration,” the underpayments amounted to only 3.67% of all the improper payments identified and addressed by the RACs. Why is this percentage so low? Even the CERT program finds 10% of the errors involve underpayments. Are the RACs really looking for underpayments? The RACs are paid on a percentage basis or contingency basis for finding improper payments. Thus, in theory, the incentive to find underpayments is the same as for finding overpayments. However, as we will explore, the whole Medicare RAC program has really been constructed and organized in order to find overpayments, not underpayments.

Consultants assisting a healthcare provider such as a hospital or clinic will generally look at the overall system flow from patient encounter all the way through claim payment. There are many subprocesses and associated questions. Consultants will look for patient services or items dispensed that never made it onto a claim. Missed charges and documentation deficiencies are always suspect. Perhaps additional training of physicians can assist in developing better diagnostic statements, which in turn assist in better coding that results in increased payments. The process of optimizing reimbursement typically involves either prospective audits or concurrent audits. It is the systematic process of providing services and the associated documentation, coding, billing, and reimbursement that can yield significant improvements. These are the two types of general auditing approaches that consultants have used for years to assist healthcare providers. Now healthcare providers have certainly used retrospective audits on a routine basis as well. For instance, hospitals typically have retrospective audits for inpatient services (e.g., Medicare MS-DRGs) and outpatient services (e.g., Medicare APCs). Physicians and clinics typically have annual audits of proper E/M level coding. If these retrospective audits detect any sorts of problems, which would be mainly overpayments, then further investigations can be conducted. Typically these types of annual audits do find sporadic overpayments and infrequently underpayments. However, if you really want to find circumstances in which underpayments, or sometimes nonpayments, are occurring, the overall reimbursement cycle must be examined, analyzed, and improved as appropriate. Simply stated, the Medicare RAC

RAC, OIG, and Medicare Audits  •  21 program has been constructed and oriented to find overpayments, not underpayments. CMS’s Approach for the RACs The RACs use data mining to identify possible problem areas. Automated reviews are retrospective reviews of paid claims. The automated reviews look for identified and potential aberrations in coding and billing by various healthcare providers. The complex reviews do actually look at the supporting documentation. However, the main intent of these reviews is again on a retrospective basis looking for specific issues such as medical necessity for hospital admissions. Typically, the intent of a complex review is to verify that the documentation justifies the provisions of service and also justifies the coding and associated claim that was filed. Also, the RACs look for weaknesses in the ­documentation relative to identified or potential overpayment problems. Have you ever heard of a RAC checking the documentation because of possible undercoding issues? The RACs can and will use other types of audits. For instance, the RACs can request a limited number of records, usually ten, in order to determine if a suspected problem area really is a problem.* This is a type of probe audit. However, do not confuse this type of small audits with probe audits that are conducted as part of the extrapolation process. These probe audits will be for thirty or more cases, depending upon the size of the universe being considered. The RACs are allowed to review current claims, but it is unlikely that this would include unpaid claims. Current claims in * These small probe audits are not included in the medical record limitation for complex reviews.

this case generally refer to the fact that you could refile the claims if the RAC found and substantiated an overpayment. Note that the time period for refiling claims is a rather convoluted algorithm found at 42 CFR §424, which is the “Conditions for Payment (CfP)” section of the Code of Federal Regulations. Bottom Line: If you have any hope that the RACs will find significant amounts of underpayments, most likely, this will never occur. The RAC auditing processes are geared to address paid claims, generally on a retrospective audit basis. While some underpayments may be found, underpayments are generally identified through either prospective audits or concurrent audits. These are the types of audits that consultants have used for years to assist healthcare providers in receiving proper payments.

Summary and Conclusion The Medicare RAC program is actually the product of a long line of audit programs that have addressed improper payments under the Medicare program. While there have been auditing activities ever since Medicare started, the CERT program was the most extensive up to the point of developing the RAC program. The biggest difference with the RAC program is the expansive nature of the auditing that will take place. Virtually every healthcare provider filing claims with the Medicare program will be affected. The general approach taken for the RAC program does not really address underpayments. The pilot program identified a little more than 3% underpayments; even the approach taken by the CERT program yields closer to 10% for underpayments.

4 Brief Review of Healthcare Payment and Payment Systems

Introduction The Medicare program has a number of very different fee-for-service payment systems. This includes fee schedules and several complex prospective payment systems. For organizations that are integrated delivery systems (IDSs), which include many hospitals, there will be several different fee-for-service payment systems in use. If you are a freestanding healthcare provider not integrated with other providers, you may have the luxury of dealing with a single fee-for-service payment system. However, the fact that your facility must navigate a single payment system does not alleviate situations in which you provide services based on a transfer of care from another provider. For instance, a freestanding skilled nursing facility (SNF) may encounter coverage difficulties if a patient is transferred from a hospital after a three-day stay in which the Recovery Audit Contractor (RAC) determines that three days was not medically necessary. In this case, the RAC may go on to claim that the SNF services were not covered based upon not meeting the three-day inpatient qualifying stay. The more you know, understand, and study the payment systems that your healthcare provider uses, or even those payment systems that might tangentially affect you, the more likely you will be to identify potential RAC audit issues. Because the RACs will be working for years in finding overpayments, there will be rather subtle issues that will eventually be addressed. In the next chapter we will discuss various RAC issues, most of which emanate from the different payment systems, and often from the way in which the payment systems interface to each other. We will discuss the fundamental claim adjudication requirements that are used by Medicare and other third-party payers as well. A breakdown in any 23

24  •  The Medicare Recovery Audit Contractor Program one of these adjudication requirements can cause a RAC to assert that an overpayment has occurred. Given the sometimes ambiguous and continually morphing guidance that the Medicare program provides, inadvertently healthcare providers may find that some aspects of the adjudication requirements are not being met.

Claims Adjudication Requirements When the Medicare program through its Medicare administrative contractors (MACs) receives a claim, there are a series of requirements that must be met in order for the claim to be processed and, hopefully, paid. The precise requirements will vary somewhat, depending upon the type of provider and the specifics of the given payment system. Here is a listing of typical criteria: • Covered individual • Covered service or item • Ordered by a physician or qualified practitioner • Medically necessary • Provided by qualified facility or healthcare personnel • Appropriate written documentation • Billing privileges with the Medicare program • Proper claim, filed timely There may be additional requirements. For instance, with hospital outpatient services, there is an incident to a physician’s services requirement.* In some cases, such * See Social Security Act §1861(s)(2).

as at an independent diagnostic testing facility (IDTF), there may be physician super­ visory requirements. Recently, the Centers for Medicare and Medicaid Systems (CMS) has been quite active in clarifying guidance for supervisory requirements for therapeutic services, with particular emphasis on provider-based clinics.† If any one or more of these adjudication requirements are not met, then a RAC auditor can claim that the payment for services was a total overpayment and demand recoupment. For instance, a review may be made of laboratory services in which there must be a physician’s order along with proper diagnostic justification. If the RACs request records and determine that orders are missing or that there are diagnosis coding insufficiencies, then overpayment may be asserted. Orders and medical necessity also become issues with services such as ambulance transport. All healthcare providers need to be extremely careful to consider these adjudication criteria. We will discuss selected issues that can apply to all healthcare providers, with an emphasis on hospitals and IDSs. First, let us consider a more complex example to show how subtle circumstances can become. Consider Case Study 4.1. What kind of exposure does AMC have? As with many issues involving the Medicare program, the rules and requirements surrounding physician supervision seem to morph over time. AMC should be concerned because: 1. The infusion services are not inside the four walls of the hospital, and thus this is an on-campus, but out-of­hospital, operation. † For instance, see Transmittals 82 and 101 to Publication 100-02, Medicare Benefit Policy Manual.

Brief Review of Healthcare Payment and Payment Systems  •  25

Case Study 4.1: Apex Medical Center Infusion Services The Apex Medical Center (AMC) has a rather extensive infusion center to provide chemotherapy, infusion services, blood transfusions, injections, vaccinations, and the like. This operation is attached to the hospital through a walkway from the main hospital lobby. Typically, physicians are not in the infusion center, although there are two specially trained and certified nurse practitioners employed by the hospital to provide services and also to be available in case of any emergencies. AMC’s RAC has decided to determine if proper physician supervision is being provided at the infusion center. The concern is that if the supervisory requirements are not being met, then all of the Medicare services provided will be considered as overpayments and recoupment demanded. 2. There are mid-levels providing the supervisory services. As of the preparation of this book, CMS has indicated that direct physician supervision is required for on-campus, but out-of-hospital, provider-based operations. Furthermore, due to the incident to a physician’s services requirement, nonphysician practitioners cannot qualify to meet the direct physician supervision requirement.* From a compliance perspective, each and every one of these adjudication criteria can be questioned by a RAC or other auditors for that matter. If there are deficiencies, they will likely be global in nature and thus could yield significant claims of overpayments. Covered Individual/Covered Services There should be relatively little problem with overpayments that are made for noncovered individuals. However, care should be taken to verify that the individual presenting for services is properly identified and that there is coverage. Over the years, healthcare providers have become accustomed to verifying * See Chapter 5 for a more detailed discussion of this evolving issue.

identity and then checking to make certain that coverage is in place. For the Medicare program there should be little ambiguity as to services or items that are never covered, that is, statutorily excluded from Medicare coverage. Medicare beneficiaries are supposed to know what services or products are not covered. As we will discuss, noncoverage due to lack of medical necessity is a very different issue. See also the whole issue of ABNs (Advance Beneficiary Notices) and NONCs (Notices of Non-Coverage). Generally this is an area in which the RACs will not become involved. Proper Orders with Appropriate Diagnostic Justification Ensuring orders from qualified practitioners with appropriate diagnostic justification (i.e., medically necessary services) is an ongoing challenge for healthcare providers­, particularly with diagnostic testing. For hospitals, care should be taken to routinely audit in this area. Certainly if a RAC were to perform probe audits and discover that orders are missing or that diagnoses are incomplete or the sources of diagnoses are

26  •  The Medicare Recovery Audit Contractor Program

Case Study 4.2: Diagnosis Codes from Patients During a routine review of cardiac and neurological diagnostic testing services the physician’s orders and associated diagnosis codes were reviewed for a sample of cases. While the physician’s order was generally present, the physician typically provided a single diagnostic condition (sometimes the diagnosis code) to justify the services. However, on the claim form there were multiple diagnoses that provided additional medical necessity justification. The encounter forms for the visits listed all of the diagnosis codes on the claim. A further investigation found that clerical staff at the time of encounters were simply asking the patients what diagnoses were causing the tests to be performed. questionable, then full-blown audits may occur. As with many issues of this type, you may need to review very carefully. See Case Study 4.2. Needless to say, for this case study, the hospital has a significant challenge. The diagnoses listed on the claim form may or may not be present in other documentation such as at the physician’s office. If the diagnosis codes are not justified, then the medical necessity for the services may be questioned and overpayments determined. Qualified Facility or Practitioner Both the facility at which services are provided and the actual practitioner providing services must be appropriately qualified. For facilities this can involve licensing, certification, accreditation, permits, inspections,

and the like. For individual physicians, practitioners, and other clinicians, this may involve professional credentialing, ongoing education, personal qualification evaluations, and the like. Both of these activities, qualified facility and credentialed practitioners, should be very routine and well defined. However, there are occasions when problems arise because the verification process breaks down. While the situation in Case Study 4.3 may sound far-fetched, there are instances in which healthcare personnel of various types do not meet all the requirements for their particular status. Obviously, if a RAC were to determine that there is a credentialing problem or that a facility is not meeting all appropriate requirements, then significant assertions of improper payments can be made and most likely sustained.

Case Study 4.3: Nonqualified Physician’s Assistant Serge is a physician’s assistant working at the Apex Medical Center’s family practice residency clinic. He has been there for more than three years and is very well liked by patients and is held in high regard for his capabilities as a practitioner. However, it was recently determined that he never completed his last course for becoming a PA. While he had taken the course, there was an incomplete on his record, and thus he did not meet all the requirements to be a PA.

Brief Review of Healthcare Payment and Payment Systems  •  27

Case Study 4.4: Observation Admission Justification Over the past several years the Apex Medical Center has been working with the medical staff concerning observation admissions. Progress has been made in that the physicians are now clearly indicating when they are admitting a patient to observation versus admitting as an inpatient. However, the physicians are not always clear about exactly why they are placing a patient in observation. When a patient comes through the ED, the attending physician admitting the patient to observation often only writes the order with little indication as to why the patient is being placed in observation. Appropriate Documentation Medical necessity and adequate documentation almost go hand-in-hand. The RACs, as with other auditors, will always be checking the documentation and ­making judgments concerning adequacy relative to justifying services. The simple fact is that when a physician encounters a patient, examines the patient, assesses the patient, and talks with the patient, an enormous amount of information concerning the patient is gathered, but only a small portion of the information is formally documented. The critical element is that the appropriate and necessary data and information be documented in order to provide medical necessity justification. Both of these case studies illustrate how important clear, concise, and convincing documentation is for justifying the provision of services. Needless to say, the RACs will certainly be reviewing observation

admissions for clear, convincing documentation that provides medical necessity for the observation admission. Medicare Billing Privileges Gaining billing privileges for payments from CMS has become increasingly complex over the years. Today, healthcare providers must navigate their way through the infamous CMS Form 855. There are five ­different forms: • 855-A—Institutional Providers—Part A • 855-B—Clinics and Associate Providers—Part B • 855-I—Individual Practitioners • 855-R—Reassignment • 855-S—DMEPOS Depending upon the specific healthcare provider, there may be multiple 855 forms

Case Study 4.5: Observation for Social Reasons Sarah, an elderly patient from Anywhere, USA, presents to the Apex Emergency Department in the evening. She is provided a complete workup along with extensive diagnostic testing. No specific problems are identified and as the evening goes on she feels a little better, although she is still a little dizzy. At 2:00 a.m. the ED physician writes an order to admit Sarah to observation because there is nobody to care for her at home.

28  •  The Medicare Recovery Audit Contractor Program

Case Study 4.6: Apex Medical Center and CMS Form 855 The Apex Medical Center is a hospital that has really become a small, integrated delivery system. There are several provider-based clinics, thirty employed physicians and practitioners, a home health agency, a skilled nursing facility, and a durable medical equipment (DME) store right inside the front entrance of the hospital. Sylvia has been asked to take over the job of filing and maintaining the various CMS-855 forms. How many forms does AMC need to maintain? that must be submitted and, most importantly, kept up to date in a timely fashion. For anyone that has had the privilege of filling out one of these forms and then stewarding the form through the approval process by CMS understands that even a single form can be a real challenge. For AMC in Case Study 4.6, there will probably be upwards of a hundred different CMS-855 forms to be maintained and appropriately updated when changes occur. The rules and regulations for obtaining Medicare billing privileges are found in 42 CFR §424, which is sometimes referred to as the conditions for payment (CfPs). You will find other interesting information in this part of the Code of Federal Regulations. For instance, the timing limits for refiling claims is found in this section. Here is a small example in the form of a case study. See Case Study 4.7. The answer, as found in 42 CFR §424, is that the patient is kept as an inpatient and payment is made through the overall

Medicare severity diagnosis-related groups (MS-DRG) payment. While it is unlikely that this will become a RAC issue, a complete understanding of the conditions for payment is important. Will the RACs be interested is reviewing the billing privileges of healthcare providers? Given all of the complexity and associated rules in this area, a RAC might well be interested. If a substantive error were found in the information on file by CMS, then it would be easy to claim that overpayments had occurred because the healthcare provider did not really have billing privileges even though covered, appropriate services were provided. Correct Claim, Filed Timely Claims must be filed within certain time frames. For the Medicare program the time frames for claims filing and refiling involve a somewhat convoluted algorithm delineated in the CfPs. While healthcare

Case Study 4.7: No Skilled Nursing Beds The Apex Medical Center does not provide skilled nursing services. There are two skilled nursing facilities located within a few blocks. Apex is running into a problem in which a patient is ready for discharge to a skilled nursing bed, but there are no beds available. The patient is kept for up to a week at Apex. Apex is planning to code and bill this as observation services.

Brief Review of Healthcare Payment and Payment Systems  •  29 providers may miss a deadline and thus lose out on the payment, being overpaid for a claim that is not filed within the proper time frames is unlikely. The whole concept of correctness is very much a different issue. The goal for any healthcare provider is to file claims to Medicare that are complete and accurate following all of the standard coding and claims filing requirements. While accuracy of claims is certainly an issue, the fact that the claim is in a standard format using standard code sets will rarely be an issue. Medicare Payment Systems* The Medicare program pays for services in different ways. The RACs concern themselves mainly with fee-for-service payment systems. The two main forms are: • Fee schedules • Prospective payment systems The more you understand the Medicare payment systems, the better prepared you will be for identifying and addressing RAC issues. Also, be certain to constantly study the interface between payment systems because these interfaces provide rich sources of potential improper payments. Note:╇ CMS provides extensive information concerning its various payment systems at its main website: http://www.cms.hhs.gov.

Medicare Fee Schedules The Medicare program uses a number of different fee schedules to pay for healthcare * See Dr. Abbey’s Introduction of Healthcare Payment Systems, published in 2009 by CRC Press, for further information.

services and healthcare items. Among the types of services and types of providers addressed by various fee schedules are: • Physicians and practitioners • Physical and occupational therapy (PT/OT) • Comprehensive outpatient rehabilitation facilities (CORFs) • Independent diagnostic testing facilities (IDTFs) • Clinical laboratories • Ambulance • Durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) Fee schedules use some sort of detailed classification system, and then an amount, the fee, is paid for the service or item. The typical classification systems are Current Procedural Terminology (CPT) and Healthcare Common Procedure Coding System (HCPCS). These are both standard code sets under the HIPAA Transaction Â�Standard/Standard Code Set (TSC). The American Medical Association (AMA) develops and maintains CPT and CMS develops and maintains HCPCS. The ambulance fee schedule is a little different. The classification process involves the type and level of ambulance service and then the loaded mileage. The basic use of a fee schedule is that a healthcare service is provided or item dispensed, the service or item is coded, and then the fee schedule pays the amount on the fee schedule for that code. At a fundamental level, the way in which overpayments can occur is if incorrect codes are developed (upcoding) or the underlying documentation is missing that would support the use of a given code. As we shall see, fee schedule payment systems are a bit more

30  •  The Medicare Recovery Audit Contractor Program complicated because additional features have been added. Note that a major difference between prospective payment systems (PPSs), discussed in the next section, and fee schedules is that with fee schedules the payment is the lesser of the amount charged or the fee schedule amount. With PPSs, a given payment is always made regardless of the amount charged. Probably the most complex fee schedule is the Medicare Physician Fee Schedule (MPFS), which is based on the ResourceBased Relative Value System (RBRVS). This fee schedule provides payments for most CPT codes and selected HCPCS codes, at least those that represent procedures or ­services. RBRVS is freely available from CMS and has major updates on a calendar basis. As you might imagine, significant add-on features have been developed for MPFS. Because correct coding is so important, CMS has developed the National Correct Coding Initiative (NCCI), which consists of approximately three hundred thousand code pairs that are not used together. Well, they are not used together unless there is justification to code both, and then they use a modifier, namely, the -59 or distinct procedure modifier. A quick observation is that overpayments could result from the incorrect use of the -59 modifier. Do you suppose the RACs will be auditing this issue? CMS has also developed a global surgical package (GSP) for the MPFS. The basic idea is that when a physician is paid for a surgical procedure, there is a package payment that includes certain preoperative and postoperative services along with the surgery. For instance, if the surgeon provides the mandatory presurgery H&P the day before surgery, then the surgeon is not separately paid for this service because the

service is related to the surgery and is in the one-day window preceding the surgery. Of course, if a different physician performs this H&P, then separate payment outside the GSP is made. On the postoperative side, there is one of three different postoperative periods: zero days, ten days, or ninety days. A  surgeon may provide postoperative care for thirty days, then turn the postoperative care over to another physician for the next sixty days. There are some complex coding requirements and use of a special modifier to handle this type of situation, and this will almost certainly be a RAC issue at the ­physician level. Another feature of RBRVS is that there is a payment difference for physicians depending on where the services are located. If the services are provided in a freestanding clinic, then full payment is made. However, if the services are provided in a facility setting, such as a hospital, then there is a reduction in payment for some services because the physician is not incurring any overhead expense. This special feature of the MPFS allows for a major payment system interface between MPFS and APCs. MPFS provides for a rather complex geographic adjustment in payments. Also, there may be special payments for healthcare personnel shortage areas (HPSAs) and physician scarcity areas (PSAs), both of which are geographically driven, often down to the zip code level. What if for some reason a physician, clinic, or hospital were to report services in an incorrect location? Perhaps the services are reported as being performed at the billing location (i.e., from which the claims are filed) as opposed to the actual location of service. Tie this into the need to keep those CMS-855 enrollment forms up to date with the proper practice locations and you can understand

Brief Review of Healthcare Payment and Payment Systems  •  31 how geographic payment adjustments may be made incorrectly either as an underpayment or as an overpayment. While we have just scratched the surface for special features and characteristics of the MPFS, let us look briefly at the ambulance fee schedule, which is somewhat different. In order to use the ambulance fee schedule we must determine certain basic information. This includes: • Type of service • BLS—Basic life support • BLS–Emergency • ALS—Advanced life support • ALS1–Emergency • ALS2 • SCT—Specialty care transport • PI—Paramedic intercept • Mode of service • Ground • Water • Fixed wing • Rotary wing • Loaded mileage • Point of pickup (POP) • Date of service (DOS) There is a limited set of HCPCS codes. We will look at only two as an example: • A0425—Ground mileage, per statute mile • A0427—ALS 1–Emergency Thus, if the loaded miles are 10 and this is in an urban area, then we simply need to multiply the fee schedule amounts times the units. Using simplified payment amounts we would have:

10∗$7.00/mile + $370.00 = $440.00

Case Study 4.8: Hospital Ambulance Interfacility Trips The Apex Medical Center has its own ambulance service. Also, Apex now has two hospitals as part of a system. The two hospitals are approximately 20 miles apart. In order to provide greater economies of scale, Apex has decided to perform coronary catheterizations at the new hospital. If a patient at the older hospital needs a coronary catheterization, then the ambulance takes the patient to the newer hospital for the procedure and brings him or her back to the older hospital after the procedure. As you would properly infer from the statement in the example, there are geographic adjustments. So what could go wrong in coding, billing, and gaining reimbursement for ambulance services? Actually, there are many different challenges with ambulance services. Probably the biggest challenge is that of medical necessity. Was the ambulance service even necessary, that is, could regular transportation be used? Or was an ALS1 ambulance used when only BLS services were needed? Also, correct reporting of point of pickup, the reporting of mileage, and even date of service can become problems. In Case Study 4.8 we will look at another case in which payment systems come together, or what we are calling interfacing. As with many healthcare situations, everything in this little case study appears to be quite reasonable. However, how is Apex going to code and bill for the ambulance services? Will there be a payment

32  •  The Medicare Recovery Audit Contractor Program under the ambulance fee schedule or is this just a part of the MS-DRG payment? This is an example of the ambulance fee schedule interfacing to the inpatient prospective payment­system. There are similar instances when an ambulance might be used relative to the outpatient prospective payment system as well. As always, the more you know about any fee schedule system that is used to pay for your healthcare providers’ services, the more likely you are to recognize situations in which overpayments might occur. The RACs look for these situations with intensity­, and your ability to prevent overpayments is to study and understand. While fee schedule payment systems can be complex, the prospective payment systems that we will briefly examine are even more complicated. Medicare Prospective Payment Systems In recent years CMS has significantly increased the number of different prospective payment systems (PPSs) and thus increased the different types of services covered by a PPS. The oldest PPS is the ­diagnosis-related groups, or MS-DRGs. Due to a major overhaul of MS-DRGs in 2008, you will see them referred to as MS-DRGs, or Medicare severity MS-DRGs. Another major PPS was implemented in 2000 for out­patient services, namely, Ambulatory Payment Classifications (APCs). There are now also systems for: • • • •

Skilled nursing facilities (SNFs) Home health agencies (HHAs) Long-term healthcare (LTHC) Inpatient rehabilitation facilities (IRFs)

Understanding and keeping up to date for any one of these PPSs is a full-time career. Not only are these systems complex, but they constantly change. There are major annual updates, and then periodic updates throughout the period between annual updates. For RAC purposes, you should study these PPSs from the perspective of how a RAC might interpret overpayments arising­. For instance, how can hospitals cheat or game these PPSs? We will briefly discuss MS-DRGs and APCs from this perspective. MS-DRGs use diagnosis coding to drive a given case to a MS-DRG category. Both diagnosis codes and procedure codes are used. Note that these are the procedure codes from ICD-9, which are now scheduled to become ICD-10-PCS* in 2013. From a coding perspective, the diagnosis coding is all important. Because coding can’t be any better than the documentation, the documentation systems then become important. Cases for MS-DRGs involve a hospital admission and then discharge. Cases are coded after the discharge when all of the documentation can be assembled and properly reviewed. The cases are then grouped through MS-DRG grouper software and a single MS-DRG is generated that provides payment on a bundled basis. While this process seems to be straightforward, there are a number of overpayment issues that can arise. If the inpatient discharge is to a SNF or HHA, then there may be a reduction in MS-DRG payment as long as the discharge status is correctly reported. This is the MS-DRG transfer rule. Also, ­certain services provided up to three dates of service before the inpatient admission must be bundled into the MS-DRG billing and not * PCS stands for procedure coding system.

