Medicare Recovery Audit Contractors March 27 & 31, 2008

1. Medicare Recovery Audit ContractorsMarch 27 & 31, 2008 Kathy Reep Vice President, Financial Services Florida Hospital Association Marilyn Litka-Klein Senior Director, Health Finance MHA 1

2. Legislative Authority • Section 306 – Medicare Modernization Act • Requires Secretary of Health and Human Services to test the use of Recovery Audit Contractors (RAC) for identifying Medicare Part A and B underpayments and overpayments, and recovering the latter • May compensate based on percent of recovery • Previously prohibited for Medicare • Report to Congress • Six months after completion • Recommendations for extending/expanding project 2

3. Reasons for RAC Demonstration • Medicare medical review and payment error rates • Claimed effectiveness of RAC’s proprietary software • Experience of states and other federal agencies • Collection without additional Medicare cost 3

4. Reasons for RAC Demonstration • The RAC program’s mission: • Reduce Medicare improper payments through the efficient detection and collection of overpayments • identification of underpayments • implementation of actions that will prevent future improper payments 4

5. Demonstration States • CMS selected the three states with the highest per capita Medicare utilization • Florida • California • New York 5

6. Demonstration – Cont. • November 2004 – CMS issues two separate Statements of Work • Medicare secondary payer (MSP) • Non-MSP • March 28, 2005 – CMS awards RAC contracts • Contracts expire March 27, 2008 6

7. Non-MSP RAC Demonstration • Included overpayments and underpayments • Incorrect payment amounts • Non-covered services • Incorrectly coded services • Duplicate services 7

8. Non-MSP RAC Demonstration • Excluded from RAC scope • Services other than Medicare fee-for-service • Cost report settlement process • Incorrectly coded E & M services • No random claims selection • No prepayment review 8

9. Types of RAC Review • Automated review • Only where there is certainty that service is not covered, incorrectly coded, a duplicate payment or other claims related overpayment • Complex medical review • Must be used if there is probability, but not certainty, of overpayment, and medical records are needed to make that determination 9

10. Medical Record Requests • The RAC will send a medical record request letter to the provider containing the clinical rationale for each request • Provider has 45 days to respond • Lack of hospital response will lead to an administrative denial • RACs have worked with providers who cannot meet the 45-day deadline • RAC has 60 days to make determinations after receiving the records • Extensions granted by CMS • Provider has 15 days from date of demand letter before recoupment process begins 10

11. FY 2006 Improper Payments(MSP and Claim RACs) Status Document For FY 2006 on www.cms.hhs.gov/RAC “collected” = dollars in the bank (cases lost on appeal have been backed out… contingency fees have NOT been backed out) “in the queue” = dollars determined by the RAC to be overpayments but still in the collection process at the RAC or carrier/DMERC/DME MAC/FI; overpayment demand letter has been sent to the provider in about half the cases “identified” = dollars collected + dollars in the queue “costs” = RAC contingency fees ($12M) + carrier/DMERC/DME MAC/FI costs ($1M) + RAC Evaluation/Database ($1.5M) 11

12. FY 2006 Improper Payments by Type of Improper Payment (Claim RACs Only) RACs found $ 10.4M in underpayments from Jul 05 – Aug 06 12

13. FY 2006 Improper Paymentsby Provider Type (Claim RACs Only) 13

14. FY2007 Findings Overpayments Collected: $357 Less Underpayments Repaid: ($14) Less $ Overturned on Appeal: ($18) Less Costs to Run Demo:($78) BACK TO MEDICARE TRUST FUND →$247 Million (in Millions) 14

15. FY2007 Findings Overpayments Collected by Provider Type SOURCE: RAC Data Warehouse 15

16. FY2007 Overpayments Collected by Error Type(Net of Appeals SOURCE: Self-reported by RACs 16

17. Appeals of RAC Determinations But many more appeals filed after 9/30/07 As reported through 9/30/87

18. Recoupment New Rules • Effective July 1, 2008 • When overpayment identified by RAC, funds shall not be recouped for 30 days • Allows hospital to submit appeal for redetermination – first stage • If overpayment upheld, funds recouped 60 days later, unless hospital appeals second stage • Most appeals concluded during first three stages of appeal process • CMS Transmittal 314 issued 2/1/08

19. RAC Expansion Schedules 19

20. Demonstration vs. Permanent RACs 20

21. Demonstration vs. Permanent RACs 21

22. Issues Identified • Inpatient rehab – services were medically unnecessary; could have been provided in a less acute setting • Admission for scheduled elective procedures • Claims coded as CC - complications or comorbidity - with only one secondary diagnosis 22

23. Issues Identified – Cont. • Inpatient only procedures: be aware of annual changes • Transfusion: billing more than once per encounter • DRG payment window: outpatient procedures that must be included on I/P claim 23

24. Automated RAC Review Results • Neulasta - billed for 6 units, exceeded standard of 1 unit • Multiple colonoscopies on same day • O/P speech billed in 15 minute increments vs. session • What is responsibility of fiscal intermediary who paid claim incorrectly?

