A question often asked by hospitals during CMS’ Outreach Sessions in various states concerns what is often called “reach-thru effect. This refers to what happens when Part A claims filed by hospitals are subsequently denied by a RAC for lack of medical necessity, due to either a lack of (physician written) documentation or an alternative determination about the medical necessity of the service(s) provided, or the appropriateness of the setting in which they were provided (inpatient vs. outpatient). If a hospital’s claim for an inpatient stay is denied for medical necessity, many if not all “down-stream” claims are in danger of being denied as well, such as subsequent SNF stays, ambulance services, and even physician E&M services.

A New Policy Statement

CMS just issued an update, reported by the AHA on their site - it is not posted where expected on the CMS site, but appears in the “Overview” section of CMS’ RAC website. Anyway, it clearly states that while “all provider claims types are available for RAC review, at this time,” a RAC will not automatically deny claims that are associated with a full inpatient denial. The statement goes on to state that these claims may be reviewed and adjusted, based upon submitted documentation.

We have heard several reports from people who attended recent webinars held by CMS and Connolly who were disturbed by what they heard on this subject. Regardless of what was said in those sessions, the update by CMS, as posted by AHA, appears to confirm hospital providers’ fears — that CMS seems to be mostly focused on the highest returns possible via the RACs, and physician claims do not seem to be of much interest, due to their small dollar amounts.

Unfortunately for hospital providers, it is common sense that a RAC will pursue their targets in the most efficient (i.e., profitable) manner available to them. .

AHA reports the update as follows:

CMS Update - June 26, 2009: CMS is often asked about the phase-in strategy for RAC reviews. CMS has implemented a phase in strategy by review type. CMS’ phase in strategy can be found in the downloads section on the recent updates page. CMS has not put a phase in strategy in place by provider type. All provider types are available for RAC review once provider outreach has occurred in the state. Any reviews completed by the RAC must have been first approved by CMS and posted to the RAC websites. The RAC websites can be found in the RAC contact information document in the downloads section below. CMS expects the first approved new issues to be posted in July 2009.

CMS is often asked about other claim types that may be affected by a full inpatient denial and if the RACs will deny other claim types associated with the inpatient stay, such as physician evaluation and management services. At this time the RAC will not automatically deny claims that are associated with a full inpatient denial. However, these claims may be reviewed individually and there may be a need to fully/partially adjust the claim based on the documentation submitted. (source: AHA website)

What Does the Official Manual Say?

We’ve heard the Medicare Program Integrity Manual quoted as a source for the official policy about how CMS audit contractors in general are to set their priorities, due to their “limited resources.” Well, we looked it up (find it here on www.myedutrax.com), and here’s what it says in Medicare Program Integrity Manual , Chapter 3.2, Paragraph B. There’s nothing about specific kinds of claims or billings, but the manual leaves no doubt as to what CMS is after and how they will set priorities (see page 10, all the bold below is my emphasis):

“Contractors shall focus administrative resources to achieve the greatest dollars returned to the Medicare program for resources used. This requires establishing a priority setting process to assure MR focuses on areas with the greatest potential for fraud and abuse. Fraud and abuse may be demonstrated by high dollar payments, high volume of services, dramatic changes, or significant risk for negative impact on beneficiaries (e.g., low volume but unnecessary surgery).

Efforts to stem errors shall be targeted to those areas which pose the greatest financial risk to the Medicare program and which represent the best investment of resources. Contractors should focus where the services billed have significant potential to be non-covered, incorrectly coded, or misrepresented. Target areas may be selected because of: High volume; High cost; Dramatic change; Adverse impact on beneficiaries; and/or Problems which, if not addressed, may escalate.

Contractors have the authority to review any claim at any time, however, the claims volume of the Medicare program prohibits review of every claim. Resources dictate that in attempting to make only correct payments, contractors make deliberate decisions on the best uses of limited resources to maximize returns.”

So, it’s not hard to see where they are getting their priorities from.

We would like to hear comments from providers about their response to this policy. You are welcome to post them here!

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