Brief Review of Healthcare Payment and Payment Systems  •  33 paid as separate outpatient services. This is the MS-DRG preadmission window. Also, there can be complications in the system depending on what happens after discharge. For instance, what if a patient is discharged from one hospital in the morning and is then admitted to a different hospital in the afternoon? Or a patient may be discharged from the hospital on a Wednesday and then readmitted on the next day. Perhaps the patient should not have been discharged in the first place and the discharge-readmission process was used to gain two MS-DRG payments instead of one MS-DRG payment. APCs are encounter driven. A patient comes to a provider, services are provided, and the patient leaves. Typically, encounters are equated to a date of service, although there are exceptions. For instance, a patient may present twice to the ED, possibly for the same reason; however, these are considered two separate encounters because there is resource utilization in both cases. Also, a service such as observation may span up to three dates of service, but the observation services are considered one encounter. CPT codes are used to drive the APC grouping. While the use of CPT codes is ­similar to physician’s use of CPT, the basis for coding is slightly different. Physicians code for the services that they perform; ­hospitals code for resources that are utilized­. While this may not appear to be a major issue, there are instances where this distinction is significant. The best example is with the evaluation and management (E/M) codes. CPT gives guidance to physicians relative to their activities, but hospitals are left to their own devices to developing mappings of resources utilized into the various E/M levels.

Overpayment concerns with APCs are very similar to physician overpayments under the MPFS. Examples are improper coding, incorrect use of modifiers, documentation issues, and the like. For instance, physicians have a well-defined global surgical package (GSP), whereas hospitals under APCs have no surgical package outside the date of surgery. Also, hospitals code and bill for injections, infusions, and chemotherapy services, whereas physicians generally do not. Observation is an issue for hospitals, while physicians are paid about the same for inpatient visits and observation visits. Prospective payment systems may also group services by documentation more than by a standard coding system. This is particularly true with SNFs and HHAs. For these PPSs, documentation is directly developed relative to an acuity-of-care ­system, which then translates into payments. The details and variations within these PPSs are quite significant, and there will be many RAC overpayment issues that will surely be developed over time. Also, in some cases payment systems may be used together. For instance, with ambulatory surgical centers (ASCs) a hybrid of APCs and the MPFS is used for payment. Medicare Payment System Interfaces In Chapter 5 we will analyze and discuss typical RAC overpayment issues. One of the richest sources of possible overpayments occurs where two (or more) payment ­systems interface. For example, a surgical procedure might be performed in one of three settings: 1. Hospital—Inpatient 2. Hospital—Outpatient 3. Ambulatory surgical center

34  •  The Medicare Recovery Audit Contractor Program There are three different payment systems that may generate significantly different payment amounts depending upon the site of the services. The site for services is generally determined by the physician providing the services. However, a RAC auditor might claim that a higher-paying site was used when a less expensive site of service would have sufficed. This is a medical necessity issue, which we will see is a major, although subjective, issue for the RACs. Another type of interface between payment systems occurs with provider-based clinics. These are generally hospital clinics that are organized as part of the hospital itself. A number of requirements must be met under the provider-based rule (PBR) found at 42 CFR §413.65. Because two claims are generally filed, that is, a UB-04 for the technical, hospital component and a 1500 for the professional, physician component, CMS has established a special payment process. The hospital receives full payment under APCs for the technical component, while the physician receives a reduced payment amount under the MPFS. The reduction is called the site-of-service differential, and the reduction process is embedded in the RBRVS relative value units. Hospitals recognize that increased payment can be gained by organizing clinics that are provider based. Thus, the whole area of provider-based clinics will certainly be scrutinized by the RACs. If a RAC can establish that any of the criteria required for provider-based status are not being met, then significant overpayments could be claimed due to the relatively high volume of encounters. Payment system interfaces abound. Another example might be when a SNF resident comes to the hospital for outpatient services. Some outpatient services are

included in the SNF benefits while others are directly payable to the hospital. Physical therapy services are often provided to HHA patients and SNF residents. Is it possible that the hospital might erroneously bill for the PT services when the payment is actually included in the SNF or HHA payment? Bottom Line: The more you learn and understand about the different Medicare payment systems, the better able you will be to identify and resolve possible payment issues before a RAC can potentially determine that there is some sort of overpayment.

Summary and Conclusion There is a rather extensive checklist of conditions that must be met before a claim can be properly adjudicated and paid. The actual list will vary between different types of providers and different payment systems. We have briefly examined requirements such as: • Covered individual • Covered service or item • Ordered by a physician or qualified practitioner • Medically necessary • Provided by qualified facility or healthcare personnel • Appropriate written documentation • Billing privileges with the Medicare program • Proper claim, filed timely The failure to meet any one or more of these requirements could result in claims of overpayment by a RAC. Note that for a given provider there may be additional

Brief Review of Healthcare Payment and Payment Systems  •  35 requirements that could create problems. In some cases, various levels of physician supervision are required. For hospital outpatient services, an additional requirement is that the services must be incident to those of a physician. The Medicare program has a number of different, extremely complex payment systems. The architecture of any payment system used for your provider type must be studied and thoroughly understood. Two of

the significant types of fee-for-service payment systems are: • Fee schedules • Prospective payment systems The more you know and understand these payment systems, the more likely you will be able to identify possible overpayment issues and then avoid them before the RACs have the opportunity to demand recoupments.

5 RAC Audit Issues

Introduction The Medicare Recovery Audit Contractor (RAC) program looks at issues involving possible overpayments. While underpayments are also officially part of the mission for the RACs, the percentage of identified underpayments is quite small compared to overpayments that have been identified. There are many RAC issues. Some issues are endemic to a particular payment system and type of healthcare provider, while others can cross over payment systems and involve different types of healthcare providers. One of the richest sources of RAC issues is when two different payment systems interface. There is no easy way to classify issues that the RACs can and will probably address. While the scope of work (SOW) for the RACs may be delimited, almost any issue that possibly generates overpayment will probably be addressed eventually. One way to classify issues is illustrated in Table 5.1. This classification is not really discrete. Sometimes the difference between an objective mistake, for example, a coding error, and a subjective judgment is not really clear. The coding error may have resulted from incomplete or conflicting documentation so that the adequacy of the documentation can become a subjective issue. The coding error may have resulted from incomplete guidance from the Medicare program or misinterpreted guidance. Table 5.1 Simple RAC Issue Classification Objective Subjective

Current

Potential/Future

Error based on guidelines and directives within SOW Overpayment asserted based on judgment of RAC auditor within SOW

Error based on guidelines and directives to be identified or with an expanded SOW Overpayment asserted based on judgment of RAC auditor to be identified or with an expanded SOW

37

38  •  The Medicare Recovery Audit Contractor Program We will look at some of the underlying issues that generate overpayments. These underlying issues often apply to all types of healthcare providers. The overarching payment compliance issue is, and always has been, medical necessity. After we discuss some of the underlying issues, we will continue with some of the known or already identified issues for different types of healthcare providers. When possible, we will also project into the future to look for potential areas in which overpayments might be asserted. Looking into the future is one of the most difficult tasks for coding, billing, and reimbursement (CBR) compliance personnel. However, if we can identify an issue that will come into focus several years down the road, it is now that we can address changes that will make certain we are in compliance in the future. Note:  Possible RAC issues are discussed throughout this book. Some of the discussions in this chapter will be continued and refined in Chapter 7 relative to preparing appeal justifications.

Underlying Compliance Areas Almost every aspect within the coding, ­billing, and reimbursement cycle can present challenges, as we discussed in Chapter 4. From Medicare’s perspective, or for any private third-party payer, the sequence of considerations is: • Covered individual • Covered service or item • Ordered by a physician or qualified practitioner

• Medically necessary • Provided by qualified healthcare personnel • Appropriate written documentation • Proper claim, filed timely • Claim properly adjudicated and paid For Medicare to pay for services provided or items rendered, the individual must be covered, that is, a Medicare beneficiary. For Medicare this does not generally present a particular problem relative to overpayments. Potentially an individual could gain services and Medicare would pay, after which it is discovered that the individual was not who he or she claimed to be or there was some sort of glitch in the fact that he or she was covered by the Medicare program. Coverage is very much a different issue. The term covered must be used with care, particularly under the Medicare program. Generally a service or item is not covered if it is never paid by Medicare. Well, this is a little strong, and the confusion comes from the fact that a service or item may be deemed not covered due to lack of medical necessity. For instance, a given dermatological procedure may be considered to be noncovered because it is cosmetic in nature. However, the same surgery may be covered if it is reconstructive after an accident. There are some services that are never paid, such as ophthalmic eye refractions. Even with this type of example, there could be situations in which coverage might apply. In a few instances, coverage is conditional, that is, based upon some other preceding event. Probably the best example, and a major RAC issue, is that for skilled nursing facility (SNF) services to be covered, there is a three-day inpatient qualifying stay. Other examples include cases in which a ­formal plan of care must be developed before

RAC Audit Issues  •  39 coverage will be made. Examples of this include areas such as home health services and physical and occupational therapy. While coverage can be an overpayment issue, more likely the coverage is aligned with medical necessity. Medical necessity is the overarching issue in the coding, billing­, and reimbursement world. This is a subjective issue that has created significant compliance challenges. A good example is outpatient observation services. Hospitals have struggled with observation services for years. For many years, the Centers for Medicare and Medicaid Systems (CMS) refused to pay for observation services and then CMS started to make payment for some of these services. As we will see, observation services versus short-stay hospital admissions (i.e., inpatient admissions) is a major RAC area. For services provided or items rendered to be reimbursed, a physician or qualified practitioner must order the services. For payment purposes this is not generally a major issue. When you move into the world of nonphysician practitioners, professional payment under the Medicare Physician Fee Schedule (MPFS) can become complicated. Among the issues that can arise are supervision rules relative to providing incident-to services. The phrase incident to has two very distinct interpretations depending upon the circumstances in which services are provided. The supervision issue carries over into the requirement that the services be provided by qualified medical personnel. Many healthcare services are provided by personnel other than physicians or practitioners. In  most instances some degree of super­ vision of these personnel must be maintained. An obvious RAC issue that can claim overpayments is to have services provided

for which there is not proper supervision. A variation on this concept is possibly the fact that the degree and type of supervision is not properly documented, even though it may have been provided. The maxim “If the service isn’t documented, then it wasn’t provided” has long been enunciated by Medicare auditors and healthcare coding staff. Obviously, services can be provided for which payment should be made, but if these services are not documented, then payment will not be made or, for the RACs, should not have been made. This issue can arise rather subtly, particularly if the person providing or observing the services is coding and billing for the services. While the services were provided, the real question is whether they are properly documented. The question of proper documentation can be objective (i.e., is the documentation present?) or subjective (i.e., is the documentation sufficient?). Beyond the written documentation concern is the rather large and complex area of properly developing a claim and then filing in an appropriate and timely fashion. Properly developing and ­filing claims is and probably will continue to be a major challenge for the Medicare program as well as for all third-party ­payers. The light on the horizon is the HIPAA Transaction Standard/Standard Code Set (TSC) rule. HIPAA TSC is designed to bring electronic data interchange (EDI) to the world of healthcare claims filing and payment. Through the use of standard code sets, theoretically, a healthcare provider can provide a given service and file a standard, uniform claim to all third-party payers. Given all the different types of payment systems, even if we consider just Medicare, this is an elusive goal. The final stage in our informal reimbursement cycle is the process whereby the

40  •  The Medicare Recovery Audit Contractor Program claim that is submitted is adjudicated and payment made. This process is outside the healthcare provider’s control, and the claim adjudication is made by the appropriate Medicare administrative contractor (MAC). Presuming that a proper and correct claim has been filed, is it possible that an overpayment could still be made? Yes, this is still very much an issue because the MAC may not correctly adjudicate the claim for any number of reasons. If the healthcare provider is paid through an improper claim adjudication process, then the RACs could still claim that overpayments occurred and pursue recoupment. For instance, the Medicare outpatient payment system Ambulatory Payment Classifications (APCs) is an extremely complex payment system that is still evolving, with major changes occurring almost every year. While hospitals struggle to code and bill correctly, the MACs face the challenge of correctly adjudicating claims. Is there a possibility that the RACs will find some process by which the MACs have incorrectly adjudicated claims? As an example, which may be a future issue,* when APCs were implemented in 2000, CMS decided to pay separately for evaluation and management (E/M) services that were distinct for any associated surgery performed on the same date of service. However, no technical component guidelines were developed to guide hospitals in determining the correct E/M level. In the April 7, 2000, Federal Register entry,† hospitals were directed to develop their own mappings and use them. Thus, hospitals around * Be sure to check for current applicability when you read this text. † See April 7, 2000, Federal Register, p. 18451 (65 FR 18451).

the country are all using different mappings, and the MACs basically adjudicate whatever codes are submitted. What is the probability that an auditor (RAC or otherwise) would judge that some hospitals have inappropriately elevated their E/M levels? The simple fact is that the adjudication process may break down with the MAC improperly paying for services provided or items rendered. If this is the case, even though the error is with the MAC, you as the provider will still be held accountable for any overpayments. As mentioned in Chapter 4, this set of adjudication requirements may need augmentation, depending upon the specific type of healthcare provider. For instance, in physical therapy and home health services there must be a written plan of care. Not only must the physician order the ­services, but there must be an assessment with the physician signing off on the plan of care. In some settings services may be provided by nonphysician personnel. However, there should be appropriate supervision by a qualified physician or practitioner. In the ­hospital setting, the Social Security Act mandates that payable services be incident to those of a physician’s service.‡ Thus, in any situation in which a physician is simply ordering a service provided in the hospital setting and the physician is not present or directly involved, some care must be taken to ensure that this incident to a physician’s service requirement is met. Consider Case Study 5.1. A key element in this case study is that there is a report going back to the physician so that the incident-to requirement is being achieved. Bottom Line: The generalized adjudication process applies to virtually all types of ‡ See SSA §1861(s)(2)(B), “Hospital Services.”

RAC Audit Issues  •  41

Case Study 5.1: Medication Management Clinic The Apex Medical Center has established a medication management clinic in the hospital right next to the pharmacy. This clinic is open on Tuesday, Thursday, and Saturday mornings. A pharmacist provides services that are mainly oriented to checking Coumadin levels and adjusting dosages. The community physicians order these tests, and the hospital sends the results back to the physician. The test and the encounter, coded as a level 1 E/M (99211), are billed on the UB-04. healthcare services. In some cases you will need to consider additional issues that may be specific to a particular type of service or services in a specific setting. Almost every aspect of these adjudication criteria can ­create potential claims of overpayments. Note: The discussion of issues, both specific and the more general underlying causes, will be continued in Chapter 7 when we consider appealing RAC claims of overpayment. Identifying issues and then reacting to those issues through proper policy and procedure development may need to be followed by defending decisions that you have made based upon your research and understanding of guidance from the Medicare program. Medical Necessity Medical necessity is the overarching compliance issue for all healthcare providers. The Medicare program along with myriad other third-party payers is always questioning

whether certain services are really necessary. Two aspects of this issue are troubling: 1. Medical necessity is subjective and judgments must be made. 2. For Medicare and other third-party payers, the judgment of medical necessity is made after the fact. For many years the OIG has questioned the volume of diagnostic tests that are performed in the emergency departments of hospitals. Often a physician may be probing to determine the exact nature and cause of an individual presenting through the ED. In some cases tests are performed to rule out certain conditions or diagnoses. After the patient’s condition has been ascertained, certain diagnostic tests will be recognized as unnecessary. However, does this mean that some sort of overpayment has occurred? While this is an interesting question, you can be assured that the RACs will certainly look at the ED situation among other areas. For hospitals, the quintessential example for medical necessity is the issue of short hospital admissions that are not medically necessary. In other words, the patient could have received appropriate services in a lower acuity level setting, most likely outpatient observation. Ostensibly, the propriety of a hospital admission should reside with standard criteria such as those in InterQual or Milliman®. CMS has not formally adopted any specific set of admission criteria. Thus, the RACs are not required to use these admission standards, although they may use them to some degree. Thus, a given case can be reviewed after the fact and assertions can be made that the inpatient admission was not medically necessary.

42  •  The Medicare Recovery Audit Contractor Program

Case Study 5.2: Changing Inpatient Status to Observation Utilization review (UR) staff at the Apex Medical Center have been working very diligently on short-stay hospital admissions that could or should have been observation stays. In some cases, UR staff must review these cases after the patient has been discharged, so that Condition Code 44 cannot be used to change the status because the patient is not in the hospital.* In cases like this, the UR staff are meeting with the physicians and getting them to indicate that the inpatient admission was simply a clerical error and that they should have been observation patients. * Note that the Medicare program does not accept the National Uniform Billing Committee’s (NUBC’s) definition of Condition Code 44. For Medicare the patient must still be present in the hospital.

The impact of such a determination, if upheld through the appeals process, is quite significant. The hospital will lose the MS diagnosis-related group (MS-DRG) payment, which will most likely be several thousand dollars. If there are appropriate time frames, the hospital should be able to code and bill for observation, but then there is the question of changing the status of the patient and proper use of Condition Code 44. Also, if the inpatient admission was not medically necessary, then the physician who admitted the patient and billed for inpatient services will also lose these payments. Again, the physician may be able to file a replacement claim if within the time frame for filing claims. Case Study 5.2 presents some interesting challenges. In theory, if the hospital admission was not justified, that is, did not meet inpatient criteria, and the patient status was not properly changed (i.e., using Condition Code 44), then there should be no payment at all. However, if a simple error is being corrected, even after the fact, everything should be alright. How do you think a RAC might look at this type of situation? Medical necessity concerns are pervasive and tend to appear in many different settings. Here are two more brief examples. First, consider knee replacement surgeries

at hospitals. This is certainly an inpatient service, but how long does the patient need to be kept in an inpatient setting? Typically, patients are in the hospital three days or more. This turns out to be very convenient because a three-day stay is necessary in order for the patient to qualify for skilled nursing services. What if a RAC performed an audit and judged that in some of the cases the patients could have been moved to skilled nursing after only two days? While the hospital will lose some reimbursement due to the MS-DRG transfer rule, the skilled nursing facility (SNF) will lose all reimbursement­ from Medicare. The physician or physicians involved will also lose reimbursement because they charged for services that were not covered under Medicare. Second, let us consider critical access hospitals (CAHs).* These hospitals are costbased reimbursed. So how can the RACs claim that overpayments are occurring? The primary concern is overutilization. The longer the patient is in the hospital, the greater the costs. While there is an average aggregate limit on how long an individual can be in an inpatient bed, observation services * Yes, critical access hospitals are subject to the RACs. See further discussions later in this chapter.

RAC Audit Issues  •  43 do not count toward the inpatient limitation. Thus, a patient could be in observation for two days and then an inpatient for four days. A RAC, after reviewing the documentation, may determine that only two days as an inpatient was necessary. Thus, there is overutilization, which drives inappropriate costs and an associated overpayment. As you study and review different RAC issues, you should start to recognize that the medical necessity issue is quite significant. Think about medical necessity and ambulance services. Do patients ever use ambulances as a taxi? What about a fancy wheelchair versus a standard wheelchair? In theory, medical necessity should not be a major issue for two reasons. First, medical necessity is a judgment call that should be left to physicians and qualified practitioners. For instance, if a physician determines that a patient should be admitted to the hospital, then that is what should be done. The physician bears the medical-legal liability for the decision making. Second, when a claim is filed with the appropriate services and diagnosis codes, the adjudication system should be able to determine if the diagnosis codes justify the services being provided. If not medically necessary, then the claim can then be rejected and payment not made. Of course, the next level of argument is that while the services were medically necessary (i.e., proper diagnosis codes), the documentation was not adequate to support the medical necessity. Again, a subjective process that will create significant appeal processes. Payment System Interfaces Another area in which RAC overpayment issues occur is where payment systems interface. Actually, we have seen this with

the medical necessity discussion above, and we will see it again with some examples in the next section addressing ­inadequate guidance. The various Medicare payment systems have been designed and maintained in separate silos, to use a business metaphor. The separate silos have not been positioned so that they come together smoothly. This is why the whole question of site of service is so important. For example, a physician may decide that a patient needs to have ­cardiac stenting services. The physician may judge that this should be on an ­inpatient basis. However, a RAC may maintain that the stenting procedure could have been performed on an outpatient basis. Now if the interface between DRGs and APCs, in this case, was smooth, that is, there is not a large payment difference, then there would be ­little concern. However, the difference in payment amounts can run into the thousands of dollars. Thus, the RAC will tend to look at the site of service to see if there is any possibility that the service could have been performed in a less costly setting. Another complex payment system interface occurs between Ambulatory Payment Classifications (APCs) and Medical Physician Fee Schedule (MPFS) for provider-based clinics. Over the past two decades, hospitals have developed provider-based clinics in order to take advantage of significantly increased payment. The increased payment occurs because for provider-based clinics, both a 1500 professional claim form and a UB-04 technical claim form are filed. While the physician does receive a site-of-service reduction* through the MPFS, the physician’s loss is significantly less than the associated APC payment. The net result for * See Resource-Based Relative Value System (RBRVS) for facility versus nonfacility relative value units (RVUs).

