Medicare Advantage: The New RACs

by | Jun 24, 2019 | Blog

Since the onset of the 2-midnight rule, hospitals have been spared the onslaught of medical necessity denials from Recovery Audit Contractors (RACs). The RACs have certainly branched into other areas of audit in hospitals, but tightened claim limits have significantly changed the RAC environment from one which at times overwhelmed hospital resources to a more manageable scope.

So, what has this meant for the firms doing recovery audits? Have they dramatically downsized, happy to give up the chaos they caused in the provider world? Of course not. They went in search of greener pastures and found a world of almost unending opportunity – Medicare Advantage (MA).

Assessing Hospital Revenue Leakage in Medicare Advantage

For the recovery auditors, MA is a virtual paradise compared to Medicare. No chart limits, no public bidding process, and an appeals process that is confusing and largely controlled by the very payer whose denial is being questioned. MA plans employ multiple vendors, making the scrutiny of hospital claims almost never-ending.

It is no wonder that when the Office of Inspector General (OIG) looked at the denial practices of MA plans, their findings sounded familiar to many of us:

“When beneficiaries and providers appealed preauthorization and payment denials, Medicare Advantage Organizations (MAOs) overturned 75 percent of their own denials during 2014-16, overturning approximately 216,000 denials each year. During the same period, independent reviewers at higher levels of the appeals process overturned additional denials in favor of beneficiaries and providers. The high number of overturned denials raises concerns that some Medicare Advantage beneficiaries and providers were initially denied services and payments that should have been provided. This is especially concerning because beneficiaries and providers rarely used the appeals process, which is designed to ensure access to care and payment. During 2014-16, beneficiaries and providers appealed only 1 percent of denials to the first level of appeal.

Centers for Medicare & Medicaid Services (CMS) audits highlight widespread and persistent MAO performance problems related to denials of care and payment. For example, in 2015, CMS cited 56 percent of audited contracts for making inappropriate denials. CMS also cited 45 percent of contracts for sending denial letters with incomplete or incorrect information, which may inhibit beneficiaries’ and providers’ ability to file a successful appeal. In response to these audit findings, CMS took enforcement actions against MAOs, including issuing penalties and imposing sanctions. Because CMS continues to see the same types of violations in its audits of different MAOs every year, however, more action is needed to address these critical issues.[1]

The Recovery Audit Contractors’ New Approach

If anyone is getting PTSD flashbacks to 2009, I am with you. But now that we know what to expect, the question is: “What do we do about it?” The first step is to understand exactly how these auditors are approaching denials. Unlike 10 years ago, when massive chart pulls of 1-day stays provided an easy and never-ending target, MA plans are far more strategic. Instead of focusing on a single issue, they erode hospital revenue at almost every step of the revenue cycle. This revenue erosion is most pronounced in the “clinical revenue cycle,” encompassing drivers of revenue between admission and billing such as Utilization Review, CDI/Coding, and resource utilization.

Although this “revenue leakage” is pervasive, we often see hospitals employing the same strategies that have not worked in the past.

In the area of DRG integrity, we have found that hospital staff agree with the payer denials over 50 percent of the time. So, not only does the lower payment for that denied case stand, but the payer then incorporates the denial rationale into future pre- and post-billing coding audits. The denial becomes the new baseline.

In Utilization Management, it is common to hear hospitals say that “we know what cases will be denied, so we just change the claim to observation to avoid the denial.” In the first case, the OIG study tells us that hospitals often incorrectly assume that the denial is appropriate. In the second case, we have done analyses that show that it is virtually impossible to globally predict which claims will be approved and denied, even within high-risk claims areas.

The first step in combating the new MA “RACs” is to understand their approach and match it. Most hospitals start by initiating aggressive appeals processes. There is merit to this approach based on the OIG findings, but it is not nearly enough because today’s RACs operate using powerful analytics.

Who Are the “New RACs”?

