The RACs are Coming: What O&P Providers Must Know about Medicare Claim Audits and Denials

The RACs are Coming:What O&P Providers Must Know about

Medicare Claim Audits and Denials

September 30, 2010

Peter W. Thomas, JDPowers Pyles Sutter and Verville, P.C.

[email protected]

Seventh Floor1501 M Street, NWWashington, DC 20005Phone: (202) 466-6550 Fax: (202) 785-1756

TopicsTopics

221501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550

Recovery Audit Contractors (“RACs”)Recovery Audit Contractors (“RACs”)

Demonstration project ran from March 2005 Demonstration project ran from March 2005 through February 2008, with extensions grantedthrough February 2008, with extensions granted

Primarily in CA, FL and NY. Heavy focus on Primarily in CA, FL and NY. Heavy focus on inpatient rehabilitation hospital claimsinpatient rehabilitation hospital claims

Numerous issues arose during demo leading to Numerous issues arose during demo leading to contracting with independent organization for contracting with independent organization for validation of California RAC’s performancevalidation of California RAC’s performance

Validation audit led to temporary hold on reviews, Validation audit led to temporary hold on reviews, CMS-ordered re-reviews of certain claims, and CMS-ordered re-reviews of certain claims, and agreements to return fees overturned on appealagreements to return fees overturned on appeal

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RAC Demonstration Project (con’t)RAC Demonstration Project (con’t)

California RAC overturned many denials following California RAC overturned many denials following the re-reviewthe re-review

Majority of California RAC denials overturned by Majority of California RAC denials overturned by ALJs on procedural grounds related to “reopening”ALJs on procedural grounds related to “reopening”

On remand, many overturned based on medical On remand, many overturned based on medical necessity grounds as wellnecessity grounds as well

PPSV gained extensive experience with RAC demo PPSV gained extensive experience with RAC demo appeals as legal council to over 50 clients with over appeals as legal council to over 50 clients with over 3,000 separate cases ranging from $7,500 to 3,000 separate cases ranging from $7,500 to $45,000 in value, including extrapolation cases$45,000 in value, including extrapolation cases

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Permanent RAC ProgramPermanent RAC Program

Congress permanently extended RACs and applied Congress permanently extended RACs and applied them to all 50 states and Medicaidthem to all 50 states and Medicaid

Congress moderated most egregious aspects of Congress moderated most egregious aspects of RAC demo but left many factors the sameRAC demo but left many factors the same Example: RAC keeps percentage of recovery but only if Example: RAC keeps percentage of recovery but only if

not overturned at any level of appealnot overturned at any level of appeal

CMS has more oversight now than under demosCMS has more oversight now than under demos

Congress created an independent contractor, the Congress created an independent contractor, the RAC Validation Contractor, to oversee the RAC RAC Validation Contractor, to oversee the RAC programprogram

1501 M Street, NW, Seventh Floor, Washington, DC 20005, Phone: (202) 466-6550 55

Permanent RAC Program (con’t)Permanent RAC Program (con’t)

The rollout of the permanent program was The rollout of the permanent program was delayed, with slow progression from “automated” delayed, with slow progression from “automated” reviews to “complex” reviews (i.e., record review)reviews to “complex” reviews (i.e., record review)

All areas of review must be approved by CMSAll areas of review must be approved by CMS

First “medical necessity” record reviews were First “medical necessity” record reviews were recently approvedrecently approved

RACs are now fully implemented and functioning RACs are now fully implemented and functioning in every statein every state

““Bounty” incentive will prompt RACs to focus on Bounty” incentive will prompt RACs to focus on legitimate providers, not fraudulent ones.legitimate providers, not fraudulent ones.


