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Medicare Severity DRGs and RACs


Medicare Severity DRGs and RACs April 24, 2008 Section 1 Overview History of DRGS CMS Reforms for FY 2008 and Impact RAND s Addendum to the Interim Report ... – PowerPoint PPT presentation

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Title: Medicare Severity DRGs and RACs

(No Transcript)
Medicare Severity DRGs and RACs
  • April 24, 2008

Section 1
Medicare Severity DRGs
  • History of DRGS
  • CMS Reforms for FY 2008 and Impact
  • RANDs Addendum to the Interim Report
  • MS-DRGs
  • Revised CC List
  • Consolidation of Existing CMS DRGs into Proposed
    Base DRGs
  • Categorization of Diagnoses Severity Levels
  • Overall statistics CMS DRGs and MS-DRGs
  • Summary
  • Challenges Physician Documentation
  • RACs

History of DRGs
  • Until 1982, hospital payments were based on
    reasonable costs of providing services to
    Medicare patients
  • IPPS was implemented in late 1983 mandated by
    the government to set limits on Medicare payments
    to hospitals
  • Originally developed by Yale in 1960s for
    utilization review purposes revised/changed to
    ICD-9-CM version still in use today
  • In addition to reimbursement calculation, DRGs
    have two major functions
  • Evaluation of the quality of care
  • Evaluation of the utilization of services

CMS Reforms for FY 2008
  • During the FY 2007 rulemaking process, CMS
    announced two significant changes affecting the
    DRG classification system and relative weights
  • Adoption of a severity-adjusted/based DRG system
    to reduce the cost variance within DRGs
  • A change in the methodology used to calculate the
    DRG relative weights, which were based on average
    charges for Medicare discharges assigned to a
    given DRG relative to the average charges for all
    Medicare discharges

CMS Reforms for FY 2008
  • Adoption of a severity-adjusted/based DRG system
    to reduce the cost variance within DRGs
  • While resource use and SOI (Severity of Illness)
    are highly correlated, a very resource-intensive
    case does not always reflect a high level of
    severity. (CMS, 2007)
  • CMS contracted with the RAND corporation to
    conduct an evaluation of alternative
    severity-adjusted DRG systems for possible FY08
  • In addition, CMS issued the final rule on August
    1, 2007 to adopt Medicare-Severity DRGs (MS-DRGs)

CMS Reforms for FY 2008
  • Change the methodology used to calculate the DRG
    relative weights, which were based on average
    charges for Medicare discharges assigned to a
    given DRG relative to the average charges for all
    Medicare discharges
  • Thus, beginning in FY 2007, CMS adopted
    cost-based weights
  • Based on 13 cost centers
  • Phased in over 3 years

Impact of New CMS Reforms
  • Individual hospital impacts can vary
    significantly depending on several variables
  • Mix of Clinical Services (tertiary programs,
    complexity of services)
  • Quality of Documentation (physician documentation
  • Quality of Coding (depth of secondary ICD-9
    coding) vs. efficient coding
  • Quality of Abstract Data (birth weight, discharge
    disposition, age, sex, etc.)

RAND Corporation
  • On September 1, 2006, CMS awarded a contract to
    the RAND Corporation to evaluate alternative
    severity-adjusted DRG classification systems
    based on how well they are suited to classifying
    and making payments for inpatient hospital
    services provided to Medicare beneficiaries.
  • Each system was assessed on its ability to
    differentiate among severity of illness.
  • An Addendum to RANDs Interim Report was

CMS Final Rule
  • In the final rule, CMS stated While there will
    be an opportunity for the public to comment on
    RANDs findings, we expect to permanently adopt
    the MS-DRGs for the IPPS.

  • The MS-DRGs represent a comprehensive approach to
    applying a severity of illness stratification for
    Medicare patients throughout the DRGs
  • The MS-DRGs maintain the significant
    advancements in identifying medical technology
    made to the DRGs in the past years
  • At the same time, they greatly improve the
    ability to identify groups of patients with
    varying levels of severity using secondary
  • MS-DRGs improve the ability to assign patients to
    different DRG severity levels based on resource
    use that is independent of the patients
    secondary diagnosis referred to as
  • The MS-DRG system will be a budget neutral change
    to Medicares IPPS payments.
  • Hospitals treating more severely ill patients and
    costlier patients will receive higher payments
    while payments to hospitals for treating less
    severely ill patients will decline.

Revised CC List
  • In order to better recognize severity of illness
    (SOI), CMS began with a comprehensive review of
    the CC list
  • In 2007, 115 DRGs were split based on the
    presence or absence of a CC
  • The need for a revised CC list prompted a
    reexamination of secondary diagnoses that qualify
    as a CC
  • The revised CC list is comprised of
  • Significant acute disease
  • Acute exacerbations of significant chronic
  • Advanced or end stage disease and
  • Chronic disease associated with extensive
  • As a result of the changes that have occurred
    during the 22 years since implementation of the
    IPPS, the CC list as currently defined has lost
    much of its power to discriminate hospital
    resource use.

