Medical necessity top reason for RAC denials

Claim denials increase 23% in Q3 2012
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Recovery auditors (better known as RACs) denied 23 percent more Medicare claims in the third quarter of this year, compared to the previous quarter, according to the American Hospital Association.

The RACTrac results signal not only more denials but also more associated costs. Denials cost providers 26 percent more this quarter. More than half of hospitals (58 percent) said they are spending more than $10,000 for managing the RAC process, while 41 percent spent more than $25,000. Twelve percent said they spent more than $100,000.

Hospitals say they also are spending more administrative time on RAC activity. Medical record requests jumped by a fifth (21 percent) this quarter.

Medical necessity is the most common reason for denials and has been since the first quarter of 2010, according to the more than 2,300 surveyed hospitals since AHA started monitoring denials.

Sixty-one percent of hospitals said the RAC claimed treatment took place in the wrong setting and not that the care was medically unnecessary. Forty percent of them are appealing the decisions at a 74 percent success rate.

This issue of RACs is more heated than ever. Last week, Health Management Associates (HMA) pointed out RACs are paid by incentives to find fraud. HMA is under federal investigation for alleged high admission rates.

The U.S. Supreme Court on Tuesday heard arguments in Sebelius v. Auburn Regional Medical Center, in which AHA is suing the U.S. Department of Health & Human Services for allegedly denying disproportionate share hospital payments worth billions of dollars. The Supreme Court sounded skeptical, in which justices questioned a "no-time limit" proposal to claims recoveries, as the hospitals' counsel recommended, Politico reported.

For more information:
- see the RAC results (.pdf)
- here's the Politico article

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