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RAC Contractors & SubcontractorsRAC Contractors & Subcontractors

Four separate RAC jurisdictions establishedFour separate RAC jurisdictions established

Single primary contractor chosen for each regionSingle primary contractor chosen for each region

Most of the primary contractors were involved in Most of the primary contractors were involved in the demonstrationthe demonstration

Subcontractors also involvedSubcontractors also involved– Oversight of subcontractor activities left to Oversight of subcontractor activities left to

primary contractorsprimary contractors


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RAC Validation ContractorRAC Validation Contractor

Involved in new issue reviewInvolved in new issue review– Conducts final review of proposed new issuesConducts final review of proposed new issues– May recommend changes to proposed new May recommend changes to proposed new

issues (e.g., scope, methodology)issues (e.g., scope, methodology)

Involved in oversight of the individual RACs’ Involved in oversight of the individual RACs’ auditing techniques and determinationsauditing techniques and determinations


Key Elements of Permanent RAC ProgramKey Elements of Permanent RAC Program

Medical Record Request LimitsMedical Record Request LimitsFor institutional providers, every 45 Days:For institutional providers, every 45 Days:– 1% of 1% of allall Medicare claims from previous Medicare claims from previous

calendar year, divided by 8 (to account for 45-calendar year, divided by 8 (to account for 45-day periods)day periods)

– Theoretically possible to receive 2400 medical Theoretically possible to receive 2400 medical record requests in a 12-month periodrecord requests in a 12-month period

Limits based on institutional provider’s “campus”Limits based on institutional provider’s “campus”– – all facilities and units sharing a TIN that are all facilities and units sharing a TIN that are

located within a zip code sharing first 3 digitslocated within a zip code sharing first 3 digits


Medical Record Request Limits (con’t)Medical Record Request Limits (con’t)Institutional providers are those providers with Institutional providers are those providers with multiple locations and a centralized structuremultiple locations and a centralized structure

Limits for non-institutional providers and Limits for non-institutional providers and suppliers for medical necessity reviews have not suppliers for medical necessity reviews have not yet been publishedyet been published

No specific limits published yet for providers of No specific limits published yet for providers of professional services or DMEPOS suppliersprofessional services or DMEPOS suppliers


The “Look Back” PeriodThe “Look Back” Period

RACs may only look back three years to reopen RACs may only look back three years to reopen claims, but no earlier than claims dated October claims, but no earlier than claims dated October 1, 20071, 2007

The permanent RACs are explicitly required to The permanent RACs are explicitly required to comply with CMS’ “reopening” regulationscomply with CMS’ “reopening” regulations

All reopenings that occur after one year following All reopenings that occur after one year following the initial determination must be accompanied by the initial determination must be accompanied by a showing of “good cause”a showing of “good cause”


““Good Cause” for ReopeningGood Cause” for Reopening

““Good cause” for reopening claims more than one year after Good cause” for reopening claims more than one year after payment: payment:

– new and material evidence new and material evidence that was that was not known or available at the not known or available at the time of paymenttime of payment or or

– the evidence available at the time of payment shows the evidence available at the time of payment shows on its face that on its face that an error was madean error was made..

CMS has issued a new manual provision indicating that CMS has issued a new manual provision indicating that medical records, if not previously submitted to the medical records, if not previously submitted to the reviewing entity, can be “new and material evidence” for reviewing entity, can be “new and material evidence” for purposes of satisfying the “good cause” standardpurposes of satisfying the “good cause” standard

Federal courts have allowed RACs to ignore the Federal courts have allowed RACs to ignore the requirement for “good cause” and upheld CMS’ position requirement for “good cause” and upheld CMS’ position that the decision to reopen may not be reviewedthat the decision to reopen may not be reviewed


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Approval of “New Issues”Approval of “New Issues”

RACs must have all “new issues” approved by RACs must have all “new issues” approved by CMSCMSNew Issue Review Board made up of mostly New Issue Review Board made up of mostly clinicians (i.e., nurses and one physical therapist)clinicians (i.e., nurses and one physical therapist)

RACs required to maintain lists of the issues that RACs required to maintain lists of the issues that they are targeting on their websitesthey are targeting on their websitesIssues must be approved independently for each Issues must be approved independently for each regionregion


Existing Areas for RAC Focus on O&PExisting Areas for RAC Focus on O&P

Date of death of patient vs. date of care providedDate of death of patient vs. date of care provided

Lower limb suction valve prosthesesLower limb suction valve prostheses

Prosthetic additions for knee prosthesesProsthetic additions for knee prostheses

Knee orthosesKnee orthoses

DMEPOS supplied while beneficiary was inpatientDMEPOS supplied while beneficiary was inpatient

Use of mutually exclusive lower limb prosthetic Use of mutually exclusive lower limb prosthetic billing codesbilling codes

