RAC Audits: Surviving the Inquisition

Michael Murphy, MD
Michael Murphy, MD

Guest post by Michael Murphy, MD, co-founder and CEO, Scribe America.

In May 2014, the Department of Health and Human Services released findings of their most recent study pertaining to reimbursement amounts provided to outpatient physicians for evaluation and management services. The study uncovered that Medicare overpaid outpatient physicians close to $7 billion and most improper payments were results of errors in coding and insufficient documentation (Table 1, highlights the percentage of claims that were wrongfully claimed for in 2010.). However this is not a problem isolated to physicians from the outpatient clinics, as physicians from inpatient clinics could also be found guilty of miscoding and insufficient documentation.

Recovery audit contractors (RACs) were created by the Medicare Modernization Act to evaluate the accuracy of Medicare claims. If a claim is determined by RAC to be flawed for any one of the many different reasons, the claim is denied. Although Medicare’s retrospective program of auditing bills is good, it is not perfect. There has been a huge spike in appeals of Medicare payment decisions, from hospitals mainly, since the introduction of the auditing program and delays in the appeal process has resulted in hospitals facing great financial difficulties as a lot of their funds are tied up till the appeal has been heard.

Type of Error Percentage of Claims for outpatient services Medicare Payments (in Billions)
Incorrectly Coded 42.4% $3.3
-Miscoded 40.4% $2.8
-Upcoded 26.0% $4.6
-Downcoded 14.5% ($1.8)
-Other Coding Error (e.g., Wrong Code, Unbundling) 2.0% $0.5
Lacking Documentation 19.0% $4.6
-Insufficiently Documented 12.0% $2.6
-Undocumented 7.0% $2.0
Overall Gross 61.3% $7.9
Overlapping (6.7%) $2.0
Overall Net 54.6% $6.7

Adapted from : “Improper payments for evaluation and management services cost medicare billions in 2010”

In order to receive reimbursement from Medicare, a physician needs to follow a three-step process: 1) appropriate coding of the service provided by utilising current procedural terminology (CPT); 2) appropriate coding of the diagnosis using ICD-9 code; and 3) the Centers for Medicare and Medicaid Services (CMS) determination of the appropriate fee based on the resources-based relative value scale (RBRVS). It is not surprising that physicians often incorrectly code patient visits and procedures as there exists a truly daunting number of codes from which to choose. Moreover, coding structure and reimbursements schemes are constantly evolving and becoming more complex, resulting in a coding process that is often cumbersome and difficult.

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