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Hospital Officials Complain About Medicare Efforts on Observation Care

Recovery audits are causing big headaches (June 26)

According to a report from the Kaiser Family Foundation, hospital executives have told the Senate Finance Committee that overly aggressive practices of contractors charged with recovering inappropriate Medicare payments are causing headaches for hospitals and patients.

Recovery audit contractors (RACs) uncover and collect improper payments made to hospitals, physicians, clinics, and other providers. In 2011, the audits resulted in the return of nearly a half a billion dollars to the Medicare Trust Fund.

If Medicare or the contractors determine that a patient who was admitted instead should have been in observation care, the hospital can lose the Medicare inpatient payment, and Medicare may refuse to pay for the observation services.

RAC practices are not only costing hospitals large amounts of money and staff time to deal with appeals, but also have caused more physicians to put a patient into “observation” status “out of fear of an inpatient denial,” said Jennifer J. Carmody, director of reimbursement services for the Billings Clinic, a health care organization in Billings, Mont., that includes a 285-bed hospital and a 90-bed skilled-nursing and assisted-living facility.

“RAC denials eliminate payment for medically necessary services rendered to patients simply because of a disagreement about the admission status,” Carmody said in her testimony.

Carmody said Billings estimates that it spends roughly 8,600 work hours and approximately $240,000 per year for internal staff to manage RAC audits and appeals. That’s in addition to the more than $500,000 per year that Billings pays an outside contractor to help with medical necessity reviews. Billings has been successful on appeal 84% of the time, winning 308 cases while losing 57, she said.

Suzie Draper, vice president of business ethics and compliance at Intermountain Healthcare in Salt Lake City, Utah, said in testimony that her company has added 22 full-time employees to deal with the RAC program. Of the approximately $120 million in claims RAC auditors examined, just over $16,000 was returned to Medicare. “The RAC program is not helping reduce health care costs, and the program diverts resources that might otherwise be applied to quality improvement and patient care,” Draper reported.

Sen. Orrin Hatch, R-Utah, the Finance panel’s ranking Republican, urged the Centers for Medicare & Medicaid Services (CMS) to consider “the balance between program integrity and administrative burden.”

“There is a lot of unrecovered money still out there, and RACs are an important component in the effort to get some of that money back where it belongs,” he said. “But we need to make sure they are going about it the right way.”

Source: Kaiser Family Foundation; June 26, 2013.

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