Complex review of lower limb prostheses (i.e., Complex review of lower limb prostheses (i.e., record reviews to determine medical necessity)record reviews to determine medical necessity)

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Program Safeguard Contractors (PSCs) & Program Safeguard Contractors (PSCs) & Zone Program Integrity Contractors (ZPICs)Zone Program Integrity Contractors (ZPICs)

Handle Handle post-payment reviewpost-payment review only only

Focused on identifying Focused on identifying fraud and abuse fraud and abuse rather than rather than isolated or individual incorrect paymentsisolated or individual incorrect payments

Review usually triggered by:Review usually triggered by:– Referral from primary contractor or RACReferral from primary contractor or RAC– Government reports identifying vulnerable areasGovernment reports identifying vulnerable areas

Will repeatedly audit on slightly changed criteriaWill repeatedly audit on slightly changed criteria

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Medicare Administrative Contractors Medicare Administrative Contractors (MACs or DME MACs)(MACs or DME MACs)

Handle pre- and post-payment reviewHandle pre- and post-payment review

Pre-payment review can be sporadic and random or Pre-payment review can be sporadic and random or systematicsystematic– 100% pre-payment review may not be utilized without 100% pre-payment review may not be utilized without

first conducting “probe” reviewfirst conducting “probe” review– ““High or sustained” error rate must be identifiedHigh or sustained” error rate must be identified– Tend to be focused on claims payment (primary Tend to be focused on claims payment (primary

responsibility) but still active in ongoing claims denials responsibility) but still active in ongoing claims denials and auditsand audits

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Extrapolation of Claims DenialsExtrapolation of Claims Denials

RACs, PSCs/ZPICs, DME MACs are permitted to use an RACs, PSCs/ZPICs, DME MACs are permitted to use an identified error rate in a specific sample of claims to estimate an identified error rate in a specific sample of claims to estimate an overpayment across all similar claims within a defined period of overpayment across all similar claims within a defined period of timetime

Must identify a “sustained or high” error rate to use Must identify a “sustained or high” error rate to use extrapolation – but these terms are not actually defined by CMS extrapolation – but these terms are not actually defined by CMS (Guidance suggests over 50% but could be as low as 10%)(Guidance suggests over 50% but could be as low as 10%)

Overpayment demands resulting from extrapolations can total in Overpayment demands resulting from extrapolations can total in the millions of dollars and add up very quicklythe millions of dollars and add up very quickly

RACs proposed use of extrapolation must be reviewed and RACs proposed use of extrapolation must be reviewed and approved by RAC Validation Contractor prior to approved by RAC Validation Contractor prior to startstart of audit of audit


Appealing ExtrapolationsAppealing Extrapolations

Providers may not appeal a determination that an error rate Providers may not appeal a determination that an error rate is “sustained” or “high”is “sustained” or “high”

Providers may appeal individual claims denied and Providers may appeal individual claims denied and exponentially reduce the overpayment amount by lowering exponentially reduce the overpayment amount by lowering the calculated error ratethe calculated error rate

Providers may also appeal the methods used by the Providers may also appeal the methods used by the contractor in constructing and/or analyzing the samplecontractor in constructing and/or analyzing the sample

Strongly consider involving experienced counsel and/or Strongly consider involving experienced counsel and/or independent statistical experts for these casesindependent statistical experts for these cases


Audit and Appeal Readiness: Audit and Appeal Readiness: 5 Phases of Appeal 5 Phases of Appeal

RedeterminationRedetermination (Phase I) (Phase I)– Filed with primary contractorFiled with primary contractor– 120 days to file120 days to file– 60 days for contractor decision60 days for contractor decision

ReconsiderationReconsideration (Phase II) (Phase II)– File with Qualified Independent Contractor (QIC)File with Qualified Independent Contractor (QIC)– 180 days to file180 days to file– 60 days for QIC decision60 days for QIC decision– Provider may “escalate” case if deadline is missedProvider may “escalate” case if deadline is missed

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Administrative Appeals (con’t)Administrative Appeals (con’t)

Administrative Law Judge HearingAdministrative Law Judge Hearing (Ph. III) (Ph. III)– 60 days to file request60 days to file request– 90 days for ALJ decision90 days for ALJ decision– May escalate case to next level May escalate case to next level

