Recovery Auditor Contractor (RAC) Part 5: Why the BFCC-QIOs Are on Pause

The RAC program has been controversial ever since its inception when the Centers for Medicare and Medicaid Services (CMS) instituted the program to identify and correct Medicare improper payments through the detection of overpayments and underpayments made on healthcare claims.

Every quarter we publish a blog post about the most current RAC updates. You can find our RAC Audit Part 1 post here.

The CMS Puts the BFCC-QIOs on Pause

The Centers for Medicare & Medicaid Services (CMS) told the Beneficiary and Family Centered Care Quality Improvement Organizations (BFCC-QIOs) to halt their audits of short inpatient admissions. Why?

Well, for starters, the BFCC-QIO audits have had a host of problems, including:

• Audit look back greater than previously outlined in audit scope
• Sporadically-timed provision of audit results
• No education scheduled with providers in light of timely filing deadlines

On May 4, 2016, CMS informed the BFCC-QIO of a temporary pause of Two-Midnight Reviews in order to improve standardization across the program. This information was posted on Livanta’s website, one of the two BFCC-QIOs.

The link is here: http://qioprogram.org/temporary-pause-qio-short-stay-reviews

CMS states that they instituted the pause in audits in order to improve standardization across the program. In the interim, Livanta will be collaborating with CMS and the other BFCC-QIO to gain consistency in how the regulatory guidance is applied to QIO audits.

There have been instances where the Medicare Administrative Contractors (MACs)-who began the short-stay inpatient stay audits as part of the Two-Midnight Rule-have improperly interpreted the regulatory guidance. The BFCC-QIOs appear to have done the same thing.

Some common errors that exist among the QIOs have been specified as:

• Improperly interpreting the benchmark and denial of admission to patients who were in a hospital one night as an outpatient
• In the emergency room
• Being provided care under observation status and then admitted as an inpatient and were in the hospital a second night past the midnight deadline

The regulatory guidance around the Two-Midnight Rule states that no patient in a necessary hospitalization should pass the second midnight without first being admitted as an inpatient and separating the status for the patient from the first midnight. However, the QIOs were requiring two inpatient midnights to approve admissions.

There have been some reports of concern regarding denials for lack of medical necessity for the second midnight. This means that the QIO reviewer continues to question the admitting physician’s judgment, leaving the hospital in a precarious situation to justify their care, documentation, and go through an unnecessary appeals process.

Other concerns are that a second round of record requests are being implemented before the first educational sessions have even taken place. This means that hospitals have had no opportunity to implement changes from the audit findings into their workflow, audit program, internal education and training directives. 

No dates have been set for resumption of the audits at this time by CMS. 

American Hospital Association (AHA) RACTrac Survey 

The AHA found in its quarterly RACTrac Survey that six out of ten RAC-reviewed claims, in the first quarter of 2016, did not have an overpayment despite being flagged as an improper payment. 

Details from the executive summary of the survey tell the story: 

• 60% of reviewed claims in Q1 2016 were found to not have an overpayment
• 37% of hospitals indicated, for automated denials, that outpatient billing error had the largest financial impact
• 79% of hospitals received a complex denial based on inpatient coding in Q1 2016
• Hospitals report appealing 47% of all RAC denials
• 37% of hospitals report having a denial reversed in the discussion period. 
• 43% of all hospitals reported spending more than $10,000 managing the RAC process during the 1st quarter of 2016, 26% spent more than $25,000 and 8% spent over $100,000

Despite the long wait, an AHA RACTrac report noted that hospitals have an 85% success rate in the appeals process. 

Not only is the program time-consuming, managing the entire RAC program has also been expensive for the majority of hospitals, according to the survey. 

Hospitals are seeking ways to avoid Medicare payment errors and reduce RAC spending, but most have not been informed by CMS about how to decrease RAC denials. The AHA RACTrac report noted that 55% of participants have yet to receive any education on how to stop payment errors from CMS or its contractors. The AHA also reported that there are some vendors who’ve developed RAC activity tracking tools that can help hospitals manage the program, and protect their payments revenue cycle. 

CMS has recently been targeting overpayments. Earlier this year, the agency published a final rule stipulating that Medicare Part A, and Part B healthcare providers must report and pay overpayments within 60 days of when the improper payment was identified, or the due date of the corresponding cost report. Under the regulation, healthcare providers also have a six-year window from the date they receive the Medicare reimbursement to report the overpayment. 

CMS developed the rule to help eliminate common overpayment issues that have increased Medicare spending. For example, a Utah-based medical center paid over $173,000 in Medicare overpayments in 2015 after an official audit found that the organization had not complied with Medicare requirements for billing inpatient and outpatient services. 

While programs like RAC have helped Medicare retrieve lost money, it’s apparent that CMS needs to assess the RAC methodologies for determining overpayments and the lengthy process for appeals. The AHA RACTrac survey shows that hospitals are unlikely to settle for claim denials that could negatively impact their revenue cycle and cause them to pay for potential overpayments. 

Stay tuned for next quarter’s RAC update. Subscribe to our blog and you’ll get new post notifications right in your inbox.