Consolidation of Existing CMS DRGs into Base DRGs
  • The first step in the process was the
    consolidation of existing CMS DRGs into new
    proposed base MS-DRGs. CMS combined together the
    115 pairs of CMS DRGs that are subdivided based
    on the presence of a CC.
  • CMS further consolidated the CMS DRGs that are
    split on the basis of a major cardiovascular
    condition, AMI with and without major
    complication (CMS DRGs 121 and 122), and cardiac
    catheterization with and without complex
    diagnoses (CMS DRGs 124 and 125).
  • CMS also consolidated the three pairs of burn
    CMS DRGs that were defined based on the presence
    of a CC or a significant trauma (CMS DRGs 506 and
    507 508 and 509 and 510 and 511).
  • Next, CMS consolidated the 43 pediatric CMS DRGs
    that are defined based on age less than or equal
    to 17. These pediatric CMS DRGs contain a very
    low volume of Medicare patients
  • In addition to the pediatric CMS DRGs defined by
    the age of the patient, there are a number of CMS
    DRGs that relate primarily to the pediatric or
    adult population that have very low volume in the
    Medicare population, such as male sterilization,
    tubal interruptions, circumcisions,
    tonsillectomies, and myringotomies. These CMS
    DRGs were consolidated into the most clinically
    similar proposed MS-DRG
  • After completing these consolidations, CMS made
    one additional change by adding a new base DRG
    for Cranial/Facial Bone Procedures

Categorization of Diagnoses Severity Levels
  • CMS decided to establish three different levels
    of CC severity into which they would subdivide
    the diagnosis codes.
  • The three levels are
  • MCC highest level of severity
  • CC
  • Non-CC these do not significantly affect SOI or
    resource use
  • CMS began an iterative approach in which each
    diagnosis was evaluated to determine the extent
    to which its presence as a secondary diagnosis
    resulted in increased hospital resource use.
  • CMS decided to use the revised CC list (CC and
    non-CC) from 2006 in combination with the
    categorization under the AP-DRGs and the APR-DRGs.

Categorization of Diagnoses Severity Levels
  • CMS designated as an MCC any diagnosis that was a
    CC in the revised list and was an AP-DRG major CC
    and was an APR-DRG default severity level 3
    (major) or 4 (extensive).
  • CMS then designated as a non-CC any diagnosis
    that was a non-CC in the revised CC list and was
    an AP-DRG non-CC and was an APR-DRG default
    severity level of 1 (minor).
  • Any diagnoses that did not meet either of the
    above two criteria was designated as a CC.

Categorization of Diagnoses Severity Levels
Categorization of Diagnoses Severity Levels
  • Based on the methodology discussed in the
    previous slide, a base MS-DRG may be subdivided
    according to the following three alternatives
  • DRGs with three subgroups (MCC, CC, and non-CC)
  • DRGs with two subgroups consisting of an MCC
    subgroup but with the CC and non-CC subgroups
    combined (referred to as with MCC and without
    MCC) and
  • DRGs with two subgroups consisting of a non-CC
    subgroup but with the CC and MCC subgroups
    combined (referred to as with CC/MCC and
    without CC/MCC).

Overall Statistics for CMS DRGs
Overall Statistics for CMS DRGs
Summary of MS-DRGs
  • CMS believes the MS-DRGs represent a substantial
    improvement over the current CMS DRGs in their
    ability to differentiate cases based on severity
    of illness and resource consumption.
  • As developed, the MS-DRGs increase the number of
    DRGs by 207 for a total of 745, while maintaining
    the reasonable patient volume in each DRG.
  • Adding the new MCC subgroup greatly enhances CMS
    ability to identify and reimburse hospitals for
    treating patients with high levels of severity.
  • The MS-DRGs explain 43 percent of the cost
    variation, which is a 9.1 percent improvement
    over the CMS-DRGs.
  • There are no proprietary issues associated with
    the MS-DRGs (these resources will be in the
    public domain for purchase through the National
    Technical Information Service at nominal fees to
    cover cost).
  • Any system adopted to better recognize SOI with a
    budget neutrality constraint will result in
    case-mix changes that can be expected to benefit
    urban hospitals at the expense of rural hospitals
    because patients treated in urban hospitals are
    generally more severely ill than patients in
    rural hospitals.

  • There are three factors that determine changes
    in a hospitals CMI
  • Admitting and treating a more resource intensive
    patient-mix ( e.g. technical changes that allow
    treatment of previously untreatable conditions
    and/or an aging population)
  • Providing services (i.e. higher cost surgical
    treatments, medical devices, and imaging
    services) on an inpatient basis that previously
    were more commonly furnished in an outpatient
    setting and
  • Changes in documentation (more complete medical
    records) and coding practice (more accurate and
    complete coding of the information contained in
    the medical record).

