Recovery Audit Contractors (“RAC") have been with us for some time now, mostly dealing with hospitals and only indirectly affecting physicians. It is likely that this will soon change. The purpose of a RAC is to review medical charts retrospectively and, to the extent possible, deny payment to the provider based upon a (frequently loosely interpreted) set of criteria. These “audits" can go back several years and, when the money has already been paid to the hospital, it is demanded back. In short, this is a program by the Centers for Medicare and Medicaid (“CMS") to recover money that should not have been paid, but because the RACs are paid on a “contingent fee" basis (they get paid a percentage of what they recover), to say they are frequently overzealous would be an understatement. Moreover, it is bad enough when a multimillion dollar hospital is told to return money it received in good faith three years ago, it may bankrupt an individual physician or small to medium sized medical practice to do so. Wishing won’t make this program go away, so, what can you do to ameliorate its effects?

First and foremost, be informed about how the system works. While this is too complex a topic to review here, it is one you should review with a knowledgeable healthcare attorney as soon as possible. The sooner your practice begins to conform to the required methods of operation, the less impact these will have on your bottom line.

Secondly, you must understand that what is most usually being reviewed for hospitals is medical “medical necessity" of an admission (and you would be amazed at what is currently being denied by the RACs, including cases were patients have died). In short, hospitals are told that while their reviewers find that the actual medical care being provided was necessary, appropriate and well provided, it could have been provided at a lower level of care (i.e. “outpatient" or “Observation"). The issue regarding these designations is a topic in itself, but the important thing is that if the level of care is allowed to be downgraded, the hospital must return the money it was paid or, if it cannot, then that amount is deducted from future payments until it is all returned (but remember that the next year will be reviewed also, so this is a continuing process). There is no other business or industry in which this is allowed to occur, or would be tolerated, but because of the nature of healthcare, we are vulnerable to these actions; BUT NOT HELPLESS!

There are three steps to take in dealing with this Kafkaesque approach to health care:

  1. Be sure your coding is supported by your chart entries,

  2. Challenge every retroactive denial you feel is inappropriate and,

  3. Appeal every adverse decision by the RACs, if necessary, to the point of litigation.

So, let’s take this one step at a time. The best way to avert economic catastrophe is to know the rules of the game and use them to your advantage. In hospital reviews, many of the RACs use guidelines published by the McKesson Corporation called InterQual® Guidelines. There are others, of course, but because these are so widely used, I’ll use them as an example. Keep in mind, throughout this discussion, however, that this is a “bait and switch" operation by the RACs. They use InterQual when it suits them, and when it doesn’t they claim (correctly) that they are only first level guidelines, and they need not be bound by them. Is this disingenuous? Yes; but you still need to get around this approach.

When you are notified that one or more of your claims are being challenged, you will also receive a notice telling you what your rights are; READ THIS CAREFULLY. It may be confusing at first, but it contains actions you MUST take to maintain your claim, and deadlines you MUST meet. If you fail at either of these, you lose! There will be several levels of appeal, each of which needs to be conducted in the appropriate order, and with letters that lay out your case in simple and straightforward terms with as much medical or regulatory documentation as you can. Yes, I said “regulatory" since the denials frequently misinterpret the regulations under which they operate (in their favor, of course) and you need to be able to challenge the legality of their actions, as well as the medical appropriateness of a particular code you used in billing.

The letter exchanges are usually followed by a telephone conference with one of the RAC “Medical Directors." There are physicians the RACs have hired to review the actions taken at a lower level, usually by a nurse reviewer, and decide if your particular situation warrants an exception. Do not pass up this opportunity for two reasons. First, whatever their motives, physicians with whom you speak will reverse the initial RAC decisions in a substantial number of cases (if you know what to say to them) and, secondly, you must exhaust all “administrative remedies" before you can proceed.

The next step is usually an appeal to an administrative law judge (“ALJ"). This is another important step, and for the same reasons. The ALJ can overrule the RAC and if they do, the process usually ends there, but not always. These hearings, depending upon whether they are for Medicare or Medicaid, and upon the jurisdiction, are relatively informal, usually (but not always) held by telephone, and generally follow the pattern of other hearings. The RAC (usually referred to as the Department of CMS since these are the actual entities being represented) states their case, you have an opportunity to cross-examine them, the process is reversed and they can cross examine you, and then you each usually have an opportunity to make a closing statement. If you are unfamiliar with the hearing process, or how to cross examine someone, it may be to your benefit to have help there. You must also keep in mind that the ALJ is usually an attorney and, even if he or she has the best of intentions, they do not understand Medicine so follow the old saw; “KISS;" keep it simple, stupid, and be sure to explain all medical terms (without sounding condescending).

If you win at this level, it is usually over, but not always. In many cases, the RAC can appeal to a higher administrative level (either in the Department of Public Welfare or CMS) for another bite at the apple. In this case, however, the appeal is usually (but not always) limited to their describing errors of fact or law may have been committed by the ALJ to cause them to reach the wrong conclusion. No new evidence can be presented, so make sure you’ve presented everything to the ALJ. Moreover, keep in mind, that this additional level is available to you, also, if you lose at the ALJ level.

Finally, if all else fails, and if enough money is on the line, you can appeal to an actual court (either state of federal) and have your case reheard. In my opinion, this is the level at which you are most likely to receive a real, neutral hearing and an appropriate decision, but you cannot get here first. You must exhaust all administrative remedies before being allowed to proceed to court. In most instances, neither the RACs nor the government want to proceed this far because, unlike ALJ hearings, if they lose in court, it sets a precedent that all lower courts and ALJs are required to follow. In other words, you not only win for yourself, but for everyone in your situation. When you can do this and how you can afford it, however, is a topic for another time.

So, what can you take away from all of this?

  1. RACs are coming to medical practices and long term care facilities at some point in the near future (demonstration projects have already begun),

  2. This will be an expensive process for you, unless you and/or your institution prepare well in advance to minimize the opportunities the RACs have to issue retroactive denials (know the rules of the game, and use them to YOUR advantage),

  3. Appeal everything. Even if you lose a fair number, it will still be financially worth it for you to follow through and, finally,

  4. Do not be put off by the prospect of litigation. This is not a medical malpractice action; it is you, exercising your constitutional rights to protect your own interests.

After being involved in hundreds of these appeals, I have one more, somewhat self-serving but none the less appropriate piece of advice; hire a knowledgeable healthcare lawyer (not your family or business attorney), familiar with this process, right from the start. It may seem expensive at the time, but will seem much less so when you either do not suffer the same number of audits resulting in refund demands, or win most of the ones you do, and not have to return, perhaps hundreds of thousands, or even millions of dollars that you actually deserve to keep.

You can, of course, do all of these things yourself, without help, but do you really want to bring a knife to a gunfight?