In this era of obstruction, RACs do not stand a chance

A century and a half ago, Walt Whitman published a poem about the music carpenters, masons and other workers made as they went about their day.

Americans make few products by hand now, so masonry and non-prefab carpentry are all but extinct today. Indeed, the one non-food product Americans now handcraft is obstruction, particularly on behalf of corporate interests that have become too large to deign to improve their performance via competition and quality control. The continued dismantling of the recovery audit contractor (RAC) program by the American Hospital Association (AHA) is a nearly lyrical example of such a practice.

Hospital managers immediately detested the RAC program when it was introduced five years ago, because RACs were empowered to claw back payments on claims they believed were connected to inefficient delivery of care. Since the U.S. healthcare system costs twice as much as any other in the industrial world, it seemed that RACs could cut a lot of waste out of the system.

But instead of anticipating what the RACs would look for and streamlining their modes of care, hospitals decided to attack the RAC business model, which is based on their keeping a percentage of each clawback. Hospitals charged that this method provided incentives to RACs to question claims, somewhat oblivious to the fact that their own business model is identical. If a person in this country is even the most tenuous candidate for a knee or hip replacement surgery and has insurance, the patient will go under the knife at a hospital or a hospital-owned ambulatory surgical center.

Meanwhile, hospitals also decided to appeal a large number of clawbacks--about half in total. And it was obvious such a tack would quickly overload the creaky, inefficient five-step appeals process, which includes a stop in the already overburdened federal administrative law courts. It's the equivalent of a 5-year-old deciding he wants to attend another kindergarten by stopping up the plumbing in his home, hoping his parents would just buy another house instead of calling Roto-Rooter. But unlike hospitals, 5-year-olds do not have lobbyists.

Granted, the Centers for Medicare & Medicaid Services (CMS) could have structured the RAC appeals process in a way that reduced such obstruction, but it is far too late for that now.

So, after ensuring a years-long backlog in a relatively new program, the hospitals obtained the leverage to obtain concessions from CMS. That came in form of a generous settlement offer: a refund of 68 percent of the clawbacks involving short-stay claims disputes, another area in which hospitals were able to stave off reform.

But in a grand display of (insert your preferred spherical objects here), the AHA last week told CMS Administrator Marilyn Tavenner that the RACs should cough up some money as well, or the deal won't be fair, and many hospitals therefore won't sign up for the settlement. That the clawbacks had any merit on their own--or that the RACs should receive compensation for the work they performed--is apparently not relevant.

If CMS caves to this demand, it will ensure the destruction of the RAC business model. The fiscal intermediary companies that handle these contracts will demand a switch over to a fee-for-service model to make it worth their while. And with such a payment structure, they will do far less analysis and digging--unless CMS is willing to pay multiples more for the same work. Such concerns likely play into the decision to delay the awarding of new contracts.

And if hospitals feel overburdened by a revamped process, they will resort to some other obstructionist tactic to get their way.

Given that even insured patients are often on the hook for thousands of dollars for a hospital visit and medical bills are the leading cause for bankruptcy in this country, the morality underpinning these actions is questionable.

However, that's what passes for hard work in the U.S. these days, and such attitudes are tough to dislodge. It took the U.S. auto industry the better part of 40 years to learn that their product was cars rather than resistance to change, which is why only in the past decade or so their models have become fairly competitive with Asian and European products.

And unlike automakers, hospitals operate on a regional rather than a global basis, meaning they have far fewer market pressures to be competitive. But they are probably a well-marketed $5,000 overseas heart bypass or hip replacement surgery from feeling the heat.

As for Walt Whitman? If he was aware of this state of affairs, I imagine he'd turn over in his grave.--Ron (@FierceHealth)

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