MS-DRGs The Key
  • Accurately recording secondary diagnoses in this
    system is the key element in determining the
    severity level
  • In the MS-DRG system, most V codes (also called
    status codes) do not impact DRG assignment. V
    codes that carry a high severity level in the 3M
    APR system or result in significantly increased
    resource consumption may impact
  • Age criteria is not a dominant feature in the
    MS-DRG system

Summary of MS-DRG documentation tips-what to
  • Acute vs. chronic
  • Etiology of condition
  • Causative organism in infection
  • Degree of severity of diseases
  • Proper staging of chronic conditions (i.e.
    chronic kidney disease)
  • Accompanying conditions (i.e. hemorrhage, coma,
    heart failure, chronic kidney disease)
  • Benign vs. malignant hypertension when specifying
    organ disease due to hypertension
  • Type of congestive heart failure specify if it
    is acute or chronic, and systolic or diastolic
    (or both) and/or whether it is right or left
    sided (or both)
  • Severity and type of malnutrition

CHF Proper documentation to qualify as an MCC or
CC in MS-DRGs - Specificity is Key
  • CHF and HF was a CC prior to MS-DRGs
  • MCCs
  • 428.21 Acute systolic heart failure
  • 428.41 Acute systolic and diastolic heart failure
  • 428.43 Acute on chronic systolic heart failure
  • 428.31 Acute diastolic heart failure
  • 428.33 Acute on chronic diastolic heart failure
  • CCs
  • 428.1 Left heart failure
  • 428.20 Systolic heart failure not otherwise
  • 428.22 Chronic systolic heart failure
  • 428.32 Chronic diastolic heart failure
  • 428.40 Systolic and diastolic heart failure
  • Rheumatic Heart Failure
  • Not CC
  • 428.0 Congestive heart failure not otherwise

Section 2
Challenges Physician Documentation
Documentation Basics Principal Diagnosis
  • The definition of Principal Diagnosis (PDx) to
    which hospitals must adhere
  • The condition established after study to be
    chiefly responsible for occasioning the admission
    of the patient to the hospital for care. UHDDS

Documentation Basics What is a CC?
  • Comorbidity A pre-existing condition that when
    coupled with a given principal diagnosis will
    increase the LOS at least one day in 75 of the
    cases, nationally
  • Complication A condition arising during the
    hospital stay which prolongs the LOS at least by
    one day in 75 of the cases, nationally
  • To be considered a complication, the condition
    must be
  • Documented by the physician, and
  • Clinically evaluated or
  • Diagnostically Tested or
  • Therapeutically treated or
  • Caused an increased LOS or nursing care

Documentation Basics Symptoms
  • Avoid treating a symptom as a diagnosis, ex
  • Link symptoms with likely cause(s) using
  • Rule-out
  • Possible conditions
  • Differential diagnoses
  • Empirical diagnoses - ex clinical sepsis
  • Conditions under evaluation
  • Ex Abdominal Pain - suspicious for
    gastroenteritis, R/O SBO
  • Avoid potential ambiguities, ex vs. or ?

Documentation Basics Symptoms and Rule Out
  • Instead of link with a suspected cause or
  • No bowel sounds _at_ D3 ? R/O Post-op ileus
  • SOB ? R/O Pneumonia, R/O Atelectasis
  • Fever w/ dysuria ? R/O UTI

  • Can be a detriment to patient care
  • Legal issue
  • Accreditation issue
  • Coding/reimbursement issue


Documentation Example Lack of Severity
  • This patient expired with these discharge

Documentation Example Lack of Severity
  • The chart also shows
  • Did the patient die from COPD?
  • Was this COPD complicated, for ex, by chronic
    respiratory failure and/or with superimposed
    acute respiratory failure?

Unacceptable Medical Shorthand
  • Avoid abbreviations, especially confusing
    abbreviations which may be unknown (d/t) or
    have multiple meanings (ROM)
  • Avoid medical slang (bleeder) - especially
    important for your residents
  • Medical shorthand/abbreviations/symbols
  • Coders are not allowed to translate medical
    shorthand into diagnosis codes
  • Instead of ?Na, document hypernatremia
  • Instead of replete potassium, document
  • Instead of replete electrolytes document each
    disorder (hypocalcemia)
  • Instead of ?HH, document anemia and the
    suspected cause
  • should be written as positive

Probable or Possible Conditions Hospital
vs. Pro-fee (EM) Rules
  • Hospital (DRG) coding
  • DRG based on the diagnoses under investigation
  • Ex Rule-out, probable, suspected (Not if
    ruled-out or unlikely)
  • Payment is for resources used to diagnose/treat
    the underlying diagnosis
  • Diagnoses or procedures are required to be
    documented at least once, in the current record,
    by a licensed, treating physician
  • Professional fee (EM) coding
  • Requires confirmed diagnoses - Rule- out is not
  • Each visit viewed independently
  • It is possible to abide by both DRG and pro-fee
    guidelines, for example
  • Diarrhea likely viral gastroenteritis R/O
    partial SBO.