Who are these RAC-like vendors being used by MA plans? Let’s start with Cotiviti. Was it a RAC, you ask? Well, Cotiviti is the new name for a merger between Connolly LLC (the RAC) and iHealth Technology Inc. The result? A company serving 96% of the top 25 payers. What is Cotiviti? Well, in its own words, “Cotiviti is a leading solutions and analytics company that leverages unparalleled clinical and financial datasets to deliver deep insight into the performance of the healthcare system.”

Let us look further at how it leverages this analytic approach to focus its efforts to recapture revenue for the MA Payer. Again, from its website:

“Cotiviti selects the right charts earlier in the process, including reviews of inpatient DRGs and short stays. Our industry-leading experts use machine learning to help isolate charts with the highest probability of overpayment, while deeper analysis—combining coding, documentation, and clinical chart reviews—reveals higher-value errors that others miss. We drive better results through: 

  • Analytics-driven chart selection: Industry-leading analytics—guided by physicians, nurses, and coders and based on clinical insights—yield more value with an improved provider experience. Our current change rate averages 25 to 35 percent, with some clients experiencing much higher rates.”

Cotiviti is not unique. Equian, a rollup of several auditing companies works with 20 of the top 25 health plans. Equian “employs sophisticated technology and data analytics in addition to expert clinical review by nurses, physicians, accountants, and certified coders to identify errors and compliance issues before the claim is paid.” It claims to find errors on 63% of claims reviews, resulting in an overall decrease in payment of 10-12%. Once an error is found, it deploys its “resolution team” of negotiators to contact hospitals and gain agreement for a lower payment. UnitedHealth Group’s Optum unit announced on June 20, that it is acquiring Equian.

HMS is another MA Auditor that is also a Recovery Auditor Contractor. HMS process of claims reviews applies “…proven algorithms to request medical records only for claims that are likely to include improper payments based on analysis against our comprehensive dataset. HMS statisticians update their models daily to ensure continuous improvement. The HMS team of more than 800 clinicians and certified coders review the selected records to find and prevent inappropriate payments.” Like all the auditors, its scope is significant. HMS focus in the inpatient environment includes: “Diagnosis Related Group coding errors and clinical validation of codes; Covered vs. non-covered services; Readmissions; High cost drugs; Inappropriate short hospital stays; Level of care; Skilled nursing facility services; and Inpatient rehab.”

Addressing Recovery Audit Contractor’s Denials

I could go on. And on. And on. The bottom line: analytics are the first and possibly most important step in detecting errors in your hospital, and more importantly, defending yourself against inappropriate audits and denials. The correctness of a single denial cannot be ascertained on an anecdotal basis but must first be placed in the context of a larger data set.

Most hospitals have ‘analytics.’ But many departments do not have the analytic firepower necessary or expertise to put analytic findings in context and use those analytics to answer key questions facing their businesses. To put it in perspective, let me share what a hospital executive told me recently while evaluating a DRG audit: “So, the payer has six auditing companies stacked up cutting our data and attacking us, and we have an excel spreadsheet.”

Pairing Analytics with Expertise

Analytics must not live in a vacuum. Analytics must be paired with the expertise to create, implement, and monitor an ongoing action plan. This is not a problem just for the hospital utilization management, coding, CDI or managed care departments. Because these new MA RAC-like auditors are targeting hospitals on an institutional level, the only effective hospital solution is an institutional strategy that includes operational changes and oversight as well as a multi-level escalation strategy to hold the payer accountable and ensure the hospital gets paid what it deserves.

Although this sounds like a lot of work, partnering with outside experts who focus on this challenge can lead to a relatively quick assessment, creation, implementation, and monitoring of an effective plan. In other words, take the same approach the payers have – find the people and organizations who live and breathe in this space and utilize their skills. For hospitals, the payoff from leveling the playing field is financially rewarding and, most importantly, transformational in the relationship between payer and provider.



[1] OIG, Medicare Advantage Appeal Outcomes and Audit Findings Raise Concerns About Service and Payment Denials, OEI-09-16-00410, September 2018


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