44  •  The Medicare Recovery Audit Contractor Program a hospital with extensive provider-based ­clinics can be millions of dollars in additional payments. Do you think that the RACs will be interested in making certain that hospitals meet all of the requirements in the provider-based rule? The DRG payment system has a number of unusual features. There is the DRG preadmission window, in which certain outpatient services are to be bundled into the billing for the inpatient stay. The proper application of this process can become quite complicated, particularly if either freestanding clinics (owned or operated by hospitals) or provider-based clinics are involved. Similarly, for MS-DRGs the discharge ­   status of a patient may drive a reduction in the MS-DRG payment. At the time a patient is discharged from the hospital, there may be no plans for the patient to go to skilled nursing or under a home health plan of care. Thus, the hospital may not know that the patient has been moved to one of these types of services, and the discharge status is incorrect and there may be an overpayment. As with medical necessity, issues with payment system interfaces abound. When performing assessments or gap analyses, be certain to check for problems that are created­in moving patients to and from settings that have different payment systems. Inadequate Guidance Another general area that generates RAC issues is inadequate guidance from CMS, or at least the lack of timely guidance. This is particularly true with relatively new, complex payment systems in which CMS is basically developing the system as it is implemented. A particularly stark example­of this is the Ambulatory Payment Classifications payment system. Even after ten years of

implementation this payment system is barely under control, and there are certain areas where guidance has been minimal, but yet hospitals will be held to certain standards that seem to be developed after the fact. A prime example of inadequate guidance is with hospital outpatient E/M coding and the use or nonuse of the -25 modifier. When APCs were implemented on August 1, 2000, CMS (then the Health Care Financing Administration [HCFA]) decided to pay separately for E/M services. In order for separate payment to occur, the -25 modifier had to be used. This is a Current Procedural Terminology (CPT) modifier that indicates that a “significant, separately identifiable” E/M service has been provided in conjunction with a diagnostic or therapeutic service. The description of this modifier, as found in CPT, is essentially the same. Application of this modifier, as well as the E/M codes themselves, must be translated to the hospital­side with some care. CMS’s move to pay separately for E/M services came as a surprise because the precursor system, Ambulatory Patient Groups (APGs), bundled the E/M services if there were any associated procedure. Additionally, CMS did not provide any sort of national guidelines on the use of the E/M code on the hospital side. Instead, in the April 7, 2000, Federal Register, CMS directed hospitals to develop their own mapping of resources utilized into the different E/M levels.* Ostensibly, this was a temporary measure in anticipation of national guidelines being developed. However after ten years, no national guidelines have been developed. Thus, virtually every hospital has its own, and possibly different, E/M mapping. * See April 7, 2000, Federal Register, p. 18451 (65 FR 18451).

RAC Audit Issues  •  45 Also, the use and nonuse of the -25 modifier was only briefly addressed in two program memorandums: • A-00-40—July 20, 2000 • A-01-80—June 29, 2001 The full CPT description of the -25 modifier includes language inserted in 1999 indicating that the -25 modifier can be used even when there are not different diagnosis codes or when a different or unrelated problem is not reported. For CPT, and as reinforced in the program memorandums, the differentiation of the significant, separately identifiable E/M level is a documentation requirement. In other words, hospitals must document that there were significant resources consumed that are not ordinarily a part of the associated procedure. The use of the -25 modifier has long been an issue on the physician side.* In 2008 and continuing into 2009, in western Pennsylvania the Department of Justice (DOJ) investigated the use of the -25 modifier on the hospital side. At about the same time, new language started appearing concerning the use of this modifier. For instance, Medicare Alert Bulletin 2255, February 17, 2009, pp.€ 9–10, issued by Georgia Medicare, says: Only in those instances where a medical visit (E&M) on the same date as a diagnostic or therapeutic procedure (“S” or “T” APC status indicator code) is separately identifiable service for an unrelated problem should the facility receive separate reimbursement for the evaluation and management service. * See the OIG report at www.oig.hhs.gov/oei/reports/ oei-07-03-00470.pdf.

This directive is clear in that there must be an unrelated problem or differentiating diagnoses. Arguably, this language is contradicted by the CPT description of the -25 modifier. Also, this language was entitled as a reminder, the implication being that this was the guidance always in place.† From a RAC perspective, this type of apparent change, which actually results from inadequate guidance from CMS, creates significant fodder for claiming overpayments. The assertion will be made that the -25 modifier was incorrectly used, was not justified, and that overpayments occurred. In Chapter 6 we will use this specific issue to discuss the extrapolation process. This same issue of inadequate guidance also occurs with any complex regulation. One example is with Emergency Medical Treatment and Labor Act (EMTALA). Conceptually EMTALA is straightforward; that is, if an individual presents with a medical emergency, then take care of the patient or transfer him or her. However, in practice, EMTALA becomes a regulatory challenge with extensive litigation. While there are some possible overpayment overtones with EMTALA, for the most part EMTALA is not a RAC issue. Another area in which there are complex regulations is the provider-based rule (PBR). This rule is generally found at 42€CFR §413.65. During the early 2000s this rule was discussed in numerous Federal Register entries and associated guidance from CMS.‡ Even with all of the discussions and training materials, certain aspects † If this were new guidance, then a change would have occurred and CMS cannot retroactively apply the change. See Section 903, MMA 2003. ‡ See the website http://www.apcnow.com/PBRInformationToolkit.htm maintained by Abbey & Abbey, Consultants, Inc.

46  •  The Medicare Recovery Audit Contractor Program of the PBR remain unclear. One issue is that of appropriate physician supervision. Provider-based clinics, or more generally provider-based operations, can be in one of three locations: • In the hospital building itself • On campus but outside the hospital building • Off campus Physician supervision is a general requirement for any hospital services. Direct physician supervision is addressed at 42 CFR §410.27. In the April 7, 2000, Federal Register, p. 18525, CMS discussed the fact that direct physician supervision was required only for off-campus provider-based operations. If the provider-based operation was on campus or in the hospital, then physician supervision was assumed to be present because there would be a physician close by. Here is the key statement from the Federal Register: We [CMS] emphasize that our proposed amendment of § 410.27 to require direct supervision of hospital services furnished incident to a physician service to outpatients applies to services furnished at an entity that is located off the campus of a hospital that we designate as having provider-based status as a department of a hospital in accordance with the provisions of § 413.65. Our proposed amendment of § 410.27 to require direct supervision of hospital services furnished incident to a physician service to outpatients does not apply to services furnished in a department of a hospital that is located on the campus of that hospital. (65 FR 18525)

In 2008, some eight years later, CMS suddenly readdressed this physician supervision requirement by issuing what they termed a

clarification. This clarification indicated that direct physician supervision was required for on-campus provider-based operations. This change was put into place by changing the wording in §20.5.1 of CMS Publication 100-02, Medicare Benefit Policy Manual. The specific transmittal is 101, issued on January 19, 2009. Here is the old paragraph: The physician supervision requirement is generally assumed to be met where the services are performed on hospital premises. The hospital medical staff that supervises the services need not be in the same department as the ordering physician. However, if the services are furnished at a department of the hospital which has ­provider-based status in relation to the hospital under 42 CFR 413.65 of the Code of Federal Regulations, the services must be rendered under the direct supervision of a physician who is treating the patient. “Direct supervision” means the physician must be present and on the premises of the location and immediately available to furnish assistance and direction throughout the performance of the procedure. It does not mean that the physician must be present in the room when the procedure is performed.

Here is the new paragraph: The hospital medical staff that supervises the services need not be in the same department as the ordering physician. For services furnished at a department of the hospital which has provider-based status in relation to the hospital under 42  CFR 413.65, “direct supervision” means the physician must be present and on the premises of the location (the provider-based department of the hospital) and immediately available to furnish assistance and direction throughout the performance of the procedure. It does not mean that the physician must be present in the room when the procedure is performed.

RAC Audit Issues  •  47 Note that the first sentence is the old paragraph is suddenly missing, that is, CMS’s presumption that physician supervision was provided if the services were on campus. Alright, CMS changed their policy concerning physician supervision requirements for on-campus (out-of-hospital) providerbased operations. So what? And what does this have to do with the RAC audits? The keyword here is changed. If this is a change in policy, then CMS cannot retroactively apply the change.* However, if this is simply a ­clarification, then CMS can retroactively apply the new language. This issue was raised and CMS did provide some comments in both the November 18, 2008, p. 68702, and July 18, 2008, p. 41518, Federal Registers. In these comments, CMS was adamant that this was not a change in policy or rule. This was only a clarification. For the RAC audits, this has some very ominous implications. If this update to the rules can be applied retroactively, then the RACs can easily claim that overpayments occurred in on-campus operations for which the direct physician supervision requirement was not met or for which there is not documentation of physician supervision. Let us consider an example in Case Study 5.3. A RAC may identify this type of situation to foster overpayments. If there is no evidence that the direct physician super­ vision was being maintained, then all of the services provided to Medicare beneficiaries will be considered to be noncovered because the supervisory requirement was not met (or  could not be substantiated). Thus, the ability of CMS to apply this clarification to the rules retroactively becomes paramount and hospitals are suddenly subject to the * See Section 903 of MMA 2003.

Case Study 5.3: Apex Medical Center Infusion Center The Apex Medical Center has a very busy infusion center that, while attached to the hospital building, is not considered to be within the four walls of the hospital.* Chemotherapy services, infusions, injections, blood transfusions, and other related services are provided. Generally, these services are provided by specially trained nursing staff. A physician may come to the center from time to time, but no physician or practitioner is always present. * Even determining what is on campus but out of the hospital can be a difficult task.

distinct possibility that significant overpayments may be claimed. Because these services are noncovered, both the procedures and the associated drugs would not be covered. Confusing Guidance There are numerous examples of guidance for which there has been ongoing confusion. We will discuss some general examples. The real challenge for healthcare providers is to recognize these areas of confusion and to then appropriately react by developing and documenting appropriate policies and procedures. Here are three such issues as examples: 1. Hospital/physician supply categorization 2. Physician incident-to billing 3. Hospital incident-to payment

48  •  The Medicare Recovery Audit Contractor Program Supply categorization under the Medicare program has been an ongoing saga over the past fifteen years.* Guidance has evolved and we have gone back and forth in terms of what supply items can be billed (i.e., nonroutine) versus those that are routine and should not be separately billed. The fundamental issue that creates the confusion is that Medicare, as well as other private third-party payers, will often issue guidance on how a healthcare provider is to code and bill so that proper payment will occur. Basically, there is a process: the healthcare provider codes, bills, and generates a claim, and then Medicare or a third-party payer adjudicates and pays the claim. In theory, you, a healthcare provider, should generate a claim using the standard transaction format using standard code sets with guidance from the standard code set maintainer. Medicare should then take this standard claim with standard codes and adjudicate and pay the claim. However, because of the way certain payment systems have been developed, Medicare may incorrectly pay if you don’t alter the standard process for developing and filing a claim. For example, with the MS-DRG pre­ admission window, hospitals are required to move certain services from the out­ patient billing and move these charges to the inpatient billing. In theory, Medicare as the third-party payer should take the outpatient services and inpatient services and bundle them according to the requirement in the DRG preadmission window. However, if the hospital does not move the services to the inpatient bill, an incorrect payment, * Abbey & Abbey, Consultants, Inc. has a Supply Categorization Position Paper that is available from the author. This paper has been periodically updated over the past fifteen years, as new guidance and discussion has evolved from the Medicare program.

that is overpayment, may be made. Watch for this as a possible RAC issue. If you are reading guidance from Medicare, you may find yourself confused by language that overlaps claims filing versus claims adjudication. Below is a statement from CMS from the August 9, 2002, Federal Register, p. 52122. It is in the context of the APC payment system. Hospitals do not receive separate payment from Medicare for packaged items and supplies, and hospitals may not bill beneficiaries separately for any such packaged items and supplies whose costs are recognized and paid for within the national OPPS payment rate for the associated procedure or service. (emphasis added)

When you parse this statement, the first part addresses payment and then, suddenly, the next part of the statement concerns ­billing. Certainly, packaged items receive no separate payment. This is a payment issue and the adjudication of the claims will assure that these status indicator N items receive no separate payment. So what does this payment and adjudication process have to do with the hospital’s ability to bill for these packaged items and supplies? On the surface, this seems to state that packaged supplies and items, which include thousands of items, should not be billed. What guidance CMS was trying to communicate is unclear. If APCs bundle supply items for payment, that is a design decision for the payment system. This fact should not prevent a hospital from billing for supplies. CMS should properly adjudicate the claim even if there are supply items on the claim. Note: Years after this statement, through a rather indirect route, CMS did indicate that billing for a supply item (specifically,

RAC Audit Issues  •  49 separately billing) means that there is a CPT or Healthcare Common Procedure Coding System (HCPCS) code used for the supply item. If there is no CPT or HCPCS code, then the hospital is separately charging, but not separately billing. Apparently, the concern is that if there is a code, then the APC grouper might incorrectly pay for the ­supply item instead of packaging the item.* This is an example of confusing guidance over a number of years. The good news is that generally this issue does not create overpayments, and thus this should not be an area that the RACs will pursue. However, incorrectly billing, that is, not following CMS directives, may result in false claims allegations. A related example of this has occurred with billing for equipment utilization in the outpatient areas. Whether a hospital’s chargemaster should have separate charges for equipment has been a long-standing area of confusion, although it is difficult to find any prohibition in the Medicare regulations. The phrase incident to is used in two very different ways in the Medicare program. This occurs at the very top of the overall hierarchy of guidance, namely, within the Social Security Act (SSA) itself.† For physicians, providing services in a freestanding situation, the physician (or qualified practitioner) may code and bill for services provided by subordinate staff. The staff must be employed by the physician or clinic, and the services must be provided under the direct supervision of the physician. If any of the requirements * See the Q&A Document “CY 2006 OPPS Drug Administration Questions Related to Pub 100-04, Medicare Claims Processing Chapter 4, Section 230.2,” dated ­February 2006. † See SSA §1861(s), “Medical and Other Health Services”; §1861(s)(1) is for physician services and §1861(s)(2)(B) is for hospital services.

for incident billing are not met, then a RAC could claim that overpayments had occurred. We will refer to this as incident-to billing. The SSA also indicates that hospitals are paid for services incident to those of a physician. For hospitals to be paid, the services (supplies, device, etc.) must be incident to those of a physician. Also, when a hospital is paid for services, payment includes all services incident to those of a physician. We will refer to this situation as incident-to payment. Now at first glance the directive about incident-to payments appears innocuous. However, when you start looking closely at various situations, there are some distinct problems. Let us take a physician-related problem using a brief case study from the Apex Medical Center. Consider Case Study 5.4. The process described in Case Study 5.4 is fairly typical Case Study 5.4: Cardiologist and Nurse Performing Inpatient Visits One of the cardiologists at the Apex Medical Center has a specially trained and certified nurse that assists the ­cardiologist with hospital visits. The nurse goes over to the hospital before the physician, visits with each of the patients, performs an examination, obtains an interval history, and talks with the hospital nursing staff. The ­cardiologist then comes over to the ­hospital, visits the patients, acknowledges the nurse’s notes, and then directs the nurse to write up certain orders. This process allows the cardiologist to see the in-hospital patients with a minimum of time involvement.

50  •  The Medicare Recovery Audit Contractor Program for a number of different specialties. The specialist, of course, codes and bills relative to the overall encounter (history­, examination, and medical decision making), even though much of the work was performed by the specially trained nurse. Alright, what is wrong with this? Because these services are being provided in the ­hospital setting (i.e., a facility setting), the hospital is paid through the hospital payment for all services that are performed incident to those of the physician. The services of the specialty trained nurse are incident to those of the physician, and thus the hospital is paid for these services, not the physician. Most likely the physician will code and bill based on the overall history, examination, and medical decision making. This will tend to inappropriately increase the E/M level used for the hospital visit. Obviously, this is an issue that may be considered by the RACs. Can this same situation be extended to the emergency department in which the ER physician may use the work and documentation of ER nurses as a part of his or her justification for a given E/M level? In general, in the hospital setting, physicians are paid only for services that they personally perform. There is an interesting and somewhat usual exception to this rule for joint E/M services performed by a physician and mid-level practitioner. Namely, if both the physician and the practitioner see the patient, then the physician may code and bill for the encounter. Obviously, the practitioner will not code and bill if the physician is ­billing. See Transmittal 1776, dated October 25, 2002, which updated the Medicare Carriers Manual, for more information. The incident-to services have also arisen is a convoluted form. In the discussion above concerning the physician supervision requirement for off-campus and on-campus,

Case Study 5.5: Nurse Practitioner Clinic The Apex Medical Center has established a provider-based clinic on the campus across the parking lot from the hospital. This clinic is staffed by three nurse practitioners who specialize in family practice medicine. No physicians staff this clinic. but out-of-hospital services, the question has arisen whether a mid-level practitioner at such a clinic can meet the supervisory rule. Case Study 5.5 is the basis to discuss this physician supervision issue. CMS, in the November 19, 2008, Federal Register, did address this issue and provided the logic whereby mid-level practitioners do not meet the definition of a physician at the SSA level, and thus mid-level practitioners do not fulfill the physician supervision requirement. However, in the July 20, 2009, Federal Register, CMS is proposing to change this situation and update the Code of Federal Regulations so that the mid-level practitioner does qualify for physician supervision.* Presuming that this proposed change takes place, it will occur on January 1, 2010. What does this mean for Case Study 5.5? What it means is that for the time period from October 1, 2007, through December 31, 2009, the Apex Medical Center was providing services at this provider-based clinic and the physician supervision requirement was not being met. Thus, a RAC could easily claim that all of the Medicare services provided were overpayments due to the lack of physician supervision. * Be certain to check for the status of this proposal and any other changes when studying provider-based clinics.

RAC Audit Issues  •  51

Case Study 5.6: MS-DRG Preadmission Window The Apex Medical Center has several provider-based clinics along with two freestanding clinics. One of the freestanding clinics is about 30 miles away and has its own physician office laboratory (POL) and basic radiology services. Being freestanding, only a CMS-1500 claim form is filed. There are two physicians and two nurse practitioners (NPs) that staff the clinic along with support staff. Because this is a freestanding clinic, whenever the NPs provide services, one of the physicians actually bills for the NP service as if the physician had performed the service. This is allowed in a freestanding clinic and is incident-to billing. The reason for billing this way is to gain full reimbursement under MPFS as opposed to the 85% reimbursement that would be received if the NP actually filed the claim. Sam, an established patient, presents to this freestanding clinic on Tuesday morning. His basic complaints are cough, some congestion, and a slight fever. The NP does a complete workup, including laboratory and x-rays. A definitive diagnosis cannot be reached. The NP decides to run a course of antibiotics just in case. Sam is discharged home. Later the laboratory tests come back and a definitive diagnosis of pneumonia is noted in his record by the NP. On Thursday evening Sam is brought to the Apex Medical Center’s ED with significantly worsened symptoms. He is admitted to the hospital with a diagnosis of pneumonia. To illustrate just how complicated the situation can become, we will consider a case study that combines several different considerations. Look for the following: 1. MS-DRG preadmission window 2. Freestanding clinic versus providerbased clinic 3. Use of nonphysician practitioners 4. Correlation of professional and technical claims Apex, for the inpatient claim, is required to report certain services that were performed prior to Sam’s admission. All diagnostic tests and related therapeutic services are to be bundled into the inpatient MS-DRG claim. Often we think of this in terms of any out­patient services performed by the hospital. Thus, the ED services, unless there was something completely extraneous, are outpatient services

and will be bundled into the ­inpatient claim. Certainly, if this clinic were provider based, then any such services would be bundled. The unusual feature of the MS-DRG preadmission window is that the coverage trigger is not provider-based status; it is wholly owned or operated. Certainly provider-based clinics are wholly owned or operated by virtue of meeting the provider-based criteria. In this case the freestanding clinic comes under the requirement to bundle all diagnostic tests and any related therapeutic services. Certainly the laboratory and radiology services are diagnostic and should be bundled. Technically, the therapeutic services are billed by the physician and separate payment is made. Wait a minute! It was the nurse practitioner, on an incident-to basis, that provided the actual therapeutic services. These services are definitely related to the hospital

52  •  The Medicare Recovery Audit Contractor Program admission (i.e., diagnosis of pneumonia), and they were provided in a way that the hospital would have been paid on the technical side. Thus, both the diagnostic services and the E/M services will need to be bundled. Do you suppose that Apex has a system in place to catch this kind of situation? In the past this has rarely been an issue because the professional claim for the physician (for services provided by the NP) would be filed with the carrier while the hospital MS-DRG claim would go to the fiscal intermediary and the two claims would not be correlated. However, keep in mind that the RACs through data mining may well have the computers look for these kinds of instances. If any are found, the payment to the physician would be an overpayment because payment would be through the inpatient reimbursement. Note: This is a complex case study bringing together several concepts. Be certain to fully understand exactly what the MS-DRG preadmission window says and how it is to work. A good starting point is the February 11, 1998, Federal Register, p. 6864 (63 FR 6864), and then follow up with Transmittal 1429 to Publication 100-04, the Medicare Claim Processing Manual, dated February 1, 2008. For additional reading, obtain Transmittal 87 to Publication 100-02, Medicare Benefit Policy Manual, dated May 2, 2008. This transmittal has been withdrawn, but it provides valuable insight into how CMS is thinking about hospital-owned and -­operated freestanding clinics.