Medicare Appeals Council ReviewMedicare Appeals Council Review (Ph. IV) (Ph. IV)– 60 days to file request60 days to file request– 90 days for ALJ decision90 days for ALJ decision

Federal Court ReviewFederal Court Review – 60 days to file – 60 days to file appeal: Only really viable for extrapolationsappeal: Only really viable for extrapolations

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Additional Methods to Challenge DenialsAdditional Methods to Challenge Denials

RebuttalRebuttal– 15 days to submit a written statement to primary 15 days to submit a written statement to primary

contractorcontractor

– Argument = recoupment/repayment should not occurArgument = recoupment/repayment should not occur

– Does not postpone appeal process deadlinesDoes not postpone appeal process deadlines

RAC Discussion PeriodRAC Discussion Period– 15 days to contact RAC and initiate discussion15 days to contact RAC and initiate discussion

– Argument = denials are in errorArgument = denials are in error

– Does not postpone appeal process deadlinesDoes not postpone appeal process deadlines

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Preparing for Appeals: What Can O&P Preparing for Appeals: What Can O&P Providers Do?Providers Do?

Plan will vary with size of the businessPlan will vary with size of the business

Develop your Develop your audit teamaudit team, including a , including a point of contact point of contact with responsibility for all communications with with responsibility for all communications with auditors of any kindauditors of any kind

Prepare your medical records staff/departmentPrepare your medical records staff/department

Pursue self-audits to assess compliance with existing Pursue self-audits to assess compliance with existing documentation and medical necessity requirementsdocumentation and medical necessity requirements

Create a systematic response to contractor audits Create a systematic response to contractor audits including case tracking and strict adherence to including case tracking and strict adherence to timelines and deadlinestimelines and deadlines


Medical RecordsMedical Records

Manage and track electronic notices such as Manage and track electronic notices such as remittance advices (time deadlines are linked to these remittance advices (time deadlines are linked to these notices)notices)

Develop system for tracking submission of records, Develop system for tracking submission of records, including proof of contents, mailing and deliveryincluding proof of contents, mailing and delivery

Develop system for maintaining medical records in Develop system for maintaining medical records in accessible formataccessible format

Develop system of tracking contractor requests to Develop system of tracking contractor requests to compare against requests by other contractors and compare against requests by other contractors and against any limits on requestsagainst any limits on requests


Education and Internal AuditsEducation and Internal Audits

Purposes:Purposes:– To allow for preparation/maintenance of medical records that To allow for preparation/maintenance of medical records that

may be requestedmay be requested

– To identify vulnerabilities for purposes of proactive responses, To identify vulnerabilities for purposes of proactive responses, including education and/or repaymentincluding education and/or repayment

Carry out internal education of clinical, coding and billing Carry out internal education of clinical, coding and billing staff based on Medicare guidance to avoid audits in the staff based on Medicare guidance to avoid audits in the futurefuture

There is an obligation to disclose to Medicare any There is an obligation to disclose to Medicare any overpayments that are discovered in the course of a self-overpayments that are discovered in the course of a self-audit within 60 days of identification of an overpaymentaudit within 60 days of identification of an overpayment


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Recommendations for a Successful AppealRecommendations for a Successful Appeal

1. Don’t Assume that the Contractor Knows What 1. Don’t Assume that the Contractor Knows What It Is DoingIt Is Doing

2. Prepare Now, Not When the Contractor Comes 2. Prepare Now, Not When the Contractor Comes

3. Don’t Miss Deadlines for Appealing Denials3. Don’t Miss Deadlines for Appealing Denials

4. Make Effective Use of Every Stage of Appeal4. Make Effective Use of Every Stage of Appeal

5. Write Effective Appeal Letters (e.g., use 5. Write Effective Appeal Letters (e.g., use layperson’s language, no acronyms, and make a layperson’s language, no acronyms, and make a persuasive case)persuasive case)


Repayment & RecoupmentRepayment & Recoupment

Several options exist for returning overpayments Several options exist for returning overpayments to governmentto government– Repayment in lump sumRepayment in lump sum

– Recoupment (where CMS offsets amount owed from Recoupment (where CMS offsets amount owed from current payments)current payments)

– Extended repayment plansExtended repayment plans

Interest accrues based on 30-day periodsInterest accrues based on 30-day periods


Stay on RecoupmentStay on Recoupment

May limit recoupment at redetermination level May limit recoupment at redetermination level of appeal by filing request within 30 daysof appeal by filing request within 30 days

