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The RAC Program Hits North Carolina Nursing Homes
Shorts on Long Term Care August/September 2009


By now you’ve certainly heard and read about the Center for Medicare and Medicaid Services’ Recovery Audit Contractor (RAC) program. It’s been all over the national health care trade news and we’ve covered it extensively in Shorts. But, like many of your colleagues, you probably hold one or more of the following beliefs regarding the RAC program:

  • It won’t really affect me. After all, during the two-year RAC demonstration program, most of the affected providers were hospitals or doctors, with only a smattering of nursing facilities.
  • The program isn’t yet fully operational in North Carolina, so I have some time and I’ll figure this all out later.
  • What are the odds some RAC contractor looking for big paybacks to the Medicare program will target my facility here in North Carolina?

If this has been your approach to RAC, think again. While it’s true that RAC is not yet fully functional in North Carolina, it’s scheduled to crank up later this year. And the impact is already being felt now in North Carolina and in the nursing facility industry.

Here’s what’s going on. A number of North Carolina hospitals have begun preparing for the RAC program. Based on a number of factors, including the advice of some RAC consultants (every new federal program creates a cottage industry of consultants ready to help health care providers prepare for and weather the storm), some North Carolina hospitals have begun internally reviewing the claims paid to them by Medicare over the past few years, including payments for patients who were admitted to the hospital and subsequently referred to local SNFs for post-acute care under Medicare benefits.

We are aware of several SNFs in the western part of the state that have received letters from a local hospital essentially saying, “Oops, we just discovered in preparing for RAC audits that patients we referred to you did not qualify for SNF Medicare benefits.” The letters go on to list a number of SNF residents who purportedly were referred to the SNF for Medicare-covered services and to explain that the hospital has returned the Medicare reimbursement they received for the care of these patients, and then suggest the SNF do likewise.

These letters create several problems. First, they create a public record that an SNF has been put on notice by its referral source that it may have billed inappropriate claims to Medicare. Second, the claims are often old — the letters we’ve seen related to some residents admitted to the SNF as far back as January 2007, some of whom have since been discharged or passed away, leaving the facility with no means of recouping the lost funds if they elect to refund payment to Medicare. Third, while the hospital is usually reimbursing Medicare for three or so days of care, the SNF has much more at stake in many of these cases. Fourth, not every three-day hospital stay that is later determined by a hospital or even a RAC contactor to have been inappropriate results in a disqualification of a subsequent Medicare SNF stay. Finally, the letters we’ve seen provide no information about why the resident was supposedly not eligible for Medicare SNF benefits, leaving the facility unable to assess whether in fact the care was Medicare-eligible.

So if you receive one of these letters, what should you do? Here are some tips to consider.

First, examine your own records and those you received from the referring hospital for the residents at issue. Unless you see an obvious reason why a resident did not qualify for Medicare, such as the lack of a three-day hospital stay where you count the day of admission but not the day of discharge to determine if there was a three-day hospital stay, then you need more information. So delve deeper into the resident’s clinical records to determine whether you feel the stay qualified for Medicare based on the information available to you.

Second, prepare and send a response. Unless you are persuaded from the information you have that, in fact, the care did not qualify for Medicare, then send a response to the hospital stating your position that the claims at issue appear to be eligible for Medicare coverage or that the hospital has not provided you sufficient information in its letter to further assess the situation. You do not want to leave a letter like this out in the public domain without a response, since it could be damaging later if the claims at issue become part of an official RAC audit.

Some points you may want to include in your response letter, if they apply to you, include the following:

  • Based on the information that was given to us from the discharge planners of your hospital on all these patients, we admitted them in good faith believing they had met the three-day hospital stay and would qualify for Medicare Part A benefits in our skilled nursing facility. The services they received at our facility during the time of their Medicare stay met the qualifications for Part A benefits. Therefore, we feel that the Medicare stay in our facility was justified based on the information that was given to us by the hospital regarding the patient identified in your letter.
  • Furthermore, under the Medicare Benefit Policy Manual, Publication 100-2, Chapter 8, section 20.1 (CMS Internet-Only Manual), the disqualification of an original three-day hospital stay does not, in every case, result in the disqualification of a subsequent “dependent” skilled nursing facility stay. As we understand the law and the resulting Medicare manual provisions, an SNF stay subsequent to a three-day hospital stay is disqualified from Medicare reimbursement only where the hospital admission and stay are not “medically necessary” and represent a “substantial departure from normal medical practice.” Otherwise, a subsequent SNF day is not disqualified even though the original hospital stay is disqualified.
  • In the specific context of the RAC program, which you reference in your letter, the CMS Scope of Work governing that program clearly states that RACs are not to identify overpayments where the provider that received them is “without fault” with respect to the overpayment. One of the specific examples provided of a “without fault” situation is “benefit category denials such as the three-day hospital stay prior to SNF admission.” This same concept is embodied in federal law at 42 U.S.C. § 1395gg(b)(1) and 42 C.F.R. §§ 405.350 and 405.355. The Medicare Financial Management Manual (CMS Pub. 100-06) at Chapter 3, §90 also contains the “without fault” concept and defines it, in part, to include situations where the provider receiving payment had a reasonable basis for assuming that the payment was correct.
  • In your correspondence, you stated only that you had determined unilaterally that the patient(s) you identified did not meet the Medicare requirements for transfer to an SNF. This is not consistent with the information provided to us by your hospital discharge planners for the residents in question. Furthermore, you provide no additional information regarding the basis upon which you reached this conclusion. In light of that, and the information in our records indicating the residents at issue were, in fact, Medicare-eligible for SNF services, we are not in a position to further evaluate the decision you made regarding the patients’ hospital stay and have no information to suggest that our care for these residents does not qualify for Medicare reimbursement. Pending further clarification from the Centers for Medicare and Medicaid Services, we see no basis for repaying reimbursement we received for our care of these residents to the Medicare Trust Fund, as your letter suggests we should do.

Each provider that receives this type of correspondence from a referring hospital should evaluate the specific information received from the hospital and the residents at issue, using the guidelines provided above, to determine how best to respond. We are working now on behalf of several clients and with experts at the American Health Care Association in Washington, D.C., to bring the issue of letters like to this to the attention of CMS, and to seek some definitive guidance on how SNFs should respond to such correspondence.

In the interim, however, just be advised, as noted above, that not every three-day hospital stay that has been “disqualified” from Medicare coverage necessarily results in a disqualification of a subsequent
SNF stay. We will provide additional information about this in future issues of Shorts.

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