Sample Problem Areas by Provider Type There are hundreds of issues that can, and most likely will, be addressed by the RACs in

coming years. The OIG, the Comprehensive Error Rate Testing (CERT) program, the DOJ, and Medicare administrative contractors have all identified and studied a wide array of issues. Coding errors, billing errors such as incorrect units, or multiple charges for the same item are quantitative and are easily addressed. The more difficult areas, such as medical necessity, tend to be quite subjective. Unless there are very specific auditing guidelines being used, there will be disagreements. Additionally, coverage, proper supervision, and correct claim adjudication will all be issues to some extent. Watch the RAC websites for listings of the problem areas they are addressing. Be sure to look at all the RAC websites, not just your RAC. Here we discuss some examples of problem areas by provider type. This discussion is intended as a very brief synopsis and is provided only to give some idea of what your healthcare provider will face. These issues and the associated recoupment of asserted overpayments is why you must diligently pursue a comprehensive coding, billing, and reimbursement compliance program for your healthcare provider. Hospitals Overall, hospitals will probably end up being the most heavily impacted by the RACs. Numerous issues must be carefully considered. In the discussions concerning medical necessity, payment system interfaces, and inadequate guidance, we have already touched upon several hospital issues. Other issues are discussed in different parts of this book. When we discuss the extrapolation process we will also use examples from the hospital area. Here is a brief synopsis of some of the more substantive issues for hospitals. This does not include a discussion of

RAC Audit Issues  •  53 incorrect coding, double billing, and a host of other billing and claims filing issues. These issues are generally handled in the automated reviews and tend to be very quantitative and objective in nature. The more difficult issues involve subjective judgment in areas that are not always clear-cut. We briefly discussed the fact that there are no guidelines to determine the correct E/M level for services. If an E/M code is submitted along with a surgical procedure, then a special CPT modifier must be used to separate the E/M payment from the payment for the surgical or medical service. This is the -25 modifier.* Any surgery involves some level of evaluation and management, so coding and billing staff must decide, somehow, when an E/M with a -25 modifier should be billed along with the surgery. In other words, when is there a separate, distinct E/M service in addition to the surgery? Without very explicit guidance, the divide between reporting the E/M with the -25 and not reporting the E/M can become quite subjective. From an adjudication perspective, the grouping software will pay the E/M separately if the -25 is present. Observation as a general issue for hospitals has long been difficult. Short-stay inpatient admissions that should have been observations are a key issue for the RACs. While there are many compliance issues surrounding observation services, the major driving element for observation is the physicians. Physicians order and justify observation services, and then the physicians must determine when a patient should be admitted to the hospital. Thus, hospitals pursuing compliance in this area must work closely with their medical staffs to develop proper procedures and protocols. * See CPT for the formal definition of the -25 modifier.

Provider-based clinics of various types have become very popular with hospitals due to the potential for increased reimbursement under the Medicare program. The provider-based rule (PBR) along with various supervision requirements has significantly complicated compliance concerns surrounding provider-based clinics and provider-based departments of hospitals. For hospitals there are two major prospective payment systems: MS-DRGs and APCs. Both of these payment systems are quite complex, and there are dozens of compliance issues that can arise. Upcoding for MS-DRGs has long been an issue. The use of the -59 modifier, separate procedure, for APCs is but one of many issues for outpatient prospective payment. Additionally, hospitals do become involved in durable medical equipment (DME), which is another major source of potential problems. Gaining and maintaining billing privileges with the Medicare program through the various CMS 855 forms under the conditions for payment (CfPs) is yet another area that may yield significant demands for recoupment. For hospitals there are literally hundreds of issues, some large and others seemingly small. Hospitals must make the investment in developing and maintaining comprehensive CBR compliance programs in order to mitigate significant RAC recoupments. Critical Access Hospitals Critical access hospitals (CAHs) are paid on a cost basis. This is not really a fee-forservice payment system under the Medicare program. In theory, CAHs should not come under the RAC program as such. However, CAHs are required to file adjudicable claims for both MS-DRGs and APCs. Payment to the CAHs is not made on the

54  •  The Medicare Recovery Audit Contractor Program basis of these claims. However, because claims are filed, the RACs will also be looking for possible overpayments. For both MS-DRGs and APCs, correct coding, billing, and proper claims are critical. However, how is a CAH overpaid even if there is a coding error? While the RACs may investigate both of these payment systems relative to overpayments, establishing that there is an overpayment will be difficult due to the cost-based reimbursement. However, CAHs should be concerned from two different perspectives: one dealing with the hospital payment process and a second with Method II billing, in which the hospital bills for and is paid for physician services. With the Method II approach, CAHs will be subject to slightly modified forms of all the issues surrounding physician and clinic coding, billing, and reimbursement. The primary modifications result from a CAH using the UB-04 claim form (technically, format) in order to file professional services. The 1500 claim form is designed for physicians and clinics, while the UB-04 is not. Thus, there are some differences in claim filing. Regardless of these differences, the issues surrounding physician coding and billing will be the same for Method II CAHs. While the question of RAC applicability­to CAHs may be moot, there will still be audit activities relative to finding and identifying overpayments. Overpayments generally occur with CAHs due to over­utilization, which drives up the costs and thus the inappropriate reimbursement. CAHs may also have provider-based rural health clinics (RHCs) or even provider-based clinics. Thus, all of the rules and regulations revolving around the provider-based rule, including supervision requirements, could also generate overpayment situations. Similarly,

CAHs may have provider-based ambulance services that are also cost-based reimbursed. Again, the concern is overutilization, with medical necessity being a valid consideration. Because of cost-based reimbursement, the cost report becomes all important. Whether the RACs will invest the time and trouble to review cost reports for possible overpayments is questionable. Because of the cost-based reimbursement, overutilization can appear in areas that are not normally considered a problem in PPS hospitals. For instance, in a PPS hospital, having a postoperative patient stay in observation overnight or even for two nights is not an issue because there is no separate payment for the postoperative observation. However, in a CAH, having the postoperative patient stay overnight for two nights increases utilization, and thus payment. This issue is the question of medical necessity­. Similarly, issues such as skilled nursing admissions following a three-day stay are very similar to PPS hospitals. The RACs may assert that the inpatient stay should only have been two days so that the hospital has been overpaid by one day and the skilled nursing facility is a total overpayment. For hospitals in general, the CAHs are probably lower on the priority list for possible overpayments than are PPS hospitals. However, CAH personnel should carefully monitor situations in which RACs might claim overpayments. Some of the issues for PPS hospitals do carry over to CAHs, such as the three-day inpatient stay in order to qualify the patient for skilled nursing services, which would probably involve swing beds at a CAH. As usual, CAHs are placed in a position where they must track and understand what is happening at PPS ­hospitals as well as be concerned about ­specifics for CAHs.

RAC Audit Issues  •  55 Physicians and Clinics Physicians and clinics have long been targets for overpayments surrounding incorrect coding, elevated E/M levels, improper use of the -25 and -59 modifiers, duplicate billing, patient signatures on file, and a host of other issues. For the Medicare program, physician and clinics are paid on a fee schedule basis that requires the use of an extensive coding system. There are really two closely related systems: CPT and HCPCS. Other healthcare providers that are on the same fee schedule are independent diagnostic testing facilities (IDTFs) and comprehensive outpatient rehabilitation facilities (CORFs). For all of these healthcare providers using the Medicare Physician Fee Schedule (MPFS), the issue of correct coding based upon proper documentation is crucial. Add to this the whole general issue of medical necessity and there are both quantitative and qualitative issues to consider. There are also special issues that may arise. For instance, in IDTFs there are special requirements for different supervision levels. Within the MPFS are indicators requiring general supervision, direct supervision, or personal supervision for certain diagnostic tests. If the proper supervision is not properly documented, the RACs can certainly claim that overpayments occurred. Other Healthcare Providers Skilled nursing facilities and home health agencies also have prospective payment systems that require the accumulation of significant documentation that is then converted into payment categories. Coding in the sense of MS-DRGs and APCs is not really an issue, but the documentation that supports the given level of payment is

of prime importance. Also, issues such as ­physician-approved plans of care and various CMS forms, such as the CMS-485 for home health services, are certainly issues. For SNFs, differentiating services from nursing facilities (NFs) can become an issue. For instance, parenteral-enteral nutrition (PEN) therapy is separately billable for NFs but is included in the consolidated billing for SNFs. As necessary, NFs, SNFs, and home health agencies (HHAs) all provide therapy services to their residents. The medical necessity, plans of care, and proper billing for physical therapy, occupational therapy, and speech language pathology can be issues. Also, residents being provided services with NFs, SNFs, and HHAs sometimes go the hospital either as an inpatient or an outpatient. Properly billing for services in these crossover cases can present challenges.

Summary and Future Issues We started this chapter with a relatively simple classification of RAC issues based on those issues that have been well identified through the RAC demonstration program versus those that are yet to be identified. This classification emphasizes the need to look forward in time to identify issues that may arise in the future. If you can identify an issue that will be recognized in the future, now is the time at which you can address the issue so that in the future the RACs will not be able to assert overpayments. This process is much easier stated than accomplished. While all healthcare providers must look at current situations and then assess whether there is a history of overpayments

56  •  The Medicare Recovery Audit Contractor Program that should be corrected, the need to identify issues as they arise or as they might arise in the future is critical. Thus, we have focused on both specific issues and the underlying causes of overpayment situations. When you understand the under­ lying causes, such as the interfaces between

payment systems, then you can start to identify ­specific instances of general problems. Note: How wonderful it would be if we could spend the time and energy identifying circumstances in which underpayments have occurred.

6 RAC Processes

Introduction The techniques and processes used by the Recovery Audit Contractors (RACs) are not any sort of black magic. The RAC’s techniques are the same that anyone reviewing claims and then the associated cases (e.g.,  clinical documentation and financial information) would use to identify overpayments and underpayments. Consultants have worked with all types of healthcare providers to identify the same sorts of situations for years. However, consultants tend to find more underpayments, while the RACs almost exclusively identify overpayments. While contingency payment to consultants is frowned upon, contingency payment to the RACs is the norm. We will discuss some of these techniques in this chapter. This discussion should be considered as a starting point, not a comprehensive and complete discussion. Anticipate that the RAC’s activities and scope of investigation will probably increase over time. This is particularly true if the RACs are successful in identifying overpayments and then recouping significant monies. We will discuss the basic types of techniques. These techniques can be utilized with many different types of issues.

Problem Identification, Data Mining, and Probe Audits CMS, through the Validation Contractor, must approve any issue that a RAC desires to pursue. Most likely this approval process will not delimit the RACs to any extent. If there is the possibility of improper payments, particularly 57

58  •  The Medicare Recovery Audit Contractor Program overpayments, this CMS is likely to approve the request of a RAC, and then all of the RACs will pick up the issue. Thus, a first step for a RAC is to identify issues. There are dozens, if not hundreds, of known issues. We have discussed a number of these issues in Chapters 3 to 5, which will continue on into Chapter 7. Thus, at the beginning the RACs will almost have a ­catalog of possible issues, some of which have been tested during the demonstration project. Other issues have been identified by the Office of the Inspector General (OIG) and Medicare audit programs. For instance, a simple issue is that of incorrectly billing for two transfusions, CPT code 36430, on the same day for the same patient. The RACs have access to a giant database of claims. The claims they can access are from different types of providers and span different types of payment systems. This type of comprehensive access lends itself to identifying possible improper payments within a given type of provider (e.g., physician or clinic) or possible problems between providers (e.g., physician versus hospitals). The ability to cross over between different types of providers to check for correlations has been quite limited in the past. For instance, this means that a RAC could examine a surgeon’s professional billing and then check the associated hospital claim for the same services. The claims database available to a given RAC provides a rich source for data mining to look for correlations and aberrations. The data mining may be quite straightforward. Over time the data mining process will probably become much more sophisticated. We can all list some simple things to do that might be of interest, for example:

• Absolutely high charge claims—inpatient/outpatient/physician • Relatively high charge claims—inpatient/outpatient/physician • Claims with duplicate codes—inpatient/outpatient/physician • Claims with outlier payments—inpatient/outpatient • Claims with certain groupings of codes—inpatient/outpatient/physician • Comparison of hospital codes with physician codes for the same services • Relative claim frequency within a provider classification • Relativity measures for observation versus inpatient • Relative frequency of Medicare Severity diagnosis-related groups (MS-DRGs) • Frequency of modifier utilization • Frequency of cost outliers For instance, a RAC might look at hospital outpatient claims to check for how often the -59, separate procedure, modifier is used. By performing such a data run, a benchmark can be created for an average ­hospital, and then hospitals that have relatively high utilization can be examined further. Noting duplicate codes without differentiating modifiers might be another issue. Over time, the data mining techniques will probably become more much sophisticated. For instance, relationships in code utilization can be established; that is, certain codes or code combinations are generally used together or not used together. In some sense this is an extension of the National Correct Coding Initiative (NCCI), only on a larger scale, using multiple sets of codes and services. If through data mining or by other means a potential problem may exist, then the

RAC Processes  •  59 RAC will need to perform a small probe audit to confirm or reject the specific problem. Typically the sample is small, such as ten records being requested. Note that these record requests do not count toward the overall record requests through the complex reviews. If the small probe audit confirms the suspected problem, then the RAC can request permission for CMS to pursue the given problem. CMS has established a special organization, the Validation Contractor, to assist CMS is approving issues and also in verifying the quality of the RAC activities.

If the RACs do indeed select issues that are very clear-cut, then hospitals and other healthcare providers will have little need to appeal or question demands of repayment. In most instances the errors that are discovered are truly just errors and an overpayment determination is appropriate. Note that the way the automated reviews are constructed, that is, the very specific issues being addressed, will generally find overpayments and not underpayments.

Bottom Line:  The RACs have numerous known problems to pursue. Over time and through data mining of the claims database and conducting small probe audits, the RACs should be able to identify many possible issues in which improper or, most likely, overpayments have occurred.

Complex Reviews

Automated Reviews Automated reviews are those that can be performed purely through the computer by reviewing only the claims. After an automated review issue is established, the process of identifying errors becomes quite automatic. Only time will tell how far the RACs will go in identifying issues that involve possible overpayments as opposed to issues that almost certainly are overpayments. For instance, the Medicare program has developed medically unlikely edits (MUEs). These edits identify circumstances that are unusual, but in certain situations could occur.

Complex reviews come the closest to the standard auditing process that has been used for years. For complex reviews the patient’s medical record information is requested, and then an individual at the RAC reviews the claim along with the record. The regular auditing process also looks at the itemized statement along with the claim and the medical record. Whether the RACs will be interested in the itemized statement is yet to be seen.* One difference between the complex reviews used by the RACs and more typical audits is that the RACs will be focusing on a specifically identified and approved issue. Outside auditors may well look at medical records and may even focus on certain aspects such as coding, billing, documentation, charge capture, and the like. However, these auditors may be looking for anything that might be incorrect or missing. Thus, their scope is or can be quite broad. * For consultants conducting routine audits, examining the itemized or detailed statement is a standard auditing technique. In some cases there are significant differences between the itemized statement and the final claim.

60  •  The Medicare Recovery Audit Contractor Program A big question for healthcare providers is, how many records can be requested? Hospital inpatient records can be quite voluminous. Outpatient and physician records are generally smaller, although with surgical cases the records can still be substantial. At the time of this writing, the below outline from CMS indicates the numbers of records that can be requested. • Inpatient hospital, IRF, SNF, hospice 10% of average monthly Medicare claims (maximum of 200) per 45 days • Other Part A billers (outpatient hospital, home health) 1% of average monthly Medicare services (maximum of 200) per 45 days • Physicians Solo practitioner: 10 medical records per 45 days Partnership of 2–5 individuals: 20 medical records per 45 days Group of 6–15 individuals: 30 medical records per 45 days Large group (16+ individuals): 50 medical records per 45 days • Other Part B billers (DME, Lab) 1% of average monthly Medicare services per 45 days Over the coming years these numbers will probably change, so you will need to track any changes. Also, the small probe audits to determine if there is a valid issue, which is generally ten records, do not count toward the limits listed above. Note the distinction between claims for inpatient and services for outpatient. Under MS-DRGs there is a single claim for each length of stay, so that the word claim equates to service. On the outpatient side, a claim may contain multiple encounters, and thus the word service is

Case Study 6.1: Apex Medical Center Medical Records Limits The Apex Medical Center has approximately 150 inpatient discharges for Medicare. Thus, the approximate record limit is 10% of 150, or 15. Multiplying 15 by 8 yields 120 inpatient records per year. Apex is very active on the out­patient side due to various provider-based clinics. The average monthly number of services is estimated at 25,000. One percent of 25,000 is 250, which is delimited to 200. For the year, this could mean something in the range of 200 times 8, or 1,600 records.

Case Study 6.2: Acme Medical Clinic Medical Records Limits The Acme Medical Clinic has four ­family practice physicians organized as a professional corporation. There are no mid-level practitioners. The potential record request is thus 20 times 8, or 160 records per year. used. While CMS uses the word partnership then group, in this context there is probably no distinction between them.* The choice of forty-five days is interesting. To calculate the approximate annual limits, simply multiply by 8. Several case studies illustrate the potential for record requests. In Case Study 6.3, if the five physicians and two practitioners were in a single group, then the limit would be 30 times 8, or 240 records. * The term partnership has tax implications while the word group is more generic.

RAC Processes  •  61

Case Study 6.3: Special Clinic Organization Medical Records Limit A group of five physicians have come together to form a partnership to build a clinic, acquire billing software, maintain medical records, and employ administrative staff. However, each of the physicians is organized as a sole practitioner, so that each of the physicians has his or her own practice. Two of the physicians have either a nurse ­practitioner (NP) or physician’s assistant (PA) as an employee. The record limit ­calculation appears as follows: For each solo physician, 10 records per 45 days—This holds for 3 of the physicians. For the other 2 physicians, 20 records per 45 days—This is due to the NP or PA. This means a total of 70 records per 45 days, or 560 (8 times 70), for all the physicians. Note also that in the formulas provided by CMS there is use of the National Provider Identifiers (NPIs) to determine some medical record limits, although this use of NPIs was certainly not anticipated at the time providers established their NPI subunits. While it is easy to perform these calculations, the real impact is on the personnel that must copy and prepare the medical record information to go to the RAC. While it may take several years for the RACs to gear up to requesting the maximum limits, healthcare providers are still going to feel the burden of preparing copies of the records. Of course, the RACs themselves must also review all of the information requested. Note: We have been discussing numbers of records and the associated processing of records. The more substantive point relates to the issue being investigated and developing possible arguments relative to the issue itself. We will discuss this more fully in Chapter 7, although throughout this book we discuss many issues for which you may need to develop arguments that payments were appropriate.

In the next section we will discuss the extrapolation process. Extrapolation involves complex reviews of medical records relative to an identified issue. How these limits on medical records requests will correlate with extrapolation requests for records has not been announced.

Extrapolation Extrapolation is a statistical term that is the opposite of interpolation. Interpolation means that data points within a sample are estimated based on actual data points nearby. Extrapolation means that you make estimates that go outside the range of the data. Simply stated, inter refers to in between while extra refers to going beyond or outside. For healthcare providers involved in audits of claims, the extrapolation process allows auditors to audit a statistically valid sample of a given universe and then apply the results to the entire population. For instance, an auditing team may be investigating an issue and there are three

62  •  The Medicare Recovery Audit Contractor Program thousand claims in the universe that represent services over a two-year period. There are statistical formulas that allow the auditors to determine a statistically valid sample size. We will discuss this process shortly. For the moment, assume the sample size is 280. The auditors can then randomly select 280 cases from the universe, audit those cases, and then extend or extrapolate the results to the entire universe. Assume that from the sample of 280 cases, there was a 22% error rate, with an average overpayment per error of $120.00. The 22% error rate when applied to the whole universe yields 660 cases. If each of these cases is then multiplied by $120.00, we have $79,200.00. As you might image, in practice, this process is more complicated. However, this is a very real time saver for the RACs because they can audit a limited number of cases and extend the results to a larger universe. If the auditors had to audit each of the three thousand cases to yield an overpayment of about $80,000.00, then there would be a serious cost-benefit deficit for the auditors. Auditing three thousand cases will certainly be time-consuming and thus relatively expensive. We will now discuss the basic steps in the extrapolation process. Note that there can, and undoubtedly will, be variations. 1. Identification of the issue to be addressed 2. Statistical consultation to determine validity of extrapolation process 3. Selection of sample size based on universe size 4. Conduct of audit on sample 5. Calculation of the overpayment 6. Demand for recoupment

Certain issues are much more amenable to the extrapolation process than others. Basically, for extrapolation to work, the type of error involved must be systematic or a process type error. The basic idea is that this is an error that would be repeated or replicated throughout the population. Episodic errors are just the opposite. Episodic errors occur quite at random or generally at ­random. These are the data input errors— checking the wrong box, putting down three units instead of two, and so on. Systematic errors tend to repeat. For instance, a hospital may have a technical component E/M level mapping that within the mapping has an error. Perhaps a resource utilized is reported in the E/M and is also coded and billed separately. Thus, each time the mapping is used in connection with a given type or types of services, there is an inappropriate elevation of the E/M level. Thus, this error will or at least could be repeated many times for certain types of claims. The first step for a RAC is to identify an issue in which these types of mistakes can occur. For instance, for physicians the E/M levels have long been a point of contention. Auditors from CMS, the OIG, and the Department of Justice (DOJ) have maintained that physicians upcode their E/M levels based on the CPT and Medicare coding directives. The use or misuse of the -25 modifier is another issue. Both of these issues could also be applied on the hospital side. Wherever there is the possibility of a systematic error, the extrapolation process could, in theory, be applied. Whatever the issue, a RAC will need to carefully define the issue so that a statistician or mathematician can establish the statistical process and boundaries for developing statistically valid procedures. There

RAC Processes  •  63 are well-established formulas for sample size selection. Typically, the formulas involve:

1. Population size 2. Confidence levels 3. Precision 4. Error rate

Of these four, the one that is not known is the error rate. Obviously, you can’t have any idea of what the error rate will be unless you do some auditing or have some other mechanism to estimate an error rate. The error rate also has a major impact on the sample size determination, so this is an important step in the extrapolation process. One way to determine an error rate is to perform a small audit in advance of the main audit. While the statistical process will determine the best way to do this, often a small probe audit of thirty cases* is performed. The probe audit will give you an error rate through the number of errors and also an average amount of errors with a standard deviation. Armed with this information, we could delve directly into the formulas for determining a statistically valid sample size. However, there are wonderful computer programs that will do this for us. We will refer to the Office of the Inspector General’s (OIG) RAT-STATS program. This is a fairly sophisticated program that is freely available from OIG’s website.† Note: If you are going to use RAT-STATS or want to become fully familiar with this program, be certain to download the rather voluminous manuals that accompany it. * The number thirty is a statistically magic number that is frequently used. In practice the number could be more but will rarely be less. † See http://www.hhs.oig.gov.