May limit recoupment at reconsideration level May limit recoupment at reconsideration level of appeal by filing request within 60 daysof appeal by filing request within 60 days

Once QIC decision is issued against the Once QIC decision is issued against the provider, recoupment occurs unless provider provider, recoupment occurs unless provider makes a lump sum paymentmakes a lump sum payment

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Voluntary RefundsVoluntary RefundsFor individual claims:For individual claims:– Send payment to DME MAC along with documentation clearly Send payment to DME MAC along with documentation clearly

identifying the overpaid claimidentifying the overpaid claim

– New 60-day timeframe applies from the date of identification of the New 60-day timeframe applies from the date of identification of the overpayment or false claims liability may occuroverpayment or false claims liability may occur

– Be prepared to follow up with DME MACBe prepared to follow up with DME MAC

For related groups of claims based on self-extrapolationFor related groups of claims based on self-extrapolation– Follow methodology guidelines set out in Medicare Program Follow methodology guidelines set out in Medicare Program

Integrity ManualIntegrity Manual

– Submit all supporting documentation to DME MACSubmit all supporting documentation to DME MAC

– Establish ongoing communication with DME MACEstablish ongoing communication with DME MAC

– Be prepared to support your sampling methodologyBe prepared to support your sampling methodology


Deciding to Make a Voluntary RefundDeciding to Make a Voluntary Refund

AdvantagesAdvantages– Potential exclusion of claims from RAC audit if provider Potential exclusion of claims from RAC audit if provider

uses statistical sampling to extrapolate overpaymentuses statistical sampling to extrapolate overpayment

– Impede ability of DME MACs and ZPICs to carry out Impede ability of DME MACs and ZPICs to carry out own statistical sampling and extrapolationown statistical sampling and extrapolation

– Help forecast impact of audits by identifying Help forecast impact of audits by identifying vulnerabilities and allowing for appropriate planning for vulnerabilities and allowing for appropriate planning for further provider education and financial choicesfurther provider education and financial choices


Deciding to Make a Voluntary Refund Deciding to Make a Voluntary Refund (continued)(continued)

DisadvantagesDisadvantages– Any self-audit is resource intensiveAny self-audit is resource intensive

– Self-audits with statistical sampling to allow Self-audits with statistical sampling to allow extrapolation (and subsequent exclusion of claims from extrapolation (and subsequent exclusion of claims from review) are extremely resource-intensivereview) are extremely resource-intensive

– No guarantee that carrier/MAC will accept sampling and No guarantee that carrier/MAC will accept sampling and extrapolationextrapolation


Fraud and Abuse ImplicationsFraud and Abuse Implications

Refunds of self-identified overpayments do have the Refunds of self-identified overpayments do have the potential to impact a provider’s payment error rate, possibly potential to impact a provider’s payment error rate, possibly triggering a more targeted review of claimstriggering a more targeted review of claims

Failure to repay overpayments identified through a self-Failure to repay overpayments identified through a self-audit could give rise to liability under the False Claims Actaudit could give rise to liability under the False Claims Act

– Reverse false claim occurs when provider attempts to Reverse false claim occurs when provider attempts to avoid payment due to the government (e.g., refund of an avoid payment due to the government (e.g., refund of an overpayment)overpayment)

– New 60-day rule on overpayments becoming False New 60-day rule on overpayments becoming False ClaimsClaims


ConclusionConclusionRACs and other Medicare contractors WILL target RACs and other Medicare contractors WILL target O&P claims: It’s only a matter of timeO&P claims: It’s only a matter of time

Prepare now by assessing your vulnerabilities and Prepare now by assessing your vulnerabilities and improving compliance to avoid painful improving compliance to avoid painful overpayments (or worse) lateroverpayments (or worse) later

Know the rules, your rights, and stand by the care Know the rules, your rights, and stand by the care you provide throughout the appeal processyou provide throughout the appeal process

Know when to consult counsel to assist you with Know when to consult counsel to assist you with appealing single O&P claims and extrapolationsappealing single O&P claims and extrapolations

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The RACs are Coming: What O&P Providers Must Know about Medicare Claim Audits and Denials

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