Required Documentation
Every Medication
Example Lasix for CHF
Requires A diagnosis
Every Lab test
Example Hgb/Hct For anemia
Every Radiology test
Example CXR For atelectasis
Document the diagnosis or cause for a symptom
  • Chest pain - Type of angina
  • Type of suspected GI disturbance causing
    chest pain
  • Syncope - Specific arrhythmia causing syncope
  • Type of CVA
  • Type of seizure
  • TIA, Stroke - Type of CVA (Be specific
    hemorrhagic, ischemic,
  • traumatic, non-traumatic Specify if with
  • SOB - Type of COPD
  • Suspected type of pneumonia
  • Abdominal pain - Suspected etiology, ex R/O
    cholecystitis, pancreatitis

Examples of Pulmonary Symptoms which Should be
Linked to a Diagnosis
  • Shortness of breath
  • Pleuritic chest pain
  • Hemoptysis
  • Wheezing
  • Painful respiration

Pneumonia Classified into Two Main Categories
  • Simple Pneumonia
  • Pneumonia, not otherwise specified
  • Viral pneumonia
  • bacterial pneumonia, not otherwise specified
  • Hemophilus influenza
  • Pneumococcal
  • Bronchopneumonia
  • Lobar pneumonia
  • Complex Pneumonia
  • Aspiration
  • Staph
  • Pseudomonas
  • Klebsiella
  • E. coli
  • Gram negative
  • Candida

Examples of Cardiology Symptoms which should be
Linked to a Diagnosis
  • Chest Pain
  • Palpitations
  • Syncope
  • Dizziness
  • Shortness of breath

Examples of Neurology Symptoms which should be
Linked to a Diagnosis
  • Headache
  • Stroke
  • Syncope
  • Dizziness
  • Head Injury
  • Seizures

Examples of Gastrointestinal Symptoms which
should be Linked to a Diagnosis
  • Abdominal pain
  • Nausea
  • Vomiting
  • Dysphagia
  • Guaiac positive stools

ICD-9-CM Diagnosis Codes - CKD
For additional information go to NKF at
Documenting Anemia -- Specify the Type and Cause
  • Blood Loss Anemia
  • Post-operative bleeding greater than expected.
    Noting the level of hemoglobin/hematocrit does
    not indicate an anemia.
  • Document the presence and cause of the anemia if
  • The nature of the procedure dictates the expected
    blood loss.
  • Documentation of acute and chronic is also
  • Certain groups of patients are more sensitive to
    blood loss age, general medical condition,
    coronary artery disease.

Urosepsis/Sepsis and Sepsis in General
  • Sepsis should be clearly documented. Bacteremia
    is not sepsis. Urosepsis is not sepsis.
  • SIRS due to an infectious agent is sepsis for
    coding purposes.
  • Medicare defines urosepsis as UTI. Sepsis
    and urosepsis are not the same for Medicare
    coding purposes. Physicians frequently use UTI,
    urosepsis and even sepsis interchangeably.

Post-Operative Comorbidities and Complications
  • Does not imply medical misadventure!
  • NORMAL occurrences after surgery
  • Conditions that increase the consumption of
    resources in the hospital
  • Not the same as the complications used to
    evaluate surgical outcomes
  • The logic of surgical rating systems

Common Documentation Clarifications for Surgical
  • Atelectasis signs and symptoms could be
    diminished breath sounds, elevated temperature,
    and dyspnea.
  • Urinary retention unable to void, necessitating
    the reinsertion of a urinary catheter or
    prolonged use of a Foley catheter, urine output
    decreased due to an obstruction, or a
    physiological inability to void. No longer
    influences the DRG selection
  • Fever spikes in temp and treatment.
    Significant if temp required treatment or
    increased the LOS.
  • Ileus abdominal distention, vomiting, cramps,
    pain, intractable constipation, and absent bowel
  • Prolonged Ventilation on a life support

Section 3
Introduction to RACs (Recovery Audit
  • Increases in Medicare payment errors seen as
    increasing during 2002-2004
  • Government reponded by contracting to find errors
  • Established demonstration program and then moved
    to establish program from the initial 3 states to
    all 50 states by 2010
  • RACs get paid based on percentage of errors found
  • RACs have a 2-pronged approach
  • 1. RACs use software to find errors and
  • Appeal is difficult
  • 2. RACs can request medical records to
    review coding
  • Appeal based on specific accounts
  • RACs are prohibited from going after only large
    dollar errors

RAC Introduction
  • Section 306 of the Medicare Prescription Drug,
    Improvement, and Modernization Act of 2003
    directed the HHS secretary to conduct a
    demonstration project to show the use of recovery
    audit contractors in identifying payment errors
    under the Medicare program.
  • The RAC demonstration program proved successful
    in returning dollars to the Medicare Trust Funds
    and identifying monies that need to be returned
    to the providers
  • Demonstration program (started in May 2005)
    targeted the states with the highest per-capita
    Medicare expenditures - California, Florida, and
    New York
  • Expanded Spring 2007 to include Arizona,
    Massachusetts, and South Carolina

RAC Mission
  • RAC Program Mission Reduce Medicare improper
    payments through
  • The efficient detection and collection of
  • Identification of underpayments
  • Implementation of actions that will prevent
    future improper payments
  • The contract includes the identification and
    recovery of claims based on improper payments.
  • Incorrect payment amounts
  • Non-covered services
  • Not reasonably necessary services
  • Incorrectly coded claims
  • Duplicate services

RAC Demonstration Program
  • RAC Demonstration Program
  • RACs identified 303.5 million in payment errors
    as of November 2006
  • Initially exclusively looked for overpayments.
  • Scope modified to look for underpayments also.
  • Less than 10 million identified in underpayments
    (for services that were billed).
  • MSP audits added.
  • Different RAC for non-Medicare Secondary Payer
    (MSP) overpayment audit/recovery (potentially the
    same company).
  • MSP RACs only audit group health plan claims and
    demands for payment are made to employers, not
  • Based on these results Congress stated
  • ? Lets do this across the nation!