This is the actual software that is used by governmental auditors. Thus, we will be discussing a specific application for this software. The software can be applied in other types of situations as well. The statistician retained by the RAC will also need to determine the confidence interval and the precision to be used. A full discussion of this process is beyond the scope of this book. However, the OIG has indicated that a confidence level of 90% with a precision of 25% can be used in specific circumstances. The main area where this appears is when a healthcare provider has entered into a corporate integrity agreement (CIA) with the OIG and the provider has an Â�independent review organization (IRO) conduct studies to ensure that compliance with the CIA is being maintained. Alright, let us run some basic numbers using RAT-STATS to see how large a Â�sample would have to be in order to statistically extrapolate across a population. Assume we are dealing with an audit of E/M coding so that the dollar amounts will not be that large. For our purposes, our base parameters are: Universe—1,000 cases Confidence interval—90% Precision—25% Case 1: From the thirty-case probe audit, there were five errors found with an average overpayment of $5.14. The standard deviation was 2.07 and RAT-STATS indicated that the sample for valid extrapolation is 211 cases. Case 2: From the thirty-case probe audit, there were nine errors found with an average overpayment of $5.52. The standard deviation was 3.43 and RAT-STATS indicated that the sample for valid extrapolation is 101.

64  •  The Medicare Recovery Audit Contractor Program $22,000 $21,500 $21,000 $20,500 $20,000 $19,500 $19,000 $18,500 $18,000 $17,500 $17,000

Extrapolated Amount Upper 90% Confidence Lower 90% Confidence

Figure 6.1

Ninety percent confidence interval adjustment.

Note that as the error rate increases, the size of the valid sample actually went down to about 10% of the universe. This may seem counterintuitive to some extent. However, the impact of the error rate on the size of the sample is dramatic. For instance, if half of the cases have an error averaging $4.67 with a standard deviation of 4.85, then RAT-STATS gives a valid sample size of only forty-five cases. In other words, the RAC would only have to sample forty-five cases to be able to extrapolate to the full one-thousand-case universe. Note: Statistically, a RAC would never be allowed to use such a small sample size, even though this is what the formulas generate. As a general rule, sample sizes would never be any less than 10% of the universe. To continue our informal example, let us assume that the valid sample size is two hundred cases in order to properly extrapolate to the full one-thousand-case universe. The RAC will conduct the audit on the cases. Assume that the error rate found is 23% with an average error of $8.00. Extending this across the whole population

means that there are 230 cases at $8.00 per case for a total of $1,840.00. Thus, the RAC will demand a recoupment of $1,840.00. Right? Actually, no, not if the process used by the OIG is followed. The repayment demand will be set at the lower limit of a one-sided 90% confidence interval. Alright, this sounds a bit complicated, but the general idea is that the RAC will ask for less than the total amount generated by the extrapolation process. This gives the RAC a better case to argue for the propriety of the extrapolation process. In Figure  6.1 the extrapolated overpayment is $20,000.00. However, the 90% confidence interval range goes from $21,500.00 to $18,500.00. The lower side is $18,500.00, and this is the amount of overpayment for which recoupment would be demanded. Needless to say, extrapolation is a complex statistical process that requires careful use. However, significant amounts of repayments may be demanded using this type of process. What can you do if you are faced with a situation in which extrapolation is used and you face a significant recoupment effort? In this type of situation there are two different levels of attack.

RAC Processes  •  65

Case Study 6.4: Short-Stay Cardiac Catheterizations A RAC has determined that there appear to be medically unnecessary hospital admissions in connection with cardiac catheterizations. Of particular interest are admissions of less than forty-eight hours. The RAC wants to identify the universes at various hospitals (i.e., cases over a one- to three-year time period that meet the criteria), perform an audit on a statistically valid sample, and then extrapolate the overpayments identified to the whole universe at each hospital. A statistician is retained to establish a valid process. In order to determine the error rate, a probe audit of thirty cases must be performed. Based on the results of the probe audit, the actual number of cases to be randomly selected from the universe is determined by RAT-STATS within specified parameters. When the total, extrapolated overpayment is calculated, the RAC is to demand the lower limit of a one-sided 90% confidence interval. First, you should look at the underlying issue that is generating the assertion of overpayments. Just as with individual cases, the validity of the assertion may not be correct. In our case studies, the correct choice of E/M levels or the proper use of the -25 modifier may be the issue. Perhaps you can make an argument that the E/M selection process or use of the -25 was, indeed, correct, or at least correct in some of the cases. Second, you can challenge the propriety of the extrapolation process itself. Making such a challenge will require retaining expert consultants with knowledge in this statistical process. This will require some effort and careful preparation. However, if significant monies lie in the balance, such an investment can be justified. Case Study 6.4 illustrates a possible situation. RAT-STATS Example We have discussed some fairly basic examples for extrapolation. In this section we will actually take an example all the way through the RAT-STATS process step by

step. This process is taken from guidance given by the OIG for conducting billing reviews by IROs in order to validate a healthcare provider’s compliance with a CIA or possibly a settlement agreement. We will be referring to specific features in RAT-STATS. While RAT-STATS is stable, there could always be changes made in this program, so there could be differences in the terminology used. Note: 1. Be sure to download the RAT-STATS program, and you can follow along step by step. Note that this is an excellent program, but it is not a commercial program, so that some of the interfaces (graphical user interfaces [GUIs]) are not always what you might expect. Be prepared to run a case and then start all over. 2. As you go through the steps, RATSTATS will give you the ability to save the results to text or MS Excel files or to the screen. Be sure to save any work that you do for documentation purposes.

66  •  The Medicare Recovery Audit Contractor Program 3. You may need to develop data files that are used by RAT-STATS. Keep them as simple as possible so that RAT-STATS doesn’t have any trouble correctly accessing them. The OIG indicates that a 90% confidence interval with a 25% precision level be achieved. For our example, we will use a 20% confidence interval. This gives us two important variables, although more stringent levels could be used. The universe size will vary. As in preceding examples, we will use one thousand, which is a convenient number. The error rate is the variable that is generally missing. The OIG directs that a probe audit of thirty cases be used to estimate the error rate, so that the necessary sample size can be determined. After the sample size is determined, the actual selection of cases can be made on a random basis. We will be using three different parts of RAT-STATS: 1. Variable Appraisals—To determine the error rate for the sample size determination. 2. Sample Size Determination—To determine the size of the sample for review. 3. Random Numbers—To determine the actual cases for review. The first thing that we must do is to determine an error rate. The OIG indicates that a probe audit be conducted, typically thirty cases. While not likely in healthcare, if you were dealing with a really large universe, such as fifty thousand cases, you might want to use a larger number of cases for the probe audit. For our one-thousand-case universe, we will use thirty cases that are selected randomly using the Random Numbers. The

form that needs to be completed is fairly straightforward. • Seed number: This is optional. If there is ever a reason to rerun this process, you should use a seed number. We will use 100. • Sequential order: This is where we indicate the number of cases; this is 30 for our probe audit. • Spares: For many audits we want to have spares in case of missing documentation, etc. However, when it comes to overpayments, if a record is missing, then it was totally overpaid. Thus, we will not need any spares. • Low and high numbers: For this example, the universe is 1,000, so the low number is 1 and the high number is 1,000. • Choose output: This is your choice. MS Excel is often convenient. Here are the case numbers generated: 81 104 168 209 239 243 321 332 377 411 420 479 482 525 570 571 575 602 612 631 717 747 749 795 825 871 872 879 900 985

Note: It is interesting that in using random number generators, often there are at least two cases in sequence. For this selection, there are two pairs that are in a row. Alright, we have our thirty-case probe audit selection. We are presuming that the one thousand cases are in a fixed order for both the probe audit and the final audit. We must now conduct the probe audit and determine in which cases there was an overpayment and the amount of the overpayment. Let us assume the following data from the probe audit. These are the error

RAC Processes  •  67 cases along with overpayment amounts from the probe audit. Case 3—$20.00 Case 9—$40.00 Case 11—$10.00 Case 14—$40.00 Case 18—$10.00 Case 19—$20.00 Case 22—$40.00 Case 26—$20.00 Case 29—$10.00 Case 30—$10.00 Now we need to determine the average and standard deviation from the probe audit. We will do this using the Variable Appraisals feature in RAT-STATS. We will need to take the overpayment values and put them in a data file. • Go to the Variable Appraisals and choose the Unrestricted. • Provide the name of the study and indicate the universe of one thousand. • Tell RAT-STATS where your data file for the probe audit is located. • Choose the Difference Values because we are dealing with overpayment amounts. • Make certain your data file is correctly recognized, that is, whether there are labels for the column or row and the number of data elements (in this case thirty). • Specify output and go for it. You will receive a great deal of information as output. Most of the information is of interest only to hard-core statistic ­personnel. What we need are the mean and standard deviation. These are the values we

will give to the sample size selector in order to estimate an error rate. You should obtain: Mean = 7.33 Standard deviation = 12.85 Now we can go to the Sample Size Determination feature of RAT-STATS. • Click on Variable Sample Size followed by Unrestricted and then Using a Probe Sample. • Input the probe sample information either directly or through a file, in our case this is a mean of 7.33 and a standard deviation of 12.85. • You will need to indicate the universe size. • Chose a confidence level or check all. • We want a precision of 20%, which is not listed, but there is a box where we can select 20% and then just choose the 20% or check all. • RAT-STATS will then generate the sample size that is needed to meet the criteria with the results from the probe audit. The results are shown in Table 6.1. For a 90% confidence and 20% precision, the number is 172. Does this seem Table 6.1 Sample Size Selection—Different Levels Confidence Level Precision Level

80%

90%

95%

99%

1% 2% 5% 10% 15% 20%

981 927 669 335 183 112

988 954 769 454 270 172

992 967 825 541 344 228

995 981 891 671 475 338

68  •  The Medicare Recovery Audit Contractor Program reasonable? In some respects this is reasonable, particularly if you are trying to convince the OIG that you are in compliance. Even a sampling of 172 will take some time to properly audit. However, if you are going to be repaying large sums of money based on just 172 cases, you might well want parameters such as 10% precision with 90% confidence. This moves the statistically valid sample size up to 454, or almost half of the cases. At this level you will certainly be able to get a fairly reliable result, one way or the other. Now that we have the sample size determined, the next step is to randomly select the cases out of the overall population. For this we will use the Random Numbers feature in RAT-STATS. This general process has been described above. Again, no spare cases will be selected. If a record is missing or the documentation is missing, then the case is a total overpayment. Assume that the audit of the 172 cases has been conducted. The findings are a 41% error rate with an average overpayment of $31.00. For the one-thousand-case universe this means an extrapolated overpayment of $12,710.00. Next we must determine the 90% confidence interval and take the lower side to determine the actual amount of overpayments. We will do this using the Variable Appraisals feature, just as we did above for the probe audit. RAT-STATS will give quite a bit of information, but the information we need is: $14,607.00—upper 90% confidence level $12,710.00—extrapolated overpayment $10,848.00—lower 90% confidence level The amount of overpayment to be recouped is the lower level, or $10,848.00.

What if we changed our precision level to 10% and left the confidence interval at 90%? From Table  6.1 the statistically valid sample size is now 454 cases. Presuming we conduct the audit and keep the error rate at 41% and the average overpayment at $31.00, we will obtain some significantly different numbers within the upper and lower 90% confidence intervals. $13,604.00—upper 90% confidence level $12,710.00—extrapolated overpayment $11,726.00—lower 90% confidence level The overpayment demand for recoupment will now be $11,726. Note that the confidence level range has narrowed significantly due to the increased number of cases actually audited. Stratified Sampling There are different types of sampling procedures that can be used. While a full discussion of all the different approaches is well beyond our scope, in the healthcare field stratified sampling is frequently used. Case Study 6.5 presents an example. Using Extrapolation in Reverse The process used to explain the formalities of the extrapolation process came from OIG guidance relative to healthcare providers that, through a corporate integrity agreement, wanted to establish that compliance was being maintained relative to a given issue. This means that you, as a healthcare provider, can use this methodology to your benefit. For instance, let us assume that during a gap analysis you discovered that there is a problem and you have been overpaid due to some systematic error. If you conduct your own study and extrapolate the results, you

RAC Processes  •  69

Case Study 6.5: Physician E/M Coding Levels The RAC is concerned that physicians* may not be coding the correct E/M levels based on the 1995 or 1997 E/M coding guidelines. The RAC wants to establish an audit program that will allow for a statistically valid sample that can be extrapolated to an entire universe. There are several different types of E/M codes. Assuming a fairly simple case, there are five established patient visit codes, namely, 99211 to 99215. In this case the universe may well consist of thousands of E/M levels, but there is a natural way to stratify or divide the universe—by the five different levels of codes. Thus, on a percentage basis, we may have the following distribution: 99211—10% 99212—18% 99213—36% 99214—23% 99215—13% After the proper sample size has been determined, the sampling will be random within the different strata. For instance, if in our above distribution the sample size is 150, then the cases will be randomly selected with the different strata with the ­following numbers: 99211—10%∗150 = 15 99212—18%∗150 = 27 99213—36%∗150 = 54 99214—23%∗150 = 25 (rounded up) 99215—13%∗150 = 20 (rounded up) * The issue of correct E/M levels may well become a hospital issue as well, even though there are no national guidelines.

should be able to have your MAC exclude these cases from review by your RAC. You will voluntarily make a repayment. If you meet all the appropriate requirements for using extrapo­lation, you can avoid extended discussions and appeals with your RAC. In order to use the extrapolation process, you must do it correctly. This means identifying the problem, establishing a sound statistical basis for the process, establishing audit guidelines, performing audits, and calculating the repayment to be made. Let

us follow the fictitious Apex Medical Center through such a process. Problem identification: The Apex Medical Center has a very busy emergency department and more than a dozen provider-based clinics, most of which are off campus. During some ­routine audits it became apparent that the documentation supporting the use of the -25 modifier (significant, separately identifiable E/M service) was lacking

70  •  The Medicare Recovery Audit Contractor Program or insufficient in some cases. While it was difficult to determine exactly when and where this was occurring, there did seem to be a general pattern across the provider-based ­clinics. The ED documentation seemed to be appropriate. Also, the lack of documentation appeared to be present within all the E/M levels. Universe identification: Across the provider-based clinics, for Medicare beneficiaries, the total number of visits for a three-year period was identified at four thousand.* Statistical analysis: A statistician was retained to study this situation and to design a statistically valid process. While stratified sampling was considered, in the final analysis, due to the previous findings, a general sampling process was chosen. However, the statistician did set the parameters at: • 90% confidence interval • 20% precision level Also a probe audit of forty cases was to be performed in order to determine an error rate. The repayment amount was to be the lower of a one-sided 90% confidence interval, and the OIG’s RAT-STATS program was to be used to generate the sample size and then to randomly select the cases. Auditing guidelines: For this particular example the most difficult process is to determine what auditing guidelines are to be used. Because the actual audit will be conducted by an independent * Yes, we will use nice round numbers to illustrate this process. Obviously, in practice, the mathematics can become more complex.

review organization (IRO), care must be taken to establish the auditing guidelines. In this case, as with many other challenges with coding and billing, guidance from CMS has been rather minimal. Although APCs have been used for ten years, technical component E/M coding guidelines have never been issued. The use or nonuse of the -25 modifier appeared shortly after APCs were implemented in the form of Program Memorandums A-00-40 and A-01-80, which are from 2000 and 2001. Apex has established auditing guidelines that follow the instructions contained in these program memorandums and the CPT definition of the -25 modifier appropriately translated to the hospital side. Independent Review Organization: An IRO is chosen and the project is reviewed along with the auditing guidelines. For this project a probe audit of 40 cases was conducted. An error rate of 40% or 16 cases was found. The average error was $58.00. Running this data file through the RAT-STATS program yields a mean of $23.20 and a standard deviation of $29.99. With this information and the universe size of 4,000, the standard deviation drives sample size of 110 cases. Note: A sample size of 110 is too small for a universe of 4,000. However, we will go ahead and take this through the process. At the end of the process we will see that the confidence interval is significantly affected. In reality a sample size closer to 300 would be appropriate. Conduct Main Audit: After determining the sample size, the IRO performs the audit and determines an overall error

RAC Processes  •  71 rate of 44% with an average error of $58.00. RAT-STATS was then used to calculate the overpayment and the 90% confidence interval. The results were: $120,077.00: Upper 90% confidence level $101,236.50: Extrapolated overpayment $82,396.00: Lower 90% confidence level As you can see the lower side of the 90% confidence interval is almost $20,000.00  below the extrapolated amount. This is due to the small sample size. A larger sample size will give results where the confidence interval is more constrained and thus more appropriate. Report and Make Repayment: Apex then reported the overpayments, made the appropriate repayment of $82,396.00, and supplied a comprehensive report to their MAC including the statistical process used including the universe of claims.

Summary and Conclusion The RACs must identify possible areas and circumstances in which improper

payments have been made to healthcare providers. The RACs have a massive database of paid claims available to them. Various data mining techniques can be used to identify possible problem areas, although the RACs already have long lists of possible issues from the OIG, DOJ, Comprehensive Error Rate Testing (CERT) program, and general Medicare audits by the administrative contractors. After a given problem area has been identified, CMS uses a process to determine if it will allow the RAC to proceed in auditing for the given problem. The Validation Contractor analyzes any possible issue to see if the issue is valid. After an issue has been approved, the RAC may pursue the issue with two main approaches: automated reviews or complex reviews. Automated reviews involve using computer programs to cull through the claims to see if the problem is present. Some issues are more complex and require a complex review that involves evaluating the medical record. A special type of process that is available to the RACs is a complex statistical procedure called extrapolation. While the demonstration program RACs did not use this technique, it is likely that at some point the RACs address these audits on a nationwide basis will use the extrapolation process.

7 Understanding the RAC Appeals Process

Introduction The Recovery Audit Contractor (RAC) appeals process is based on the standard Medicare appeals process with some modifications. When a RAC claims that there have been overpayments, you may want to challenge such a determination and initiate an appeal. Because the RACs want to recoup overpayments quickly, the question of delaying such recoupments relative to the appeals process becomes important. Basically, if you are to postpone recoupment, you will have to act quickly within the rather extended time parameters of the appeals process. The actual appeals process is a procedure. There are time frames to file appeals, there are special forms that must be filled out and submitted, and you will need to track your activities if you pursue an appeal to the upper levels within this process. Another aspect is more substantive rather than procedural. You will need to develop a case file or portfolio relative to the claimed overpayment. This case file will need to contain all relative documentation of services, applicable statutory or regulatory citations, and position papers on interpretation of the statutes and regulations, along with any other information that might justify the propriety of the payment made or the impropriety of the assertions of the RAC. Clearly, there can be many different types of cases, ranging from the straightforward to the extremely complex. Also, the dollar amounts involved will vary from just a few dollars up to hundreds of thousands of dollars. Healthcare providers can easily become emotionally involved in issues. Care should be taken to carefully consider the costs and benefits for pursuing the appeals process. Of course a single low-dollar case may be representative of thousands of related cases so that cost-benefit analyses need to be broadened when justifying an appeal. 73

74  •  The Medicare Recovery Audit Contractor Program RAC Discussion

Appeals Process The appeals process for RAC assertions of overpayments is a slightly modified form of the normal Medicare appeals process. There is an initial step that is available: directly communicating with your RAC in order to discuss the assertion of overpayment. Also, the first level in the normal Medicare appeals process has been slightly modified for inpatient claims. Here are the levels, including a Level 0 for the discussion phase with the RAC: • • • • • •

Level 0: RAC discussion Level 1: Request for redetermination Level 2: Reconsideration Level 3: Administrative law judge Level 4: Medicare Appeals Council Level 5: Federal District Court

For each level there are constraints on how long you have to appeal to the next level, and there are limitations on how long a decision can take for each level. By the time you move to the fourth and fifth �levels, the time period over which the appeal will take place can span years. Also, there are process requirements such as filling out forms, submitting arguments, and requirements for amounts contested. Currently the dollar limit for appeal at the upper level is $1,220.00. This amount is inflation adjusted each year. For healthcare providers such as hospitals, attaining this level is not difficult. For physicians and clinics this dollar limitation may allow only for appeals at the lower levels. Here is a brief synopsis of each of the levels. While this process is relatively stable, take care to check on current specifics for timing and proper protocols for appealing.

You may see the word rebuttal used in the literature. The Centers for Medicare and Medicaid Systems (CMS) has softened the terminology. The basic idea is that the healthcare provider can submit additional documentation or otherwise make a case for the fact that overpayment did not occur. This must be done very quickly. There is a fifteen-day window to make your case. Note that this step is really outside the formal appeals process. Recoupment is stopped while the discussions take place as long as the fifteen-day window is observed. In practice this discussion phase is fairly quick. Typically, the discussion or rebuttal is refused and recoupment is commenced after the fifteen-day period unless there is a request for redetermination. Thus, the discussion phase overlaps with the timing for the request for redetermination. Request for Redetermination Redetermination is the first step in the formal appeals process. There is a fairly generous time period of 120 days to file a request for redetermination. However, in order to stop recoupment, the request must be filed within thirty days. There is a CMS form, CMS-20027,* that must be filed along with appropriate documentation. There is no monetary threshold. A response is required within sixty days. There is a major difference between the regular Medicare appeals process and the RAC appeals process at this first level. For Part A inpatient claims (i.e., MS-DRGs for hospitals) the appeal normally goes to the Â�hospital’s Quality Improvement Organization (QIO). * To obtain any of the many CMS forms, go to http://www. medicare.gov/Basics/forms.

