3 Takeaways from the American Hospital Association Survey on RAC Denials & Appeals

Claim denials and medical record requests by the Center for Medicare and Medicaid recovery audit contractors (RAC) program are growing by more than 20 percent every quarter, according to a recent survey by the American Hospital Association.

Every quarter since 2010 the AHA “RACTrac Inititative” surveys more than two thousand hospitals about the impact and efficiency of the RAC denial and appeal process. The resulting reports are valuable tools toward identifying common problems and areas of concern when it comes to RACs.

The conclusions that the AHA drew from the recently released survey covering the second quarter of 2102 can be found at the end of this article. But what follows are three additional trends we found within the same data of that should sound warning bells for those engaged in the revenue cycle.

You might be wrong 60 percent of the time. The AHA survey found that 40 percent of denied claims are appealed, and of those, 75 percent are overturned. By extension that means that 60 percent of all denials are not appealed, indicating either that the cost of the appeal, either in dollars or staff resources, outweighs the dollars at risk in the appeal, or that the hospital found that it was in the wrong. While the AHA survey did not identify the reasons behind the latter, other survey questions found a great place start: Short hospital stays.

Are short stays medically unnecessary? Complex denials jumped 28 percent between Q1 and Q2, and nearly doubled between Q4 2011 and Q2 2012, the AHA found. Of those complex denials, a vast majority at 84 percent were for short stays determined to be medically unnecessary. The survey also uncovered that a majority of the denials related to short stays were because the care occurred in the wrong setting, not that the medical care was truly unnecessary.

If there was an area for hospital revenue cycle manager to focus their corrective action efforts, it will be here, not only because of the dollar volume of related to short stay denials, but also because this will soon be rubbing against the Patient Protection and Affordable Care Act metric for excessive hospital readmissions.

Your dollars trapped in bureaucracy. Hospitals report that nearly three-quarters of all appealed claims were not resolved. The question this begs is, how does this affect a hospital’s cash-flow? Appealed claims represented more than a half billion dollars during the second quarter. Of those, complex denials — the most costly and time-consuming to appeal — represent a whopping 97 percent of the dollar volume of all denials. The AHA survey found that the average automated denial was $548; a complex denial was ten times that amount, at $5,564. What is the cost of locking those funds away in the appeals process?

Below are the findings from the most recent RACTrac survey as summarized by the AHA. You can download the complete survey report, which includes results by region, by clicking here. For all the RACTrac reports and supporting information, visit the AHA RACTrack page.

• Medical record requests are up 22 percent relative to last quarter.
• The number of denials is up 24 percent relative to last quarter.
• The dollar value of denials is up 21 percent relative to last quarter.
• Nearly two-thirds of medical records reviewed by RACs did not contain an improper payment.
• Eighty-four percent of hospitals indicated medical necessity denials were the most costly complex denials.
• More than two-thirds of medical necessity denials reported were for 1-day stays where the care was found to have been provided in the wrong setting, not because the care was not medically necessary.
• Hospitals reported appealing more than 40 percent of all RAC denials, with a 75 percent success rate in the appeals process.
• Nearly two-thirds of all hospitals filing a RAC appeal during the second quarter of 2012 reported appealing short stay medically unnecessary denials.
• Nearly three-fourths of all appealed claims are still sitting in the appeals process.
• Fifty-five percent of all hospitals reported spending more than $10,000 managing the RAC process during the second quarter of 2012, 33 percent spent more than $25,000 and 9 percent spent over $100,000.
• Hospital staff are spending an increasing amount of time responding to RAC activity.
• Fifty-eight percent of respondents indicated they have yet to receive any education related to avoiding payment errors from CMS or its contractors.
• The most frequently cited RAC process problem is ‘not receiving a demand letter’.