25. Three-Day Stays • Denied by RAC as LOS extended to qualify beneficiary for Medicare Part A coverage in skilled nursing facility • Observation days don’t count toward the three-day requirement • Unclear whether CMS will pursue recoupment from the SNF • Medical back problems – DRG 243/MS – 551 DRG • Medical record didn’t support I/P admission • Patients admitted for 3 days to qualify for SNF coverage

26. Debridement • DRG 263/MS-DRG 573 • Coding “excisional” debridement • Not documented in chart, or • RAC believes not justified by medical chart • DRG 217/MS – DRG 463, 464, 465 • RAC claims incorrectly coded as “excisional” debridement 26

27. Surgeries • RAC denying claims when procedure not found on Medicare I/P only list • RAC claim physicians must document medical necessity for I/P status including: • Lab results, x-rays, failed O/P procedures • RAC indicates documentation must become part of patient’s permanent record to justify I/P medical necessity

28. Wrong Diagnosis Code • Patient bill reported principal diagnosis of 03.89 septicemia • Medical record indicates diagnosis of urosepsis – blood cultures were negative

29. Wrong Principal Diagnosis • Patient bill indicates respiratory failure (518.81) was principal when medical record indicates sepsis (038-038.9) was principal diagnosis • Most common DRGs • 475 respiratory system diagnoses • 468 extensive OR procedures unrelated to principal diagnosis

30. Discharge Status/Transfers • Hospital bill indicates patient discharged to home • Medical record indicates patient • Transferred to another facility • Discharged home with home care • Hospitals paid lower transfer rate under these conditions

31. PEPPER Reports Program for Evaluating Payment Patterns Electronic Report • Developed by TMF Health Quality Institute for Centers for Medicare & Medicaid Service • Issued electronically on quarterly basis by QIO – MPRO • Data from CMS discharges for FY 2004, 2005, 2006, 2007 (9/30/07) 31

32. PEPPER Reports – Cont. • Reported data includes • DRGs that are part of a pair • 1 day stays • DRG 89 vs. 88 and 90 • 3 day stays, transfer to SNF • 7 day readmissions • Comparisons to statewide experience 32

33. Michigan Top 1-Day LOS FY2007 Source: Medicare PPS Inpatient Hospital Data, ending 9/30/07 33

34. Michigan Top Medical 1-Day LOS FY2007 34 Source: Medicare PPS Inpatient Hospital Data, ending 9/30/07

35. US Most Frequent Medically Unnecessary Admissions Source: CMS 11/07 Improper Medicare Payments Reports

36. Unresolved RAC Audit Issues • Provider Education • Despite several requests from hospital industry, no comprehensive document of all identified issues is available – to prevent errors from occurring in future. • CMS released RAC status document Feb. 2008 with some information • In Jan. CMS indicated future RAC’s would be responsible for posting error information on their own web-sites

37. Unresolved – Cont. • RAC responsibilities • Currently paper correspondence with hospitals • Hospital data submissions lost at RAC • No electronic system for hospital to monitor records under review • Contingency fee payments • Increased recoveries add to RAC earnings • Sometimes the cost/effort to appeal exceeds the hospital benefit • Medical necessity determinations • Will there be consistent application among the RACs or will this vary?

38. Unresolved – Cont • Hospital rebilling efforts • Standard process for hospital to rebill ancillary procedures if applicable • Cash flow delay between RAC take back and payment for rebilled services • Implications for Medicare and Hospital discharge count for admissions deemed medically unnecessary • Other payment implications not yet identified

39. Suggested Hospital Actions Self – Assessment of RAC Risk • Review PEPPER reports to identify unusual patterns • Audit claims to ensure medical necessity • Utilize cross department team to identify root causes for identified errors • Communicate results to key hospital and medical staff • Implement protocol changes to correct root causes

40. Suggested Hospital Actions – Cont. Utilization Review and Case Management • Develop watch list of error-prone DRGs-short-stay and outlier cases • Review 1-day stays to validate medical necessity • Expand case management to 7 x 24 • Ensure medical record justifies billed status • Ensure physicians clearly understand the admission and documentation requirements • If it isn’t written it can’t be coded

41. Hospital Next Steps • Look at potential areas of risk • Identify single point of contact for RAC • Establish RAC committee – of key hospital stakeholders • Understand the parameters • For providers • For the RAC 5. Review records before sending to RAC • Support your claim 41

42. MHA Next Steps • Establish relationship with RAC – once announced • Facilitate information exchange between CMS, RAC and hospitals • Monitor RAC activities with Michigan providers

43. Questions? Marilyn Litka-Klein Senior Director, Health Finance Michigan Health & Hospital Association Phone: (517) 703-8603 email: mklein@mha.org 43