Understanding the RAC Appeals Process  •  75 For the RAC appeals process, the Part A claim goes to the hospital’s fiscal intermediary (FI) or Medicare administrative contractor (MAC). While this may not seem a big difference, a little thought will reveal that this is potentially a major issue. Hospitals have been monitored and interact with the QIOs relative to coding and billing under MS-DRGs. The QIOs have actually developed standards by which the MS-DRG claims are audited. Issues such as inpatient admission criteria, application of the DRG preadmission window, and application of the post­discharge transfer rule have all been established, and hospitals have adjusted to these auditing standards over the years. Now what if the hospital’s RAC claims that an inpatient admission was not medically necessary and the claim goes to the FI, not the QIO? Most likely the FI will agree that there was an overpayment even though the QIO would most likely accept the inpatient admission. In Case Study 7.1, do you think Apex will be successful in requesting a redetermination from its FI? Most likely the FI will agree that an overpayment has occurred, whereas the QIO would review the appeal based upon auditing standards that it, the QIO, has Case Study 7:1: QIO versus RAC The Apex Medical Center has received several determinations from their RAC indicating that certain inpatient admissions were not medically necessary and should have been observation cases. The personnel at Apex are mystified because at least one of these claims had been reviewed by the QIO and approved as filed.

established. These auditing standards may be different from those used by the RAC. Reconsideration The second level of appeal is a request for reconsideration. You have 180 days to file for reconsideration on the CMS-20033 form. There is no monetary threshold. At this level, the request will be reviewed by a qualified independent contractor (QIC). The QIC process was established by the Benefit Improvement and Protection Act (BIPA) of 2000. QICs are required to utilize comprehensive data systems to collect and share information about appeal decisions. The QICs follow carefully any local coverage decisions (LCDs) from the fiscal intermediaries, Carriers, or MACs. Medical necessity denials use a panel for review. There are a number of QICs that are contracted by CMS for Parts A, B, C, and D of the Medicare program. At this level make certain that you have your case file or portfolio of information complete, including any and all documentation, argument for payment, position papers, and statutory/regulatory citations. The QIC has sixty days to make a determination. Note that there may be occasions when additional information may be requested so that this phase can become elongated. Administrative Law Judge If you are not successful, or fully successful, at the reconsideration level, then you can move on to the administrative law judge (ALJ) level. The monetary threshold is $120.00, and you have sixty days to file for an ALJ review. Generally, the ALJ hearings are held by video-teleconference or telephone. You can request an in-person hearing, but

76  •  The Medicare Recovery Audit Contractor Program this is not typical. The ALJs determine the hearing preparation procedures. CMS may become a party to these hearings. The ALJ has ninety days to issue a ­ruling. However, these hearings can become elongated for a number of different reasons, including submission of additional evidence not included with the hearing request, a request for an in-person hearing, or initiation of discovery if CMS becomes involved. As you can probably surmise, as we move up the appeals ladder, the proceedings become more legal with resultant time delays for due process. Medicare Appeals Council The fourth level of appeal is the Medicare Appeal Council. You have sixty days after the ALJ ruling to file an appeal with this council. There is no monetary threshold as such, but to get to this level you would be dealing with at least $120.00. The council has ninety days to review the case and make a decision. In some cases the level may become elongated because of due process issues. Federal District Court The final level is to take the case for a judicial review in U.S. District Court. You have sixty days to file, and currently the monetary threshold is $1,220.00. Obviously at this level you will have attorneys involved along with expert witnesses in order to pursue the formal legal process.

Pursuing the Appeals Process If you perform the arithmetic for time periods in the above levels of appeal, you will

realize that even going up to and through the ALJ level can take a good six months. Beyond that, federal court proceeding can take years to complete. While you may be involved in some issues that do deserve appealing up through the levels, for the most part you will probably be involved in the first three levels. While we have been discussing the process or mechanics for appealing, there are many other questions surrounding appealing determinations of overpayment. Assessing the costs and associated benefits is a major issue. Also, the reason for the RAC’s assertion that an overpayment has occurred is of great importance. Some issues are quantifiable and the error made is clear. For instance, a breast lumpectomy may be coded twice, once from professional coding staff and once through the chargemaster. In this type of case repayment should be made. These types of errors will generally be identified through the automated review process. In Chapter 3 we started discussing issues, and this was continued in Chapters 4 and 6. While a general categorization of issues has been provided along with some specific examples, there is an enormous variety of problems that may require consideration. Some of the issues are subjective while ­others are objective. For instance, numerous medical necessity issues arise in which clinical judgment may be questioned. These subjective issues are disconcerting because in auditing we need to have definitive metrics­. If you know the audit metrics and the RAC is using the same metrics, then you should have little trouble in identifying issues and rectifying any overpayment. Note that the appeal process is geared toward individual cases. You may find that an issue arises that for each case the alleged overpayment is small, but there are

Understanding the RAC Appeals Process  •  77 hundreds or even thousands of such cases. Will it be necessary to individually appeal each of these cases? Time will tell if CMS modifies some of these appeal procedures to accommodate repetitive or systematic issues. See the discussion of appealing extrapolation cases below. Your challenge is to objectively consider the costs involved in order to avoid recoupment. If you are dealing with interpretations of the rules and regulations, it is all too easy to become emotionally involved. Emotional involvement can also occur with medical necessity and coverage issues because healthcare providers are clinically oriented to taking care of their patients. At the same time, healthcare providers are businesses, so that proper reimbursement is crucial to financial viability. Here is a very general classification scheme that may help you orient your thinking when starting the cost-benefit analysis. Consider four very general categories: • • • •

Low-dollar, isolated case Low-dollar, repetitive case High-dollar, isolated case High-dollar, repetitive case

Everything in these categories is relative. A low-dollar threshold might be $50.00 for one type of provider and $500.00 for another provider. Repetitive may involve several dozen cases or hundreds if not thousands of cases. Add to these four categories the dimension of objective versus subjective. Objective in this case means that there are specific metrics so that any auditor would reach the same conclusion about a given case. Correct coding based upon the documentation is generally quantitative. Subjective means that there is some sort of judgment involved

that goes beyond quantitative metrics. For instance, a RAC auditor might maintain that a coronary catheterization performed on an inpatient basis could have equally well been performed on an outpatient basis. Using these three dimensions we can look at the extremes. For instance, low-dollar, objective, isolated cases rarely will invoke the use of the appeals process. Again, an isolated coding error or reporting an incorrect number of units is not something that is cost justified to pursue through the appeals process. At the other end of the spectrum, a high-dollar­, subjective, repetitive case may well be a candidate for pursuing the appeals process. Short-stay inpatient admissions that the RAC claims should have been observation cases are a possible example.

Developing Organizational Resources Operational costs of developing the necessary organizational infrastructure to address even the routine demands of the RACs can be significant. Copying records and tracking cases is time-consuming. Add to these operational costs the need to determine if appeals are to be pursued, and then all of the case development and tracking that goes along with the appeal process, and you can incur significant costs. This is particularly true if you pursue appeals to the higher ­levels and thus must engage consultants and legal counsel to assist. Note that in pursuing the appeals process, you are being reactive, that is, you are responding to RAC assertions of overpayments. Part of your organization’s effort should be proactive. If, indeed, there are

78  •  The Medicare Recovery Audit Contractor Program issues in which overpayments are occurring, then you need to proactively address the issues to prevent any assertions of overpayments. For instance, physician documentation has been a long-standing issue for coding and billing under the Medicare Physician Fee Schedule (MPFS), Ambulatory Payment Classification (APCs), and DRGs. While the services provided were proper and appropriate, the physicians’ documentation may not be fully adequate to support the care or site of the service. Training programs for medical staff may assist in this area. Thus, when thinking about and implementing organizational resources, think both reactively and proactively. The RACs will probably be around for years to come. Getting things in order, even if the ordering is the result of audit metrics developed by the RACs, is less expensive than constantly reacting to claims of overpayment. However you decide to organize, a part of the cost-benefit analysis for pursuing appeals lies with the personnel that must develop the defenses for the cases being appealed. In many instances, the experience and knowledge level of personnel pursuing the appeals will be significant, and thus costs will tend to also be significant.

Case Development Thus far in this chapter we have addressed the process and mechanics for pursuing appeals with an emphasis on establishing appropriate cost-benefit analysis. The substance of an appeal lies in the arguments supporting the assertion that payment was proper. How do you go about making such an argument? Given the myriad situations that the RACs will study and, most likely,

then contend that overpayments occurred, there is no single or simple answer to this question. You will need to develop a case file for each appeal. You may also see terminology such as case portfolio because there may be many documents in the case file, depending upon the specific issue. The Medicare RAC program is basically an auditing program. In order to audit there must be metrics by which to judge whether coding, billing, and the associated reimbursement are occurring properly. If there are assertions that overpayments have occurred, then there must be some objective way to determine if there were overpayments. Thus, when you develop your case file, you will need to research the specific issue or issues relative to any guidelines and directives. Note:  This process can be reasonably pursued with objective situations involving specific coding and billing issues. With subjective issues such as medical necessity, the arguments and supporting documentation will need to be geared more toward the clinical aspects, including physician and clinician statements. For instance, you may be dealing with a coding issue of some sort. There are numerous standard code sets such as International Classification of Diseases, 10th Revision (ICD-10), Current Procedural Terminology (CPT), and Healthcare Common Procedure Coding System (HCPCS). Each of these code sets has various guidelines. For instance, with ICD-10 there are rather extensive coding­guidelines for both inpatient coding­ (i.e.,  MS-DRGs) and outpatient coding­ (i.e., APCs and MPFS). In theory, these are standard code sets under the HIPAA Transaction Standard/Standard Code Set (TSC), and only the official code set maintainer can issue guidance for the use of

Understanding the RAC Appeals Process  •  79 the given code set. However, in practice, particularly with the Medicare program, third-party payers tend to issue additional guidance in the proper use of these code sets. This variability in guidance results in a jumble of sometimes conflicting guidance. Note that Medicare often issues guidance for the coding and billing process to fit into its different payment systems. Developing a case file for an appeal will require a full understanding of all the Medicare rules and regulations from the very top of the pyramid down to the informal guidance often obtained through telephone inquiry. We will review the hierarchy of Medicare guidance and then look more closely at some general categories discussed in Chapter 5. Hierarchy of Medicare Guidance For the Medicare program the overall coding, billing, and reimbursement guidelines involve a hierarchy of documents involving tens of thousands of pages. Here is the basic hierarchy starting with the Social Security Act. • • • • • • • • • • • •

Social Security Act (SSA) Congressional laws United States Code (USC) Code of Federal Regulations (CFR) Federal Register (FR) CMS manuals National coverage decisions (NCDs) Local coverage decisions (LCDs) CMS Medicare Learning Network Medicare questions and answers Medicare open-door forums Medicare administrative contractor (MAC) guidance

As we work down the list, the formality of guidance decreases, although the detail increases significantly.

In developing arguments and positions relative to possible overpayment cases, the big question is: “What sources can I depend upon?” For you, this is a major question, the answer to which can change over time. For instance, CMS has become increasingly fond of issuing clarifying guidance that actually represents major changes in guidance. You may see phraseology from CMS such as: “It is our policy, and has always been our policy, that….” This places you in a precarious position. You may have been following what you thought was the old guidance, but now CMS appears to be retroactively implementing a policy change. While CMS is not supposed to be able to do this,* CMS will claim that the guidance is simply clarifying, not a change. Clarifying Guidance Here is an example of clarifying guidance from Medicare addressing critical care services under APCs. There are two critical care CPT codes: • 99291–Critical Care: First thirty to seventy-five minutes • 99292–Critical Care: Each additional thirty minutes When APCs were implemented, CMS decided to make a single payment for any critical care services by paying only for 99291 and not paying anything for 99292. Thus, for APCs, the time units were not relevant. Payment would be made for less than thirty minutes as long as any critical care was provided.† However, for 2007, * See MMA 2003, Section 903, which prohibits CMS from retroactively applying changes in policies and procedures. † See April 7, 2000, Federal Register, p. 18434 (65 FR 18434).

80  •  The Medicare Recovery Audit Contractor Program CMS indicated that the timing did apply; that is, the critical care must be provided for at least the minimum thirty minutes. Not only did CMS change the interpretation, but it stated: In fact, as stated by CMS in the 2007 final OPPS rule, the 30-minute minimum requirement has always applied and will continue to apply for CY 2007 and beyond.*

Fortunately, this particular issue is far enough back that it will not be a RAC issue as such. However, this provides a very good example in which you may be relying on guidance from CMS to code and bill in a particular fashion, only to be told later that you misinterpreted CMS’s guidance. Most likely the RACs will jump on situations like this with gusto. Ambiguous Guidance An example of ambiguous guidance is with blood transfusions. Very welcomed guidance was provided by CMS back in 2005 through Transmittal 496, March 4, 2005, that updated Medicare Publication 10004, Medicare Claims Processing Manual. Guidance for blood transfusions included the following statement:

At issue is the proper interpretation of the phrase on a per service basis. While most blood transfusions occur during a single service or session or encounter, there are ­circumstances in which a patient may present two different times during the day (e.g., in the morning and then in the afternoon) to have a unit of blood transfused each time. The question then becomes: Is it appropriate to use the -76 or -77 modifier in this type of case? From the RAC’s perspective, the automated reviews will look for a code like 36430 that has more than one unit and then an overpayment will be asserted. If you have this two-visit situation and did not use a modifier, the RAC will claim an overpayment. Incorrect Guidance Another issue that you may encounter is guidance from your FI, carrier, or MAC that is incorrect or at least seems to conflict with CMS guidance at a higher level. When you receive bulletins or newsletters from your MAC, note that there are often disclaimers such as: The information contained in this fact sheet is provided as a customer service only. If any part of this information contradicts CMS regulations or US Code, those sources will supersede the information contained here. Medicare laws and regulations change frequently, so it is important to be sure that you have the most current fact sheet.†

Transfusion services codes are billed on a per service basis, and not by the number of units of blood product transfused. For payment, a blood product HCPCS code is required when billing a transfusion service code. A transfusion APC will be paid to the OPPS provider for transfusing blood products once per day, regardless of the number of units or different types of blood products transfused.

The immediate question for developing your case file for an appeal is whether or not you can depend upon the guidance you

* See November 26, 2006, Federal Register, p. 68134 (71 FR 68134).

† See Routine vs. Non-routine Supplies, issued by TriSpan Health Services.

Understanding the RAC Appeals Process  •  81 receive from your FI, carrier, or MAC, even if it is in writing. Requesting Guidance and the Federal Register Another subtle example of guidance (or lack of guidance) from a MAC occurs when a healthcare provider contacts its MAC with billing and coding questions. Sometimes the answer from the MAC is, “We don’t know what to tell you. Send the claim through and if it is paid, then you are doing it correctly.” You don’t have to have many years of experience in healthcare to realize that just because a claim goes through doesn’t mean an adjudication process is correct. The National Public Rulemaking (NPRM) process utilizes Federal Register (FR) entries. Sometimes these entries can be quite lengthy, running upward of a thousand pages. For the major payments systems such as MS-DRGs, APCs, and Resource-Based Relative Value System (RBRVS), there is a FR entry that proposes changes to the given payment system. CMS may also include guidance and discussions on additional topics. Note: Be very careful to review these Federal Register entries for information relating to areas that are not really parts of the payment system being updated. For instance, guidance on Medicare enrollment and provider-based status may appear without warning, buried within one of these lengthy documents. The public is allowed to make comments to proposed rule changes. This is where we all have the opportunity to comment and ask questions. Don’t expect CMS to respond specifically to your question or comment. However, CMS does respond to the comments and questions at least to some degree. After comments are made to the proposed

rule changes, a final FR entry is issued indicating the official rule changes. The bulk of a FR entry is called the ­preamble. The preamble has all of the discussions, comments, questions, answers, and the like. The official part of the FR entry will be relatively short and occurs at the very end of the FR entry. This is where the actual changes to the Code of Federal Regulations (CFR) are listed. Now the question for healthcare providers is: “Can I rely on the preamble discussions for developing coding and billing policies?” The answer is not really. Even if we receive guidance that appears reliable and authoritative, CMS may change its mind several years after the fact and dismiss the earlier guidance as a misinterpretation on the part of healthcare providers. A good example of this is with the direct physician supervision requirement in connection with provider-based operations. When APCs were implemented in 2000, the provider-based rule (PBR)* was also formalized. In the April 7, 2000, Federal Register, CMS was adamant that direct physician supervision was required for offcampus clinics, but that for on-campus operations physician supervision was presumed because there would be a physician close by if there were any problems.† However, in 2008 CMS’s stance suddenly changed, and clarifying guidance was issued indicating that direct physician supervision for oncampus, but out-of-the-hospital operations was required.‡ No changes were made to the CFR; all of this was simply discussed in the preamble to the FR entries. Additionally, CMS did make changes at the manual * See 42 CFR §413.65. † See April 7, 2000, Federal Register, p. 18524 (65 FR 18524). ‡ See July 18, 2008, Federal Register, p. 41518 (73 FR 41518).

82  •  The Medicare Recovery Audit Contractor Program level by redefining certain definitions and requirements. CMS indicated that all of the discussions involved clarifying guidance, not any changes to policy.* Thus, the answer to being able to rely on the preamble of Federal Registers is, fundamentally, no. CMS may change its mind and policies by providing clarifying guidance. Note: When developing coding and billing policies and procedures through which you may later need to defend against claims of overpayment, it is essential that you save copies of any and all guidance. Particularly, more informal guidance from CMS in the form of Q&As, open forums, and training materials can suddenly disappear from the CMS website. Even with the CMS manual system, because there are frequent changes, you should retain copies of manuals that were in existence when you developed coding and billing policies and procedures (P&Ps).†

Coding/Billing versus Adjudication/Payment As mentioned in Chapter 5, another disconnect within Medicare guidance is properly separating: • Coding, billing, and claims filing • Claims processing, adjudication, and payment A healthcare provider should be able to provide services, document the services, and then code and bill using the standard code sets in a standard transaction format. In theory, for a given service the same claim * See Transmittal 101 to Publication 100-02, Medicare Benefit Policy Manual, dated January 16, 2009. † Some knowledge bases in this area retain copies of old documents even if they are withdrawn from the CMS website.

should be filed to any and all third-party payers. However, particularly with the Medicare program, there is confusion in guidance relative to charging, coding, and billing that is actually being made to accommodate a particular payment system. In developing arguments to rebut claims of overpayment, you may well encounter Medicare guidance that is absolutely disconnected. For hospital outpatient services under APCs, let us consider the issue of injections and infusions provided in connection with surgical procedures. When outpatient surgical procedures are performed, there are certainly injections and infusions provided. Which, if any, of these injections and infusions should be separately payable, and are hospitals supposed to code and bill for these injections? Given this situation, how would you go about determining a correct answer to this question? Did the FI give incorrect guidance in indicating that such injections and infusions should not be coded and billed? Could this in any way become a RAC issue? As you might conclude, there is a great deal more to this question than is evident at first glance. In Transmittal 1445 to CMS Publication 100-04, Medicare Claims Processing Manual, dated February 8, 2008, CMS has a very interesting statement that was added to §230.2B, which is the coding and payment for drug administration: Hospitals should report all HCPCS codes that describe the drug administration services provided, regardless of whether or not those services are separately paid or their payment is packaged.

This statement seems to be very clear! Hospitals are to code and bill all injections and infusions regardless of whether or not they are paid. CMS seems to be stating that

Understanding the RAC Appeals Process  •  83 for infusions and injections in general, the issue is not coding and billing, the issue is for the claims adjudication process to correctly package or pay separately. Another source from which to gain information is CMS’s National Correct Coding Initiative. This is a very large set, approximately 300,000, of code pairs not to be used together unless there is an appropriate reason and the -59, separate procedure, modifier is used. From Version 14.3.1, p. I-7 of Chapter I, “General Correct Coding Policies for National Correct Coding Initiative Policy for Medical Services,” we have: Under OPPS, the administration of fluids and drugs during or for an operative procedure are included services and are not separately reportable (e.g., CPT codes 90760–90775).

From p. XI-4 of Chapter XI, “Medicine Evaluation and Management Services CPT Codes 90000–99999 for National Correct Coding Initiative Policy Manual for Medicare Services,” we have: Under the OPPS drug administration services related to operative procedures are included in the associated procedural HCPCS/CPT codes. Examples of such drug administration services include, but are not limited to, anesthesia (local or other), hydration, and medications such as anxiolytics or antibiotics. Providers should not report CPT codes 90760–90775 for these services.

Note that the injection/infusion codes have not been updated, but this statement seems to indicate that these injections and infusions should not be separately reported during or for an operative procedure. Consider Case Study 7.2. The specific antibiotic injection

from our case study is addressed. Where does this leave us? The next step would be to check the National Correct Coding Initiative (NCCI) edits and then run some sample cases through the APC grouper, that is, the integrated outpatient code editor (I/OCE). Generally, a CPT code like 96372 will not error out with outpatient surgical codes. Thus, if a hospital did follow the guidance from the CMS Claims Processing Manual, the antibiotic injection would be paid. However, there is contrary guidance from NCCI. Which way do you think the RACs are going to go in a situation like this? Case Study 7.2 illustrates the critical difference between coding, billing, and claim filing, and the adjudication and payment of the claim. Hospitals should be able to code and bill using the various code sets. Case Study 7.2: Preoperative Antibiotic Injections Surgery department personnel have contacted the chargemaster coordinator and compliance personnel at the Apex Medical Center. On certain occasions the surgeons may order a preoperative antibiotic injection. Such injections are not provided to all patients, but only selected patients, apparently based on medical necessity. The surgery department wants to code and bill separately for these injections. Previously the surgery department was informed that the FI had indicated that it could not code and bill for any injections and infusions during the preoperative and intraoperative period.

84  •  The Medicare Recovery Audit Contractor Program It is then CMS’s responsibility to properly adjudicate the claim. Note: A related concept can also be addressed in this area. This is the concept of a drug, supply, or service being an integral part. While CMS has discussed this concept in several Federal Registers,* no formal definition has ever been proffered.

Directives Inherent in the Payment System In Chapter 4 we discussed several Medicare payment systems. In some cases coding and billing of services result from the way the payment system has been constructed and organized. Questions may arise for which there is no specific guidance other than the structure of the payment system itself. Let us consider two simple examples of this. Consider Case Study 7.3. Given the scrutiny of the RACs, is this coding and billing of the 99211 appropriate? Note that this type of use of the 99211 (or possibly 99212) will occur in many different situations. For instance, a physician may send a patient to the hospital to have a Foley catheter removed based upon specific criteria. There is no code for such ­catheter removal, and thus an E/M level would appear appropriate. Using 99211 or 99212 on a stand-alone or isolated basis is not really covered in the various rules and regulations. An analysis justifying the use of these codes depends upon an analysis of the APC payment system­. There was an encounter, resources were ­utilized, the case was documented, the physician was involved (report sent to physician), and * For instance, see August 9, 2002, Federal Register, p.  52122 (67 FR 52122) and November 1, 2002, Federal Register, p. 66767 (67 FR 66767).

Case Study 7.3: Isolated Technical Component E/M At the Apex Medical Center many Medicare patients present for various infusions and injections as ordered by physicians. The standard protocol is for a nurse to assess the patient prior to administration of any drugs. While these assessments are generally routine, there are a number of instances in which a patient is ill or has a condition contraindicating the infusion or injection. In cases of this type the patient is told to come back in a day or two for the service. The ordering physician is informed. Apex has been coding and billing these out as a 99211 technical component E/M. thus the adjudication elements are all in place. Of course, there must be a policy for the choice of the E/M level (i.e., the required mapping), but in these cases the 99211 is generally used as a default code. Another example of understanding the architecture of a payment system is with the postoperative services for APCs. While there is a very well-defined global surgical package (GSP) for physicians, the surgical package for APCs appears limited to the given date on which the surgery was performed. Consider Case Study 7.4. The question is how to bill for the return visit on Wednesday. The physician, in this case the ER physician group, has already been paid for the first cast, and this is within the ninety-day postoperative period. So there will be no professional billing.† What † Physicians sometimes use the 99024 for a no-charge, postoperative visit for tracking purposes.

Understanding the RAC Appeals Process  •  85

Case Study 7.4: Return to ED for Casting An elderly patient presented to the Apex Medical Center’s ED on Monday with a simple­, nondisplace fracture of the leg. There was some pain and swelling, so the ER physician applied a temporary splint and instructed the patient to return on Wednesday for a cast.

