Medicaid RAC Effective January 1, 2011

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By Elizabeth Lamkin, December 2011

Trouble comes in threes! First, just as providers were getting Medicare RACs (now RAs) under control, Medicare Administrative Contractors (MACs) got thrown into the mix, which is confusing communication between RAs, MACs and providers. Second, the new Medicare Statement of Work (SOW) for Medicare RAC came out on September 12, 2011 pushing RAs for claims review quotas. And third, we now have the final rule on Medicaid RACs that came out September 16, 2011 and will be fully effective on January 1, 2012.

The Medicaid RAC final rule implements section 6411 of the patient Protection and Affordable Care Act. CMS states their objective is that Medicare RAC should generally serve as a model for the Medicaid RAC program, not that their structures should be identical. For instance, both are paid on contingency fees with Medicaid contingency fees capped at the maximum of Medicare fees at 12.50%.  If a state pays above that rate, CMS will not participate in the payment and the state is responsible.

Another similarity is the “Medicaid look-back period” of three years and a provision calling for coordination of recovery audits efforts with other entities. CMS specifically pointed out that RAs are not intended to replace any State-run integrity of audit initiatives.

From current provider experience, we’ve seen Medicare demand letters issued beyond the three-year window and overlap in audits.  Therefore, providers should keep track of dates and demand letters to challenge and appeal to the RAC program if a request does not fall within the rules and guidelines. Yet, we should keep in mind that a state may grant an approval for a review older than three years.  We should also keep in mind that Medicaid managed care claims may be excluded from the Medicaid RAC.

Because the Medicaid final rule is not as detailed as the Medicare final rule, it may set the stage for more confusion in the first year of implementation than existed in the initial year of the Medicare RAC Demonstration Project. Since Medicaid RAC will affect almost every provider, both inpatient and outpatient, quick education on your state rules will be essential. Currently, only territories have been given exceptions – every state must comply.

Although there are many similarities between programs, there is still significant uncertainty due to statutory rule differences. As you will note throughout this article, many of the rules that are modeled on the Medicare program have provisions to seek exceptions by a state.

Like Medicare, Medicaid RACs must hire trained medical professionals including one full time Medical Director and certified coders. However, states can apply for an exception to the full time Medical Director position and opt out of certified coders if the state determines certified coders are not required for effective review of Medicaid claims.  This could prove to be either detrimental or helpful for providers.

States must ensure there is an adequate appeals process for providers including due process, but states can use an existing process or create a new process. This may be problematic, especially for organizations that cross states, in that each state determines the process and timelines for appeal and response. However, the final rule does have a provision requiring states to respond to providers within 60 days. For providers serving multiple states, the tracking alone will be a nightmare. We know the appeals process has been the most difficult area for providers in Medicare program and we expect the same for Medicaid.

One point that has been made clear in both the Medicare and Medicaid final rules was the requirement to report fraud and abuse. In the past, RACs have not focused on fraud reporting, but CMS has taken a much more aggressive stance in this area.

There are a few bright spots: Medicaid RACs must accept provider submission of electronic medical records on CD/DVD or facsimile.  And as in Medicare, RACs must also detect underpayments and will be paid fees for underpayments as well as overpayments.

To assist providers, each Medicaid RAC must work with the state to develop an education and outreach program that includes notification of audit policies and protocols.  They must also provide minimum customer service measures including a toll-free service line listed in all correspondence, and staffing the line normal business hours 8:00am to 4:30pm. Each RAC must also maintain provider approved addresses and point of contact.

At this point, many states already have RAC type programs in place, but most states will find themselves in a first time implementation. Providers should rely on their own internal systems built for Medicare RAC and bring Medicaid RAC into those processes for billing compliance. Each provider will need to have a mechanism to educate themselves on their state rules and may need to push for education on the RAC program.

State hospital associations are a good resource and will provide a larger voice on the systems. Providers should push for more standardization like the Medicare program so the rules are easier to understand, especially for providers crossing state lines.

Ultimately, correct billing compliance will improve your bottom line and clinical quality. By implementing a transparent process including appropriate approvals for service, bed status, place of service backed by good documentation, and clinical protocols, providers will avoid denials, billing errors and take backs.

Federal Register, Vol. 76, No. 180, Friday, September 16, 2011. GPO Website. Accessed December 28, 2011.
Medicare Statement of Work. CMS Website. Accessed December 28, 2011.

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