Hospitals can face millions in RAC administrative costs

The Medicare Recovery Audit Contractor (RAC) program has created a major financial and administrative burden for hospitals, according to a new report from the American Hospital Association (AHA).

The AHA surveyed 402 hospitals last September as part of its RAC administrative burden survey and recently published the results in the report, "The Real Cost of the Inefficient Medicare RAC Program." It found that hospitals spend hundreds of thousands of dollars a year--millions, in some cases--on RAC appeals, audits and denials, all of which would be better spent actively improving patient care, hospital leaders told the AHA.

Another major problem with the program, the executives said, is a rule that prevents hospitals from rebilling previously denied inpatient claims more than a year old for outpatient payment; RACs, conversely, can audit medical records going back three years. Overall, hospitals said, the majority of claims RACs audit are outside of the one-year rebilling window.

The appeals process for denied RAC claims can involve as many as five steps. More than 7 in 10 appealed Medicare Part A denials are fully overturned at the third step, but settling disputed claims can take years, according to the report. As FierceHealthFinance previously reported, hospitals appeal half of all RAC claim denials, with nearly half of them spending $25,000 on managing the process in the first quarter of 2014.

"RACs cause a great deal of uncertainty not just for hospitals, but also for patients," Gretchen Case, Cedars-Sinai Medical Center's director of compliance and revenue integrity experience in Los Angeles, told AHA News. "Our patients are either angry or confused when they learn these audits have caused an increase in their out-of-pocket payments or prevented them from qualifying for additional care following their stay in the hospital. We have beneficiaries calling us asking how they can help us fight back."

The RAC system particularly hurts smaller providers, according to the report, such as Illinois Valley Community Hospital, a 56-bed facility in Peru, Illinois, where RAC audit management lowers the hospital's margin by up to 2 percentage points. Expenses include $150,000 a year for medical necessity consultants and $20,000 a year for case management staff, CEO Tommy Hobbs told AHA News. The process, Hobbs said, is far too subjective, and requires significant reform, such as the Medicare Audit Improvement Act.

To learn more:
- here's the report (.pdf)
- read the article

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