Case Study 7.5: Calculating Infusion Time Nursing staff at the Apex Medical Center are upset about requests for documenting both the start and stop times for infusions. While the nurse can ­easily document the start time, the nursing staff are not typically at the bedside when the infusion stops. A policy has been drafted that allows the nursing staff to document the stop time by taking the amount of infusate and the flow rate and calculating the stop time in case they are not at the bedside. about the hospital? Because APCs have no defined postoperative period, it appears that the casting service is separately billable by the hospital.* However, is it possible that this could become an interpretive issue with the RACs?

Let us join the coding, billing, and nursing staff at the Apex Medical Center by reviewing Case Study 7.5. Now the question is, will the RACs accept this type of process as meeting the criteria of reporting the actual time?

Interpretation of Guidance

Other Issues

The Medicare RAC program is an auditing program, and thus audit guidelines with associated metrics are crucial. During the early years of APC implementation there were constant changes to the injection, infusion, and chemotherapy codes. Among the guidance for infusions is a statement from the CPT manual located in the general guidance for infusion, injections, and chemotherapy:†

Below are a few more situations that may cause concern relative to the RACs. Consider Case Study 7.6. A healthcare provider encountering this type of situation will conclude that there is a charge capture issue that needs addressing. However, what might a RAC conclude? While we will have to wait for this type of issue to arise, the RAC would probably claim that the injection or infusion represents an overpayment because there was no drug administered. Let us consider a situation for physician professional coding and billing. The Medicare Physician Fee Schedule (MPFS) was discussed in Chapter 4, including the mention of the global surgical package

When reporting codes for which infusion time is a factor, use the actual time over which the infusion is administered. * See November 1, 2002, Federal Register, p. 66793 (67 FR 66793). † See p. 435, 2009 Professional Edition of CPT.

86  •  The Medicare Recovery Audit Contractor Program

Case Study 7.6: Infusion Documented but No Pharmacy Item An internal audit has been performed at the Apex Medical Center. This time fifty cases concerning infusions and injections were reviewed. A disturbing finding is that while injections and infusions are being coded and billed, there were nine cases in which the drug that was administered was not billed, and thus does not appear on the itemized statement or the claim. Also, the clinical documentation was less than clear on the use of the drug.

Case Study 7.7: Postoperative Transfer of Care Drs. Brown and Smith are on the medical staff at the Apex Medical Center, although they have separate practices. Both are family practice physicians and both are board certified to perform general surgery. Dr. Brown is going on vacation and asks Dr. Smith to cover his patients that are currently in the postoperative period after surgery. This includes several patients in the hospital and also a number of patients who received outpatient surgery. Dr. Smith does cover and sees a number of patients. (GSP) and the various postoperative periods. Particularly for the ninety-day postoperative period, proper coding and billing is a challenge if the surgeon transfers the postoperative care to another physician. While the discussion of exactly what constitutes a transfer and then the proper use of the -55, postoperative care, modifier is beyond the scope of this book, consider Case Study 7.7 relative to the RACs. The question that arises is whether or not there was a formal transfer of care. If there was a formal transfer of care, Drs. Smith and Brown will have to carefully use the -54, intraoperative, and -55, postoperative, modifiers. If the arrangement was simply that Dr. Smith was covering for Dr. Brown, then Dr. Brown will most likely code and bill for the services. How will the RACs look at this situation? If this arrangement is informal (i.e., no formal written transfer of care) could the RAC claim that Dr. Brown was overpaid?

Note: There are three related modifiers: • -56, preoperative • -54, intraoperative • -55, postoperative The proper use of these modifiers is rather complex and convoluted. This issue has been recognized by the OIG.* In your work with CBR compliance issues, you will find many issues that are not easily classifiable—thus the use of a general category­, such as other issues. Provider-based clinics have become very popular for hospitals. Because there is increased overall payment, these clinics also generate the potential for incorrect payments. Review Case Study 7.8. When a physician uses POS 11, the site-of-service reduction in payment does not occur and there is an overpayment to the physician. While this might appear to be a simple overpayment * See FY2009 OIG Annual Work Plan, p. 13.

Understanding the RAC Appeals Process  •  87

Case Study 7.8: Place of Service Coding at Hospital Clinics The Apex Medical Center has a very nice clinical area in a hallway off the main entrance to the hospital. There are examination rooms along with a reception area and a waiting area. Specialty physicians from two different metropolitan areas come to Apex several times a month. The physicians do not pay rent, and Apex bills a technical facility component on the UB-04, while the physicians bill their own 1500 claim forms. It has come to the attention of the chief compliance officer that several of the physicians are using place of service (POS) 11, which is for “office,” as opposed to POS 22, “hospital, outpatient.”

Case Study 7.9: Physician Radiology Inside the Hospital At the Apex Medical Center the radiologists have decided to become totally independent. The radiologists are renting the space from the hospital and are providing all of the radiology equipment, radiology technicians, and support staff. The radiologists are performing their own billing. Luckily, the radiology department is still located right across from the Apex Medical Center’s emergency department. Patients can be taken over for radiology service just as they were before this change was made. issue for the physician, CMS has indicated that it is the hospital’s responsibility to make certain that the correct place of service code is used. From the April 7, 2000, Federal Register, p. 18519: We agree that physicians (or those to whom they assign their billing privileges) are responsible for appropriate billing, but note that physicians who practice in hospitals, including off-site hospital departments, do so under privileges granted by the hospital. Thus, we believe the hospital has a role in ensuring proper billing. (65 FR 18519)

Hospitals and physicians have a number of different organizational relationships. Some of these can become rather convoluted and may inadvertently cause improper payments. Examine Case Study 7.9. At first glance this might appear a little unusual but without any undue concern. However, when the

individuals presenting to the ED become patients, any services provided to them during the encounter are paid to the hospital. We have what is called the unbundling rule found on p. 18440 of the April 7, 2000, Federal Register: All diagnostic tests that are furnished by a hospital, directly or under arrangements, to a registered hospital outpatient during an encounter at a hospital are subject to the bundling requirements. The hospital is not responsible for billing for the diagnostic test if a hospital patient leaves the hospital and goes elsewhere to obtain the diagnostic test. (65 FR 18440)

If a RAC were to discover this type of situation, it would claim that the radiologists were incorrectly overpaid and demand recoupment because the hospital was paid, or should have been paid, for this service.

88  •  The Medicare Recovery Audit Contractor Program MMA 2003 Protection Provisions When preparing your case file or developing a portfolio of supporting documents, you may be addressing much more than a specific claim. You may be addressing a guidance issue that can include incomplete guidance, improper guidance, conflicting guidance, or no guidance at all. Anticipate that the RACs will use any level of guidance available to assert overpayments. Note: In theory, MMA 2003 gives us several protective mechanisms. These are found in the following sections: 903. Compliance with Changes in Regulations and Policies 902. Issuance of Regulations 921. Provider Education and Technical Assistance Section 902 contains a provision that requires CMS to issue a final regulation within three years of a proposed regulation. Section 903 does not allow CMS to retro­ actively apply any substantive changes: A substantive change in regulations, manual instructions, interpretative rules, statements of policy, or guidelines of general applicability under this title shall not be applied (by extrapolation or otherwise) retro­actively to items and services furnished before the effective date of the change, unless the Secretary determines that—

(i) such retroactive application is necessary to comply with statutory requirements; or (ii) failure to apply the change retroactively would be contrary to the public interest.

Of course, the keyword is substantive. Setting aside this keyword, CMS seems to be fond of clarifying guidance as opposed to

changing guidance. For the RACs this can be a huge issue relative to claiming overpayments. Section 921 has the following provision: Response to Written Inquiries—Each Medicare administrative contractor shall, for those providers of services and suppliers which submit claims to the contractor for claims processing and for those individuals entitled to benefits under part A or enrolled under part B, or both, with respect to whom claims are submitted for claims processing, provide general written responses (which may be through electronic transmission) in a clear, concise, and accurate manner to inquiries of providers of services, suppliers, and individuals entitled to benefits under part A or enrolled under part B, or both, concerning the program under this title within 45 business days of the date of receipt of such inquiries.

This provision from MMA 2003 should allow healthcare providers to submit questions in writing and to then receive definitive and, hopefully, authoritative answers. Given all of the difficulties that healthcare providers encounter in obtaining answers, this provision of MMA 2003 could certainly be working better.

Addressing Extrapolation Cases In Chapter 6 we discussed the extrapolation process as used by the OIG and DOJ. This same process is available to the RACs. Only time will tell if extrapolation will be used and, if so, to what degree. Given the potentially large amounts of recoupment that may be available, the RACs will certainly consider this approach.

Understanding the RAC Appeals Process  •  89

Case Study 7.10: Extrapolation Frequency of E/M Coding Through data mining processes the RAC for the Apex Medical Center (AMC) has developed frequency analyses for the different E/M levels.* Apex has an active ED and about a dozen provider-based clinics of various types. Apex has been aware that its frequency of E/M levels is skewed toward the level 4 and level 5 E/M codes. AMC’s RAC has conducted a study of Apex’s E/M mappings and the documentation supporting the selection of levels. The RAC is convinced that AMC’s mappings are incorrect and that the E/M levels have been incorrectly elevated. The RAC is thus planning to go through the formal extrapolation process over the past three years. * Graphically these are generally represented in histograms, which you may recall from your statistics studies.

How will appeals relative to extrapolation cases be handled? The only history we have with protesting the results of an extrapolation audit are with the OIG and the DOJ. The two considerations are: 1. The substantive issue being addressed 2. The statistical propriety of the extrapo­ lation process itself Given the potentially large recoupments that can accrue from extrapolation studies, hospitals, physicians, and clinics should retain consulting assistance if these types of studies occur. The statistical basis and processes should be carefully reviewed and challenged as appropriate. A favorite target for extrapolation is the choice of E/M levels. Physicians and clinics have been using the E/M levels since 1992, and there have been investigations surrounding the proper level of physician ­coding based on the documentation. At the very least, physicians do have guidelines so that auditors do have metrics. While the guidelines can sometimes be difficult to apply, at least we have them. Hospitals started using the E/M ­levels in 2000 with the initiation of APCs. Apparently

CMS made a relatively late decision in deciding to pay separately for the E/M levels. The precursor system to APCs, namely, Ambulatory Payment Groups (APGs), paid for the E/M level only if there were no other services. Under APGs, the levels were determined by the diagnosis codes. When APCs were implemented CMS had no guidelines and simply instructed hospitals to develop their own mappings based on resource utilization. This guidance appeared to be temporary in anticipation of national guidelines for technical component E/M levels. We are now well into ten years of APCs and there are no indications of any national guidelines. Thus, hospitals have done exactly what CMS has directed: they have developed mappings into the various E/M levels. As you might quickly conclude, ­virtually every hospital has a somewhat different mapping! For the RACs this may well represent a lucrative area to claim that the E/M mappings are incorrect or that the hospitals have elevated the E/M levels. While a difference in a level may involve a relatively small dollar amount, there may be thousands of cases. The substantive issue is the correctness of the resource mappings into the E/M levels

90  •  The Medicare Recovery Audit Contractor Program along with proper coding of the E/M levels from the documentation. The extrapolation process itself will need to be carefully reviewed. Assuming that a sampling of 250  cases is necessary, each case that is reviewed by the RAC will need careful examination. For a case like this, the universe of encounters could be as high at 100,000. With an error rate of 40% and an average overpayment of $25.00, the possible recoupment could be $1,000,000.00. Note: Only time will tell if situations similar to that described in Case Study 7.10 will even occur. The concepts illustrated show why it is so important that the CMS give good, timely, accurate guidance relative to its payment systems. Technical component E/M coding guidelines should have been prepared before APC implementation or certainly within a year of implementation. Because the extrapolation process involves the RAC carefully auditing a random sample of cases, the audit guidelines that are used must be carefully reviewed to identify any weakness or misapplication of Medicare rules and regulations. Hopefully any application of the extrapolation process will be applied to situations that are objective as opposed to subjective issues, such as medical­necessity.

Summary and Conclusion The RAC appeals process is based on the Medicare appeals process with some modifications, including a discussion period in which the healthcare provider can provide information that might cause the RAC to decide that there was no overpayment. The appeals process is quite lengthy and,

pursued to the higher levels, becomes quite expensive. Care should be taken to justify any appeals based upon a careful, objective cost-benefit analysis. The cost-benefit analysis process must be broadened because appealing a single claim or case may be representative of many cases. While the mechanics of the appeals process are certainly important and must be well understood, the real substance to appealing is the development of a case file or portfolio that contains the information to substantiate the propriety of retaining payments that have been made to the healthcare provider. For some cases, careful research into the Medicare rules and regulations is required. Some cases will be more clinical in nature, particularly those involving medical necessity. For these cases, documentation such as physician statements may also need to be included. Healthcare providers must take care to study the Medicare rules and regulations throughout the hierarchy of guidance. Some guidance is quite formal and brief, such as at the statutory level. Moving down the hierarchy from the laws are the Code of Federal Regulations and the Federal Register process. Below that are the thousands of pages of Medicare regulations contained in an extensive manual system. Below that is more informal guidance from CMS and the Medicare administrative contractors. Because rules and regulations tend to change, healthcare providers must keep any and all references by which coding­and billing policies and procedures have been developed. CMS tends to make ­policy changes and then apply them retroactively. Healthcare providers must prepare to defend their positions with the regulations in place at the time the claim was filed.

Understanding the RAC Appeals Process  •  91 The extrapolation process tends to generate large recoupments. Thus, careful consideration must be given to appealing and challenging the use of extrapolation. There are two different aspects that must be considered: the substantive overpayment issue and the ­extrapolation process itself. Because

extrapolation involves the careful review of a randomly selected set of cases, the audit guidelines that are used by the RAC auditors must be carefully assessed. Additionally, the validity of the statistical processes must also be verified, and this verification generally requires use of a statistician or mathematician.

8 Meeting the RAC Audit Challenge

Introduction Developing a comprehensive coding, billing, and reimbursement compliance program is addressed in some detail in the companion manual Compliance for Coding, Billing and Reimbursement. The Medicare Recovery Audit Contractor (RAC) program represents a specific type of audit program that must be addressed within your healthcare provider’s overall compliance program. The RAC program is comprehensive and quite pervasive­. In time every type of healthcare provider that is reimbursed through a Medicare fee-for-service payment system will be examined to some degree. Also, the RACs have the unusual capability to check for correlation of claims across provider type. Presuming that your particular healthcare provider has a general compliance plan, a major portion of that compliance plan should be devoted to coding, billing, and reimbursement issues. There are numerous Federal Register entries provided by the Office of the Inspector General (OIG) that list special considerations for different types of healthcare providers. If at all possible, you should proactively modify your current coding, billing, and reimbursement (CBR) compliance program, including different types of audits, to address the RAC program. Due to the nature and structure of the RAC program, healthcare providers are often placed in a position of reacting. Addressing known issues before the RACs arrive is the very best defense, that is, be proactive. By studying the RAC itemization of issues along with conducting audits to assess risk exposure, you can identify and correct deficiencies when possible. With the advent of the RAC program you have an opportunity to carefully review your organization’s efforts with CBR compliance. Because there can be significant financial impacts, you will almost certainly need to consider expanding your CBR compliance program even if just to meet the 93

94  •  The Medicare Recovery Audit Contractor Program record requests made by your RAC, along with addressing overpayment assertions that you determine are inappropriate. This means that you will probably become more actively involved in the appeal process.

Reviewing and Assessing Current CBR Compliance Program The Medicare RAC program gives you the opportunity, if not the impetus, to carefully review and most likely upgrade your CBR compliance program. For some healthcare providers this means simply adjusting the current program; for other providers it may almost mean developing a brand new CBR compliance program. The basis for developing healthcare compliance programs lies with seven key elements that are derived from the Federal Sentencing Guidelines. These are: • • • • • • •

Compliance standards and procedures Oversight responsibilities Delegation of authority Employee training Monitoring and auditing Enforcement and discipline Response and prevention

These seven key elements are discussed at greater length in the companion to this book. While each of these is certainly important, there is also a very real need to have a systematic process to identify and address issues. Hundreds of issues have been identified by various Medicare-related audit programs. New issues are yet to be identified, and the Medicare payment systems become more complicated every day. Thus,

a relatively straightforward systematic process that is discussed at greater length in the companion volume involves: • • • • • • •

Problem/opportunity identification Problem/opportunity analysis Solution design—external Solution design—internal Solution development Solution implementation Situation monitoring and remediation

In reviewing your program, be certain to consider the personnel infrastructure and research resources that are in place. All healthcare providers will eventually have to interact with the RACs, including providing copies of medical records for the complex reviews. Initially hospitals will experience the greatest burden. A modest-sized hospital may receive requests for hundreds of medical records in a year, and there may be numerous demands for repayment, some small and others seemingly much too large. Given the almost certainty that your RAC will assert overpayments in certain situations, and that you may very well disagree for a number of different reasons, the need to conduct research into sometimes complex issues becomes necessary. While all of the Centers for Medicare and Medicaid Systems (CMS) rules, regulations, transmittals, and other directives are all available from either CMS or the CMS administrative contractors, you will still need to have access to an extensive knowledge base. Thus as part of your review, make certain that CBR compliance personnel have the proper resources. Note:  One of the very disconcerting factors with CMS is that often very important guidance is provided at the lower level of formality and sometimes in oblique terms.

Meeting the RAC Audit Challenge  •  95 Guidance such as Q&As or bulletins from the administrative contractors may contain significant information upon which you base the development of CBR policies and procedures. However, this information can disappear in the blink of an eye. Thus, you will need to either develop your own knowledge base or use a commercially available product to conduct meaningful research by having access to information that was available, but may now have been withdrawn by CMS.

Adapting Your CBR Compliance Program Regardless of your provider type, you should already have an extensive set of coding and billing policies and procedures (P&Ps). These P&Ps result from Medicare and various third-party payers that make unusual demands. As with identified issues from previous government auditing programs, as the RACs identify and gain approval for pursuing issues, make certain that your organization has maintained compliance relative to the given issue. If there is any question, conduct an audit and determine if the given issue is applicable to your situation. If so, take appropriate action, even to the point of preempting the RAC reviewing or auditing your claims. Be certain to modify your own written policies and procedures to make certain there is no ongoing issue in the future. Of course, you will need to follow up to make certain that any solution or change in process is working. The RAC program will also cause consideration for revising your own CBR audit program. You should already be conducting routine audits on a periodic basis. For instance, hospitals typically perform

inpatient (i.e., MS-DRG) audits and outpatient (i.e., APC) audits. Physicians and clinics typically perform E/M coding audits as well as general coding and billing audits. If you are part of an integrated system with provider-based clinics, then you may already be performing a number of different audits. In theory these auditing activities should be routinely identifying issues that will be performed by the RACs, or otherwise verifying that you are maintaining appropriate compliance. For instance, take the simple situation with incorrect billing of blood transfusions by using CPT code 36430 more than once (or with multiple units) per day. Outpatient coding reviews should have picked up this situation as well as addressing any associated injections or infusions with the blood transfusions. However, you may wish to address this specific issue, as well as other specifically identified RAC audits, by conducting special probe audits. Additionally, as the auditors perform their reviews you may wish to include special consideration for RAC issues. In some cases this may enlarge the audits to address more cases with a wider net to better encompass any and all issues. Many healthcare organizations have conducted internally, or retained consultants externally to conduct, special gap analysis­ studies to attempt to identify potential financial liability. Such studies are based on currently known or anticipated issues. The real concerns are: 1. Known issues for which your organization is out of compliance 2. Future issues that are not currently recognized Thus, due consideration should be given to revamping and possibly enlarging the

96  •  The Medicare Recovery Audit Contractor Program CBR audit program at your healthcare provider organization.

Budgeting and Financial Impacts On the financial side there are two issues. First, the RACs will, by the very nature of their work, impose operational expenses on healthcare providers. While CMS can state objectives that purport to minimize operational impacts on healthcare providers, there is no meaningful way to do this. Thus, hospitals and other healthcare providers must anticipate the need for a larger personnel infrastructure to address the RAC requests for medical records, track cases, prepare case files for situations that will be appealed, and the like. Second, the RACs will recoup payments. Now the really important question is: “How much will they recoup from us?” The real answer to this question will not be known until we are well into the RAC reviews. In the meantime, a good practice is to establish a reserve fund to set aside monies that are available when the recoupments occur. Organizations will differ in their approaches, but establishing a reserve fund by setting aside 0.5% to 2.0% of gross revenues is not uncommon. During the pilot program there were some very significant financial impacts to hospitals. This is clear from the total recoupment of nearly $1 billion mainly from hospitals within a limited number of states. Thus, the total financial impact over the coming years is very hard to predict. There are new issues out there still waiting for identification. Thus, establishing a reserve fund is financially prudent.

Internal RAC Program Training Compliance training is an ongoing process that includes various coding, billing, documentation, and reimbursement issues. Chapter 7 of the companion manual Compliance for Coding, Billing and Reimbursement discusses training approaches, methods of presentation, and some hints for developing and providing training and education. The RAC audits affect all types of healthcare providers that use any of the Medicare fee-for-service payment systems. Thus, the specific techniques along with specific topics will vary widely depending upon the type of provider. We will consider two examples: 1. Physician freestanding clinic 2. Short-term, acute care hospital For a typical physician clinic the number and type of coding, billing, and reimbursement compliance issues are limited. Consider the following general issue: • • • •

E/M level coding -25 modifier utilization Hospital-related coding Documentation

While this list can be augmented and even expanded, these are four areas for coding, billing, and reimbursement compliance. Documentation must be present to establish the medical necessity of any ­services. Visit documentation must substantiate the E/M level selected. The -25 modifier must also be justified by proper documentation. Hospital-related coding involves issues such

Meeting the RAC Audit Challenge  •  97 as documentation and capture for hospital inpatient admissions, observation admissions, meeting patients in the ED, surgical procedures, and the like. Other issues such as proper coding and billing for surgery-related services in the postoperative window­ can also be of concern. All of the above physician or clinic compliance issues are fully known and have been pursued over the years by various governmental agencies. Thus, changing pre-RAC CBR training and education will involve mainly updating and educating personnel about the RACs in the context of a given clinic’s overall compliance plan. For physicians and clinics there could be some issues that will now percolate toward the top of the priority list. For instance, the correlation of surgical coding between the hospital and physicians performing surgical services at the hospital may become a focus. For a hospital there may be more involved with RAC training and education. Today hospitals tend to have expanded into small, integrated delivery systems. Not only are there inpatient hospital services along with the more common outpatient services, but there may be provider-based clinics, skilled nursing services, home health services, and so on. Thus, RAC training and education may now involve multiple groups of personnel­, and the detail and level of training may vary significantly. For example, a RAC training program for a hospital might include: • Hospital administration/board of directors—General conceptual overview. • Medical staff training—General conceptual overview plus specific compliance topics.