RAC Introduction
  • The Tax Relief and Health Care Act of 2006
    (Section 302) CMS must use Recovery Auditing
    Contractors (RACs) under the Medicare Integrity
  • Purpose to identify and recoup underpayments
    and overpayments to the Medicare program
  • What services covered under Part A or Part B
  • Who hospitals, outpatient hospital services,
    lab, ambulance, DME, and physician practices
  • When nationwide by 2010

RAC Introduction
  • Thus far the 3 MAC companies have been paid 77.5
    million (from 3 states)

Amended Scope of Work issued November 2007
Section 4
RAC Statement of Work
Statement of Work (SOW)
  • The upcoming scope of work (contract) includes
    the following tasks
  • 1. Identifying Medicare claims that contain
    underpayments for which payment was made under
    Part A or B
  • 2. Identify and recouping Medicare claims that
    contain overpayments for which payment was made
    under Part A or B. This includes corresponding
    with the provider.
  • 3. For any RAC identified overpayment that is
    appealed by the provider, the RAC shall provide
    support to CMS throughout the administrative
    appeals process
  • Where applicable, a subsequent appeal to the
    appropriate Federal court
  • 4. For any RAC identified vulnerability, support
    CMS in developing an Improper Payment Prevention
  • Help prevent similar overpayments from occurring
    in the future.
  • 5. Performing the necessary provider outreach to
    notify provider communities of the RACs purpose
    and direction

What is NOT in the SOW
  • Proactive education of providers about Medicare
    coverage and coding rules is NOT a task under the
    RAC Scope of Work (SOW).
  • CMS has tasked FIs, Carriers, and MACs with the
    task of proactively educating providers about how
    to avoid submitting a claim containing a request
    for an improper payment.
  • ? You need to know and be prepared, to avoid on
    the job training

Qualifications of RAC
  • The contractor must have staff with the
    appropriate clinical knowledge and experience
    with payment rules and regulations under the
    Medicare program
  • Preference will be given to contractors with more
    than 3 years direct management experience and a
    proficiency for cost control or recovery audits
    with private insurers, health care providers,
    health plans, or under the Medicaid program
  • Contractor can not be a fiscal intermediary (FI)
    or a Medicare Administrative Contractor (MAC)

  • The RAC program will begin with claims paid on or
    after October 1, 2007
  • This date will be for all states. The actual
    start date for a RAC in a state will not change
    this retroactive date for analysis
  • As time passes, the RAC may look back 3 years but
    the claim paid date may never be earlier than
    October 1, 2007
  • In other words
  • The RAC will only look at FY 08 claims and
  • The RAC will not review claims prior to FY 2008
    claim paid dates
  • The RAC may eventually review claims you are
    currently coding

  • The RAC shall not attempt to identify any
    overpayment or underpayment more than 3 years
    past the date of initial determination made on
    the claim
  • The initial determination date is defined as the
    claim paid date
  • Any overpayment or underpayment inadvertently
    identified by the RAC prior to this timeframe
    shall be set aside
  • The RAC shall take no further action on these
    claims except to indicate the appropriate status
    code on the RAC Data Warehouse

  • Two Types of RAC Reviews
  • 1. Automated Review Involves the application of
    an RAC's proprietary software to the national
    claims history data furnished by CMS.
  • May be used only when there is certainty that the
    service was not covered or was incorrectly coded,
    a duplicate payment, or otherwise an overpayment.
  • The provider will receive a letter demanding
  • 2. Complex Reviews Requires the RAC to review
    of copies of medical records.
  • Regardless of whether the overpayment resulted
    from an automated review or a complex review, a
    provider still has the same appeal rights as it
    would have for any other Medicare coverage

RAC and Provider Communication
  • All medical request letters from the RAC must
    adequately describe good cause for re-opening
    the claim
  • RACs are required to pay for copying of the
    medical record/electronic records on CD or DVD
    within 45 days of receiving the medical records
  • .12 per page for PPS provider
  • .15 per page for non-PPS
  • RACs are required to maintain a case file
  • Copy of all request letters
  • Contacts with ACs, CMS, or OIG
  • Dates of any calls made
  • Notes indicating what transpired during the call

  • Providers must respond within 45 days to a RAC
    request for medical records.
  • Providers may request an extension at any time
    prior to the 45th day by contacting the RAC.
  • If medical records are not submitted within 45
    days of the request, RAC shall initiate one
    additional contact before issuing a denial
  • RACs will be paid based on a percentage of
    overpayments/ underpayments recovered.
  • Providers will be permitted to appeal RAC
    determinations to their MAC/FI and then through
    the normal overpayment appeals process.

