Financial penalty for successful RAC appeals proposed

Intended to clear backlog at appeals office
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Should the government impose financial penalities on recovery audit contractors (RACs) if a clawback they performed against a hospital is overturned on appeal? That's a proposal being put forth by the most senior member of the House Ways and Means Health Subcommittee, AHA News Now reports.

Rep. Jim McDermott (D-Wash.) made the suggestion to Health and Human Services (HHS) Secretary Kathleen Sebelius to reduce the mounting backlog of RAC-related appeals at the Office of Medicare Hearings and Appeals, which also handles the appeals of individual Medicare beneficiaries, according the article.

"While a hospital may be able to absorb losses associated with a denial of payment, beneficiaries are on fixed incomes and cannot afford to do so," wrote McDermott. Since hospitals win a large number of clawbacks on appeal, a financial penalty to the RACs would discourage them from engaging in potentially overzealous auditing activity that would likely tie up the appeals system, McDermott said in the letter.

Providers win about 64 percent of RAC-related payment clawbacks on appeal, according to the American Hospital Association, making such a tack by providers a viable strategy for dealing with RACs. Indeed, providers appeal about half of all RAC-related clawbacks.

In addition to the financial penalty proposal, McDermott also asked that HHS reconsider the two-midnight rule. That rule would allow hospitals to admit any patient who has been on the premises under observation for two consecutive midnights, thereby avoiding any audit of "short-stay" claims. Short-stay claims comprise the large majority of audit-related clawbacks.

The two-year appeals backlog grew due to the back-and-forth between RACs and providers, with few cases resolved within 60 days of providers filing an appeal and many decisions from administrative law judges taking 120 days or more. The total RAC-related backlog is said to now be two years long.

To learn more:
- read the AHA News Now article
- check out Rep. McDermott's letter (.pdf)

Related Articles:
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Hospitals push to clear RAC appeals backlog
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Hospitals face increased RAC activity, denials
Two-midnight rule could hurt hospital finances