• Hospital clinical directors—General conceptual overview plus departmental compliance topics. • Health information management— General conceptual overview plus special coding topics. • Claims transaction personnel—General conceptual overview plus special claims transaction topics. • RAC team—Extensive study and training on the RACs and RAC processes, including external training and attendance of training sessions. Keep in mind that the RAC program will be long term and evolve over time so that ongoing update meetings and training may well be necessary. The above list does include hospital personnel that will directly work with RAC requests and demands for repayments. Also, your specific circumstances may dictate other groups of personnel that will need either training or changes in behavior relative to services, documentation, coding, and associated billing. The RAC training and education that you provide at your healthcare provider should be an extension of the ongoing compliance training and education that you are already providing relative to proper coding, billing, and documentation. For some healthcare providers this RAC training and education may not be an extension, but may represent a new or separate effort. Various training and teaching techniques are discussed in Chapter 7 of Compliance for Coding, Billing and Reimbursement. For hospitals and clinics a key component to maintaining compliance lies totally with the physicians and practitioners. While compliance personnel can set up and conduct a training session for hospital billing staff or

98  •  The Medicare Recovery Audit Contractor Program physician billing staff, special training and education for physicians is very much a different matter. Billing staff are almost always motivated to perform their work correctly. It is mainly a matter of someone knowing what is really correct! Physicians are very much oriented toward patient care with coding, billing, and even documentation coming second or, some would say, even third. Thus, when training and educating medical staff, in any healthcare provider setting, provide such training, these activities will also need to motivate changes in behavior on the part of the physicians. This requires that the staff conducting the training have established credibility with the physicians. Typically, physicians are trained to make fairly quick decisions often based on limited data. Thus, if you are training or presenting to physicians, then you must establish credibility very quickly. This typically requires significant technical competence and excellent presentation skills.

Summary and Conclusion The Medicare RAC program is a significant extension of other auditing and compliance efforts on the part of CMS and other governmental agencies. In theory, healthcare providers already have in place a general compliance program. A significant part of such programs involves a vast array of ­coding, billing, and reimbursement compliance issues. As the RACs gear up for the coming years, healthcare providers also should be able to ramp up their CBR compliance activities to meet the challenge. Unfortunately, this will require extra expenditures by developing more personnel infrastructure, conducting additional or more extensive audits, addressing more issues, tracking activities, pursuing appeals, and working with consultants and attorneys. However, the penalties of not taking appropriate action will be increased recoupments eroding away any bottom line for the organization.

Index -25 modifier, 44, 45, 53, 65, 69, 96 -54 modifier, 86 -55 modifier, 86 -59 modifier, 30, 53, 83 -76 modifier, 80 -77 modifier, 80

A Abbey & Abbey Consultants, 99 Abbey, Duane C., 99 Acme Medical Clinic, medical records limits, 60 Acronyms, ix–xvi, 5 Adjudication, 82–84 vs. coding/biling, 82–84 Administrative law judge, 75–76 Advance beneficiary notice (ABN) process, 4, 25 Advanced life support (ALS), 31 Ambiguous guidance, 80 Ambulance fee schedule, 29, 31 Ambulance services, in CAHs, 43 Ambulatory Payment Classifications (APCs), 7, 10, 15, 32, 40, 44, 78 interface with MPFS, 43 Ambulatory surgical center (ASC), 6, 33 Apex Medical Center, 24, 83 CMS Form 855 case study, 28 infusion services case study, 25, 47 medical records limits case study, 60 preoperative antibiotic injections, 83 QIO vs. RAC case study, 75 Appeals process, 1, 4 Approval process, 1 Audit metrics, 76, 78 Auditing guidelines, 70 Audits, 13–14 escalation in, 20 general categories, 14 Medicare, 15 off-site or on-site, 16 OIG and DOJ, 15–17 RAC, 19–20 scope, 7 types of, 3 Automated reviews, 4, 5, 21, 59, 76

B Baseline audits, 14 Basic life support (BLS), 31 Billing location, 30 Blood transfusions, 80 incorrect billing of, 95 Bundling, 51, 52

C Case development, 78–79 ambiguous guidance, 80 clarifying guidance, 79–80 coding/billing vs. adjudication/payment, 82–84 directives inherent in payment system, 84–85 guidance requests and Federal Register, 81–82 hierarchy of Medicare guidance, 79 incorrect guidance, 80–81 infusion documented, no pharmacy item, 86 interpretation of guidance, 85 isolated technical component E/M, 84 miscellaneous issues, 85–87 MMA 2003 protection provisions, 88 place of service coding, hospital clinics, 87 postoperative transfer of care, 86 return to ED for casting, 85 Case portfolios, 73, 78 Case studies, 6 Acme Medical Clinic medical records limits, 60 Apex Medical Center and CMS Form 855, 28 Apex Medical Center infusion center, 47 Apex Medical Center infusion services, 25 Apex Medical Center medical records limits, 60 calculating infusion time, 85 cardiologist and nurse performing inpatient visits, 49 CAT scan for sinusitis, 3 changing inpatient status to observation, 42 diagnosis codes provided by patients, 26 hospital ambulance interfacility trips, 31 medication management clinic, 41 MS-DRG preadmission window, 51 no skilled nursing beds, 28 nonqualified physician’s assistant, 26 nurse practitioner clinic, 50 observation admission justification, 27

99

100  •  Index

observation for social reasons, 27 physician E/M coding levels, 69 physician radiology in-hospital, 87 preoperative antibiotic injections, 83 QIO vs. RAC, 75 short-stay cardiac catheterizations, 65 simple laceration in ED, 17 special clinic organization medical records limit, 61 Case tracking, 77 Case universe, 66 CBR compliance program, 93 adapting, 95–96 reviewing and assessing, 94–95 Centers for Medicare and Medicaid Systems (CMS), 1 underpayment approach, 21 Chargemaster audits, 14 Claim frequency, 58 Claim RACs, 8 Claims adjudication requirements, 24–25 correct claim, filed timely, 28–29 covered individual, 25 covered services, 25 documentation, 27 Medicare billing privileges, 27–28 Medicare fee schedules, 29–32 Medicare payment system interfaces, 33–34 Medicare payment systems, 29 Medicare prospective payment systems, 32–33 proper orders with diagnostic justification, 25–26 qualified facility/practitioner, 26 Claims database, 58 Claims filing, vs. claims adjudication, 48 Clarifications, 47, 79–80, 81, 82 Clinics, RAC audit issues, 55 CMS Form 855, 27, 28 Code groupings, 58 Code of Federal Regulations (CFR), 5 Coding issues, 78 Coding, billing, and reimbursement (CBR), 1, 19, 38 CMS failure to provide national guidelines for, 10 compliance program, 2 vs. adjudication and payment, 82–84 Compehensive Error Rate Testing (CERT) program, 8 Complex reviews, 4, 5, 59–61 for extrapolation, 61 Compliance areas, 38–41 confusing guidance, 47–52 inadequate guidance, 44–47 medical necessity, 41–43 payment system interfaces, 43–44 Compliance for Coding, Billing and Reimbursement, 3, 93 Compliance standards/procedures, 94 Compliance training, 96

Comprehensive Error Rate Testing (CERT) program, 2, 17–18, 52, 71 Concurrent audits, 3, 4, 14, 20, 21 Condition Code 44, 42 Conditions for payment (CfPs), 28, 53 Confidence intervals, 66, 67, 68 Conflicting guidance, 88 Confusing guidance, 47–52 Contingency payment, 11, 13, 57 Corporate integrity agreement (CIA), 63 Cost outliers, 58 Cost-benefit analyses, for appeals process, 73 Covered individual, 24, 25, 38 Covered services, 24, 25, 38 Credentialing, 26 Critical access hospitals (CAHs), 7 overutilization, 42 RAC issues, 53–54 Current claims, 19, 21 Current Procedural Terminology (CPT) codes, 4, 29, 33, 78

D Data input errors, 62 Data mining, 15, 57–59, 89 Date of service (DOS), 31, 33 Delegation, in CBR compliance programs, 94 Department of Justice (DOJ), 2, 8 audits, 15–17 Diagnosis codes, 26 patient provided, 26 Diagnosis-related groups (DRGs), 7, 32 Diagnostic justification, 25–26 Diagnostic tests, 25 bundling, 51–52 excessive, 2, 16 questioning, 41 Discharge status, 44 Distinct procedure modifiers, 30 Documentation, 33, 38, 39 appropriateness for claims adjudication, 24, 27 by physicians, 78 review of, 15 Documentation deficiencies, 20 DRG payment system, 44 Duplicate codes, 58 Durable medical equipment (DME), 7, 28, 53 Durable medical equipment regional carriers (DMERCs), 17

E Educational audits, 14 Electronic data interchange (EDI), 39

Index  •  101 Emergency departments audits of, 2 diagnostic tests in, 41 return for casting, 85 simple laceration case study, 17 Emergency Medical Treatment and Active Labor Act (EMTALA), 17, 45 Employee training, 94 Encounters, 33 Enforcement activities, 94 Equipment utilization, billing for, 49 Error rate, 62 and sample size, 64 determining, 63 Evaluation and management (E/M) coding, 9, 20, 33, 96 as extrapolation target, 89 audits, 14 case study, 69 correct choice of levels, 65, 69 extrapolation frequency, 89 for hospital outpatients, 44 frequency analyses, 89 guidelines, 53 hospital-based mappings, 89 separate CMS payments for, 40 Extrapolation, 5, 45, 52, 61–65, 91 addressing cases, 88–90 confidence interval adjustment, 64 frequency for E/M coding, 89 RAT-STATS example, 65–68 sample size selection, 67 statistical propriety, 89 stratified sampling, 68 using in reverse, 68–71

F False Claims Act, 5 Federal Registers, 5, 18–19, 52, 87, 93, 99 Federally qualified health centers (FQHCs), 7 Fee schedules, 29 Medicare, 29–32 Fee-for-service (FFS) payment system, 7 Fifteen-day window, 74 Fiscal intermediary (FI), 15, 17, 75 Freestanding clinics, vs. provider-based clinics, 51 Frequency analyses, 89

G Gap analysis, 68 Geographic adjustments, 30 Global surgical package (GSP), 30, 33, 84, 85

Guidance changes vs. clarifications, 79 clarifying, 79–80, 81, 82, 88 conflicting, 70, 88 hierarchy of Medicare, 79 incomplete, 88 incorrect, 80–81, 88 interpretation of, 85 misinterpretation, 80 oblique, 94 unreliable, 81 variability in, 79 Web disappearance of, 95

H Healthcare Common Procedure Coding System (HCPCS), 29, 49, 78 Healthcare payment systems, 23–24. See also Payment systems Healthcare personnel shortage areas (HPSAs), 30 Healthcare providers financial impacts to, 5 special considerations by type, 93 High-dollar cases, 77 HIPAA Transaction Standard/Standard Code Set (TSC), 29, 39, 78 Home health agency (HHA), 5, 32 targeting, 55 written plan of care, 40 Hospital ambulance interfacility trips, case study, 31 Hospital incident-to payment, 47, 50 Hospital Payment Monitoring Program (HPMP), 17 Hospital payment process, 54 Hospital-physician relationships, 87 Hospital-related coding, 96 Hospital/physician supply categorization, 47 Hospitals impact of RAC program on, 9, 52 RAC audit issues, 52–53 recoupments from, 2

I Improper coding, 33 Improper Payment Information Act (IPIA), 8 Improper payments, 1, 3, 13, 20 percentage received by RACs, 8 Inadequate guidance, 44–47 Incident-to billing, 47, 49 Incident-to payment, 47, 49 Incident-to services, 39, 40, 50 Incomplete guidance, 88 Incorrect guidance, 80–81

102  •  Index Independent diagnostic testing facilities (IDTFs), 7, 24 Independent review organization (IRO), 63, 70 Infusion services calculating infusion time, 85 case study, 24, 25 coding and billing, 82 documentation case study, 86 guidance for, 85 Injections, coding and billing, 82 Inpatient audits, 95 Inpatient claims, 60 Inpatient coding, 78 Inpatient hospital records, medical records limit, 60 Inpatient rehabilitation facilities (IRFs), 32 Inpatient status, changing to observation, 42 Inpatient visits, cardiologist/nurse case study, 49 Integral part concept, 84 Interfaces, 31 International Classification of Diseases, 10th Revision (ICD-10), 78 Intraoperative modifier, 86 Isolated technical component E/M, 84 Issue identification, 58, 62 complex reviews and, 59

J Joint E/M services, 50 Judicial review, 76

K Knee replacement surgeries, 42 Known issues, 95

L Local coverage decisions (LCDs), 75 Long-term healthcare (LTHC), 32 Low-dollar cases, 77

M Medical necessity, 2, 3, 4, 13, 24, 25, 26, 34, 38, 39, 41–43, 52, 55 ambulance services, 31 and CAHs, 43 documentation, 27 for CAHs, 54 for hospital admissions, 21 subjective judgments regarding, 11, 41 Medical record requests, 60 Acme Medical Clinic case study limits, 60 burden of preparing, 61

case study on limits, 60 limits on, 10 need for personnel to handle, 96 special clinic organization case study, 61 Medical staff training, 97 Medical unlikely edits (MUEs), 59 Medicare administrative contractors (MACs), 24, 40, 75, 95 Medicare Appeals Council, 76 Medicare audits, 15. See also Audits Medicare Benefit Policy Manual, 46 Medicare billing privileges, 24, 27–28 Medicare CERT program, 17–18 Medicare fee schedules, 29–32 Medicare guidance, hierarchy, 79 Medicare Modernization Act (MMA), 8 Medicare payment systems, 29 Medicare Physician Fee Schedule (MPFS), 30, 55, 78, 85 Medicare prospective payment systems, 32–33 Medicare Recovery Audit (MRA) program, 1 Medicare secondary payer (MSP), 8 Medicare severity diagnosis-related groups (MS-DRG), 28 relative frequency of, 58 Medication management clinic, 41 Method II billing, 54 Mid-level practitioners, 50. See also Nonphysician practitioners Missed charges, 20 MMA 2003 protection provisions, 88 Modifiers, 16, 53, 69, 83, 86 correct use of, 65 distinct procedure modifiers, 30 frequency of utilization, 58 incorrect use, 33 use and misuse, 44 Monitoring activities, 94 MS-DRG payment system, 53 MS-DRG preadmission window, 33, 44, 48, 51, 52 case study, 51 MS-DRG transfer rule, 32 MSP RACs, 8

N National Correct Coding Initiative (NCCI), 30, 58, 83 National Provider Identifiers (NPIs), 61 National Public Rulemaking (NPRM) process, 81 Nonphysician practitioners, 39, 50, 51 at freestanding clinics, 51 Nonqualified physician’s assistance, case study, 26 Notices of non-coverage (NONCs), 25

Index  •  103 Nurse practitioner clinic, case study, 50 Nurse practitioners, physician supervisory requirements, 25 Nursing facilities (NFs), 55

O Objective issues, 76 Observation admission, 77 justification case study, 27 social reasons, 27 Observation services, 28 hospital audit issues, 53 in CAHs, 42–43 outpatient, 39 Observation status, 42 Office of the Inspector General (OIG), 2, 8, 11, 58, 93 and Federal Register, 18–19 and Medicare audits, 13–14 audits, 15–17 Optimization, 13, 20 Organizational resources, for appeals process, 77–78 Outlier payments, 58 Outpatient audits, 95 Outpatient coding, 78 reviews of, 95 Outpatient observation services, 39 Outpatient services, 51, 60 injections/infusions with surgical procedures, 82 Overpayment letters/notices, 18 Overpayments, 1, 4, 13, 21, 91 claims due to inadequate guidance, 45 in interfaces, 33 incentives to find, 2, 11 physician targeting, 55 RAC bias towards, 57 subjective claims of, 13 to CAHs, 54 Oversight responsibilities, 94 Overutilization, 54 in CAHs, 42

P Packaged items, 48, 83 Paramedic intercept (PI), 31 Parenteral-enteral nutrition (PEN), 55 Part A billers, medical records limit, 60 Partnerships, medical records request limit, 60 Payment modifiers, 16 Payment system interfaces, 31, 43–44 Medicare, 33–34

Payment systems, 23–24 claims adjudication requirements, 24–34 directives inherent in, 84–85 Medicare, 29 service location and, 30 Per service basis, billing on, 80 Physical therapy services, written plan of care, 40 Physician behavior modification, 98 Physician incident-to billing, 47 Physician office laboratory (POL), 51 Physician orders, 38, 39 for observation services, 53 Physician radiology, in-hospital, 87 Physician scarcity areas (PSAs), 30 Physician supervisory requirements, 24, 25, 39, 81 for mid-level practitioners, 50 for on-campus operations, 47 on-campus provider-based operations, 47 Physician training, 98 Physicians medical records request limit, 60 orientation toward patient care, 98 RAC audit issues, 55 Place of service coding, 87 hospital clinics, 87 Point of pickup (POP), 31 Policies and procedures (P&Ps), 95 Postoperative modifier, 86 Postoperative periods, 30, 84, 86 Postoperative services, for APCs, 84 Postoperative transfer of care, 86 Practice groups, medical records request limit, 60 Preoperative antibiotic injections, 83 Preoperative modifier, 86 Prepayment audits, 14, 15 Probe audits, 14, 21, 57–59, 60, 63, 66 Problem identification, 57–59, 69, 94 Process, 3 Process type error, 62 Proper orders, 25–26 Proposed rule changes, public comments on, 81 Prospective audits, 3, 14, 20 Prospective payment systems (PPSs), 7, 29, 30, 32 gaming, 32 Medicare-based, 32–33 Provider-based ambulance services, 54 Provider-based clinics, 24, 28, 50, 51, 53, 54, 86, 97 APC and MPFS interfaces for, 43 increased payments to, 34 physician supervisory requirements, 25 possible service locations, 46 service sites, 34 Provider-based rule (PBR), 34, 45, 53, 81 Provider-based rural health clinics (RHCs), 54

104  •  Index Q Qualified facility, 24, 26 Qualified independence contractor (QIC), 75 Qualified practitioner, 26, 38, 39 billing for subordinate staff services, 49 Quality Improvement Organizations (QIOs), 17, 74, 75 Quantifiable issues, 76

R RAC appeal process, 73 addressing extrapolation cases, 88–90 administrative law judge, 75–76 calculating infusion time, 85 case development, 78–88 discussion phase, 74 Medicare Appeals Council, 76 organizational resources for, 77–78 pursuing, 76–77 reconsideration phase, 75 request for redetermination, 74–75 RAC audit challenges, 93–94 budgeting and financial impacts, 96 compliance program adaptation, 95–96 internal RAC program training, 96–98 review/assessment of CBR compliance program, 94–95 RAC audit issues, 37–38 classification, 37 critical access hospitals, 53–54 hospitals, 52–53 miscellaneous healthcare providers, 55 objective, 37 physicians and clinics, 55 sample problem areas by provider type, 52–55 subjective, 37 underlying compliance areas, 38–52 RAC audits, 19–20. See also Audits RAC contractors, 9 RAC processes, 57 automated reviews, 59 complex reviews, 59–61 confidence interval adjustment, 64 data mining in, 57–59 extrapolation, 61–71 probe audits, 57–59 problem identification, 57–59 RAT-STATS example, 65–68 sample size selection, 67 stratified sampling, 68 using extrapolation in review, 68–71 RAC training programs, hospital-based, 97 RAC Validation Contractor (RVC), 10 Random numbers, 66

RAT-STATS, 65–68 Rebuttals, 74 Reconsideration, 75 Recoupments, 4, 24 from extrapolation process, 91 from hospitals, 2 Recovery Audit Contractor (RAC) program, 1, 2, 13 demonstration project, 3, 8 Medicare audits, 13–14 payment process, 7, 10–11, 20 purpose, structure, intent, 7–8 scope of work, 10 selection and utilization, 9 Refiling, 19 time limits, 28 Reimbursement cycle, 3, 20 Repayments, 71 financial impact of, 5 from healthcare providers, 2 Repetitive issues, 77 Request for reconsideration, 75 Resource-Based Relative Value System (RBRVS), 30, 81 Response activities, 94 Retrospective audits, 3, 4, 14, 15, 20, 21 Rural health clinics (RHCs), 7

S Sample size, 62 and error rate, 64 determining, 66 formulas for selection, 63 selection, 67 variable, 67 Scope of work (SOW), 10, 37 Service locations, 30, 34 place of service coding, 87 Service patterns, 4 Short-stay cardiac catheterizations, case stud, 65 Short-stay hospital admissions, 41, 53 vs. observation services, 39 Short-stay inpatient admissions, 77 Sinusitis, case study, 3 Site-of-service differential, 34, 86 Skilled nursing facilities (SNFs), 3, 32, 54, 97 differentiating services from nursing facilities (NFs), 55 lack of available beds, 28 payment issues, 42 targeting, 55 three-day inpatient qualifying stay, 38 Social Security Act (SSA), 5 Solution design, 94 Solution development, 94

Index  •  105 Solution implementation, 94 Specialty care transport (SCT), 31 Standard code sets, 39 Standard deviation, 67 Statistical analysis, 70 validity, 91 Statistically valid samples, 61 Statisticians, 65 Stratified audits, 14 Subjective issues, 76 Subordinate staff, billing for, 49 Substantive issues, 89 Supply categorization, 47–48 Systematic errors, 62 Systematic issues, 77

Timely filing, 24, 28–29, 38 Transfer of care, 86 postoperative, 86 Transfusion services codes, 80

T

V

Tax Relief and Healthcare Act (TRHCA), 8 Time units, 79

Validation Contractor, 10, 59 Variable appraisals, 66

U UB-04 claim form, 54 Unbundling rule, 87 Underpayments, 3, 13, 18, 20–21, 57 consultant bias toward, 57 Universe identification, 70 Unknown issues, 95 Upcoding, 29 for MS-DRGs, 53

About the Author

Duane C. Abbey, PhD, CFP, is a management consultant and president of Abbey & Abbey Consultants, Inc. Based in Ames, Iowa, Abbey & Abbey specializes in healthcare consulting and related areas. Dr. Abbey, whose work in healthcare now spans more than twenty-five years, earned his graduate degrees at the University of

Notre Dame and Iowa State University. Today, he spends about half his time developing and teaching workshops (for students who affectionately quip that the Federal Register is his favorite reading material) and making presentations to professional organizations. He devotes the other half to consulting work that involves performing chargemaster reviews and compliance reviews, providing litigation support, and conducting reimbursement studies. Dr. Abbey also uses his Â�mathematical and financial background to perform financial assessments, develop complex financial models, and conduct various types of statistical work. His studies in the field of neurolinguistic programming have enhanced his ability to provide organizational communication facilitation services for healthcare organizations. He also provides litigation support services for attorneys representing healthcare providers in legal proceedings. Dr. Abbey can be contacted by e-mail at [email protected].

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