  • RAC must use discretion when requesting medical
  • Limit may be based on the number of beds
  • Example no more than 50 records may be
    requested for a hospital with 150 -249 beds in a
    45 day time period
  • The medical record request letter will not
    indicate if the medicalrecord is being requested
    for overpayment or underpayment review.

Complex Reviews
  • RACs shall complete their complex reviews within
    60 days from receipt of the medical record
  • RACs may request a waiver from CMS if an extended
    timeframe is needed due to extenuating
  • If an extended timeframe for review is granted,
    RACs shall notify the provider in writing or via
    a web-based application of the situation that has
    resulted in the delay and will indicate that the
    Notification of Findings will be sent once CMS
    approves the RAC moving forward with the review.

RAC Medical Director
  • Each RAC must employ a minimum of 1 FTE
    contractor medical director (CMD)
  • Must be an MD or DO
  • Must be currently licensed to practice medicine
    in the US
  • Prior work experience in the health insurance
    industry, utilization review firm or health care
    claims processing organization
  • Extensive knowledge of the Medicare program
    particularly the coverage and payment rules
  • Public relations experience such as working with
    physician groups, beneficiary organizations or
    Congressional offices.

RAC Medical Director
  • RAC Medical Director duties
  • Providing clinical expertise and judgment to
    understand LCDs, NCDs, and other Medicare policy
  • Serving as a readily available source of medical
    information to provide guidance in questionable
    claims review situations
  • Recommending when LCDs, NCDs, provider education,
    system edits or other corrective actions are
    needed or must be revised to address RAC
  • Briefing and directing personnel on the correct
    application of policy during claim adjudication
    including written internal claim review
  • Keeping abreast of medical practice and
    technology changes that may result in improper
    billing or program abuse

RAC Auditing Staff
  • Whenever performing complex coverage or coding
    reviews (i.e., reviews involving the medical
    record), the RAC shall ensure that
    coverage/medical necessity determinations are
    made by RNs or therapists, and that coding
    determinations are made by certified coders.
  • The RAC shall ensure that no nurse, therapist or
    coder reviews claims from a provider who was
    their employer within the previous 12 months.
  • RACs shall maintain and provide documentation
    upon the providers request the credentials of
    the individuals making the medical review
  • If the provider requests to speak to the CMD
    regarding claim(s) denial, the RAC shall ensure
    the CMD participates in the discussion

RAC Rationale for Determination
  • The RAC shall
  • Communicate to the provider the results of every
    complex review (i.e., every review where a
    medical record was obtained), including cases
    where no improper payment was identified.
  • The findings of each automated review that
    results in an overpayment determination.
  • Does NOT need not communicate the results of
    automated reviews not resulting in an overpayment
  • In cases where an improper payment was
    identified, the RAC shall inform the provider of
    which coverage/coding/payment policy or article
    was violated.

RAC Rationale for Determination
  • The RAC may send the provider only one review
    results per claim.
  • For example, a RAC may NOT send the provider a
    letter on January 10 containing the results of a
    medical necessity review and send a separate
    letter on January 20 containing the results of
    the correct coding review for the same claim.
  • The RAC must wait until January 20 and inform the
    provider of the results of both reviews in the
    same letter.
  • It is acceptable to send one notification letter
    that contains a list of all the claims denied for
    the same reason
  • For example, all claims denied because the wrong
    number of units were billed for a particular

RAC Denials
  • Full denial
  • The submitted service was not reasonable and
    necessary and no other service would have been
    reasonable and necessary or
  • No service was provided
  • Partial denial
  • The submitted service was not reasonable and
    necessary but a lower level service would have
    been reasonable and necessary or
  • The submitted service was upcoded or an incorrect
    code was submitted that caused a higher payment

RAC Denials
  • The RAC shall not attempt to identify any
    overpayment where the provider is without fault
    with respect to the overpayment.
  • If the provider is without fault with respect to
    the overpayment, liability switches to the
  • The beneficiary would be responsible for the
    overpayment and would receive the demand letter.
  • The RAC may not attempt recoupment from a
  • Examples
  • A service that was not covered because it was not
    reasonable and necessary but the beneficiary
    signed an Advance Beneficiary Notice.
  • Benefit category denials such as the 3 day
    hospital stay prior to SNF admission.

RAC Underpayment Identification
  • The RAC will review claims, using automated or
    complex reviews, to identify potential Medicare
  • Upon identification the RAC will communicate the
    underpayment finding to the appropriate
    affiliated contractor.
  • An underpayment identification will not be final
    unless the fiscal intermediary, carrier or DMERC
    agrees with the findings.
  • If necessary, the RAC shall share any
    documentation supporting the underpayment
    determination with the affiliated contractor.

