American Hospital Association Strikes Back at the RACs

Many health care providers are familiar with the costly exercise of fighting a Recovery Audit Contractor’s (“RAC”) determination of an overpayment through the administrative appeal process. But where providers take on the expense, the statistics on appeal are largely favorable. For fiscal year 2011, 43.4% of RAC determinations were reversed in the providers’ favor. The problem is that of the 903,372 claims identified as overpayments by RACs, only 56,620 claims were appealed at any level. Of those 56,620 claims, the 24,458 claims overturned during the appeal process translate to $37.9 million, or $1,550 per case. The low appeal rate is likely due to frustration, costs of appeal, and other high-priority issues, such as patient care. For hospitals, the biggest fight has centered on the RACs’ intense focus on inpatient care. In the first quarter of 2012, the claims most frequently identified by RACs as overpaid related to the provision of service on an inpatient basis when, according to the RAC, only outpatient service was necessary, despite the fact that the services were largely conceded to be reasonable and medically necessary. Reports indicate that when hospitals pursue appeals of these RAC determinations, they are successful 75% of the time. But the biggest problem is that where the RAC correctly determines that an inpatient admission was not warranted, hospitals are not being paid under Part B for outpatient care. In other words, while the only problem cited by the RAC is the setting where services were provided, claims for the services are being denied in their entirety, and hospitals are receiving no reimbursement for the underlying reasonable and medically necessary services provided. This issue is now at the center of a lawsuit filed by the American Hospital Association (“AHA”) and several hospitals against the Secretary of Health and Human Services. The AHA argues that the Social Security Act requires CMS to reimburse hospitals for reasonable and medically necessary services, and that by allowing the RACs to claw back the entire payment for the inpatient services under Part A and then denying payment under Part B, CMS is running afoul of federal law. The AHA seeks an order declaring the practice to deny all payment invalid and an order that the hospitals be paid in full for the reasonable and medically necessary services that CMS concedes were provided to beneficiaries. The complaint can be viewed at the AHA’s website: www.aha.org.