RAC Underpayment Identification
  • The RACs do not have the authority to review
    unsolicited cases from providers where
    underpayment is thought to have occurred.
  • If a provider believes they have received an
    underpayment they may resubmit a corrected claim
    if the timely filing limit has not yet passed.
  • IMPORTANT There is a specific limitation on what
    the RAC can consider an underpayment. There must
    be an item actually billed.
  • Example if they find that the Implantable
    device (for a hip replacement) was not billed at
    all, they can not consider it an underpayment

RAC Underpayment Identification
  • After the underpayment is validated, the
    affiliated contractor adjusts the claim and pays
    the provider.
  • The RAC shall include the amount of the actual
    underpayment on the next payment invoice.
  • Neither the RAC nor the affiliated contractor may
    ask the provider to correct and resubmit the
  • The RAC will issue a written notice to the
  • This Underpayment Notification Letter shall
    include the claim(s) and beneficiary detail.

RAC Underpayment Identification
  • A Medicare underpayment is defined as
  • Lines (e.g. APC) on a claim that were billed at a
    low level of payment but should have been billed
    at a higher level of payment.
  • The RAC will review each claim line or payment
    group and consider all possible occurrences of an
    underpayment in that one line or payment group.
  • If changes to the diagnosis, procedure or order
    in that line or payment group would create an
    underpayment, the RAC will identify an
  • A diagnosis/condition was left off the MDS but
    appears in the medical record. Had this
    diagnosis or condition been listed on the MDS, a
    higher payment group would have been the result.

RAC Underpayment Limitations
  • The following will NOT be considered an
  • Service lines or payment groups that a provider
    failed to include on a claim are NOT considered
    underpayments for the purposes of the program.
  • The medical record indicates that the provider
    performed additional services such as an EKG, but
    the provider did not bill for the service.
  • This provider type is paid based on a fee
    schedule that has a separate code and payment
    amount for EKG
  • The medical record indicates that the provider
    implanted a particular device for which a device
    APC exists (and is separately payable over and
    above the service APC), but the provider did not
    bill for the device APC.

RAC Appeal
  • Providers shall request an appeal through the
    appropriate Medicare appeals process.
  • A third party shall adjudicate all appeal
    requests related to provider overpayments
    identified by the RAC.
  • Third Party is defined as
  • Current Medicare contractor
  • Third party contractor identified by CMS
  • Qualified Independent Contractor
  • Administrative Law Judge
  • HHS Departmental Appeals Boards Medicare
    Appeals Council.

RAC Appeal
  • Some recovery claims may eventually be appealed
    to the appropriate Federal court.
  • If the RAC receives a written appeal request it
    shall forward it to the appropriate third party
    adjudicator within one business day of receipt
  • Repayment plans are available.
  • Current providers indicate a good success rate
    with appeals.
  • Increased number of appeals to second level and

RAC Additional Reporting
  • RAC shall report instances of potential fraud
    immediately to the CMS Project Officer
  • The RAC shall report potential quality issues
    immediately to the QIO.

Section 5
Pilot Project Review In Three (3) States
FY 2006
  • Since the spring of 2005, CMS has identified
    299.5 million in improper payments
  • 64.6 million in overpayments has been collected
    from providers
  • 10 million in underpayments has been identified
  • Common Focus Areas
  • DRG 243
  • DRG 395
  • DRG 475
  • One day length of stay inpatient cases
  • Debridements (excisional vs. non-excisional)
  • Paired DRGs
  • Timed codes, codes that specify units
  • J Codes

Impact of RAC Program
  • Reported for 2006
  • 278.7 million recouped - 14.5 million in fees
    228.6 million in savings
  • Reported for 2007
  • 325.1 million recouped - 77.7 million in fees
    247.7 million in savings
  • Recouped amount is the amount identified for
    repayment to Medicare

FY 2006 and 2007 Improper Payments in Millions
FY 2006 and 2007 Improper Payment by Provider
Error Type Reported in RAC 2007 Report (in
  • Incorrectly coded 143.2 41
  • Medical Unnecessary 111.5 33
  • No/Insufficient Documentation 30.3 09
  • Other 59.0 17
  • Total 344.0 100

FY 2006
  • In Florida much of the initial focus was on
    physician claims. The average overpayment per
    demand letter to physicians was 135 in FY 2006.
    The Florida RAC also performed some coding
    reviews of inpatient hospital claims and the
    average overpayment per demand letter was 5,800.
  • In New York the primary focus was on hospital
    inpatient claims and hospital outpatient claims.
    The average overpayment per provider for
    inpatient claims was 164,372. The average
    overpayment per provider for outpatient claims
    was 32,364.
  • In California the RAC focused initially on
    inpatient hospital claims and some DME and
    physician claims. The average overpayment per
    provider for inpatient claims was 75,856. The
    average overpayment per physician/supplier was

FY 2006 Hospital Inpatient Findings
FY 2006 Non-inpatient Hospital
FY 2006 Florida RAC Finding Example
  • Physicians charging inappropriate new visits
    for patients
  • Medicare rules state that if a physician has not
    seen a patient in 3 or more years, the claim can
    be filed as a new patient
  • If less than 3 years, the claim must be filed for
    an established patient
  • The RAC SOW does not allow the RAC to look at E/M
    levels, but it does allow them to look at E/M
    codes used in a global period, duplicate E/M
    codes, and new vs. established E/M codes.

Demonstration Pilot Problems Many Fixed in
Permanent RAC Legislation
  • Limits look-back period to 3 years (and not
    before 10/1/07)
  • Requires a Medical Director
  • Requires certified coders
  • Requires better and defined reporting) although
    some of it is not required until 2010
  • RAC must pay back fees if appeal at any level in
    found in favor of provider
  • Establishes validation process on RACs

Section 6
Preparing for RAC RAC Readiness
Preparing for RAC
  • Predictions of What is Coming
  • Immediate recovery attempts via automated
    reviews performed by RAC software claims
  • Record requests for to perform complex reviews
    in problems areas noted during the RAC
    demonstration project
  • Significant time and cost on the part of
    providers to process chart requests, process
    denials, and submit appeals through the various
    levels of re-determination
  • Extensive number of appeals based on clinical

Preparing for RAC RAC Task Force
  • Create a RAC Task Force to help guide the
  • Multidisciplinary, reflecting the need to draw in
    financial, legal, coding, UR, and clinical
  • Determine if external legal counsel will be
  • Consider the need for additional help/resources.
  • Assure medical records can be accessed quickly.
  • Communicate RAC issue/concerns with CEO and Board
    of Directors.

Preparing for RAC
  • Perform risk assessments
  • Coding audits for high risk DRGs.
  • Combination coding/UR reviews When more than one
    diagnosis could be coded as PDx, did the PDx meet
    inpatient criteria?
  • Outpatient audits for correct coding and charge
    capture concentrating on high risk areas
  • Drug charges
  • Injection and infusion charges
  • Outpatient encounters that crossed various
  • Any area where non-coders entered charges
  • CDM validation
  • UR audit of one day stays

Preparing for RAC
  • RAC Task Force To Do list
  • Review risk assessment findings.
  • Educate the committee on relevant regulations and
    how the RAC audit process works.
  • Identify an individual who will be responsible
    for communications with the RACs i.e. who will
    letters be sent to.
  • Ensure appropriate and timely action based on the
    RAC request maintain copies of all
    communications and everything sent.
  • Appoint a back-up person to cover vacations,
    illness, etc
  • Determine process for responding to RAC requests
    and appeals
  • Determine accountability for each task and make
    it part of yearly evaluation

Preparing for RAC
  • RAC Task Force To Do list
  • Perform strategic planning
  • Identify potential operational issues
  • Create a tracking mechanism for RAC requests
  • Method of trending RAC issues and fixing root
  • Software solution?
  • Plan for massive education initially and on-going
  • Physicians
  • Case/Care Managers
  • Compliance
  • Registration
  • Patient accounts
  • Coders
  • Anyone involved in charge capture

Preparing for RAC
  • RAC Task Force To Do list
  • Review all possibilities
  • Consider the compliance and cash flow
    implications of the RAC findings of overpayments.
  • Consider hiring an external consultant to assist
    with the RAC risk assessment and set-up of RAC
  • Create a plan to aggressively approach all
    appeals and ensure that all underpayments are
    also identified.
  • Consider initially utilizing external help to
    appeal/dispute of the RAC findings.
  • Create plans to document and track any corrective
    action and education based on the RAC findings.
  • Consider implementing a clinical documentation
    improvement program.

Preparing for RAC
  • Must have full involvement of Compliance
  • . And recommend the involvement of your

Preparing for RAC Appeal Process
  • Appropriately appeal all RAC determinations to
    the highest level!
  • Dont make it easy for the RAC to make money from
    your hospitalthey make mistakes too.
  • Good News RACs will no longer be able to keep a
    payment when their determination is overturned at
    the first appeal level.

Preparing for RAC Physician Documentation
  • Physician documentation should be specific
  • Explicitly document all diagnoses requiring
    inpatient care.
  • Document other diagnoses which may be
    co-morbidities affecting the patients treatment
    and/or length of stay.
  • Apply appropriate adjectives acute or chronic.
  • Use appropriate qualifiers, such as a secondary
    diagnosis due to or secondary to.
  • Use only approved abbreviations and try to use
    words instead of symbols. (For example, coders
    may not understand that ltNa is hyponatremia.)
  • Make sure that the documentation is legible.
  • Remember according to coding guidelines - if it
    isnt documented it didnt happen
  • and if it cant be read, it cant be coded!

Preparing for RAC Doing Your Own Investigation
  • 1- Find out what youve been told already
  • ? PEPPER Reports
  • ? Questionable One-Day Stays
  • ? Other Reviews CERTS, Requests for
    additional records outcomes
  • ? Third Party Payer Denials
  • 2 Do you own analytics ? Pretend you are the
  • Where are you vulnerable?

  • Thank You!
  • Bonnie Peters, BS, CPC, CPC-H, CCS-P
  • 505-918-7551