CMS RAC Scenarios For Full and Partial Denials Plus Tips to Tell the Difference

As the nationwide Medicare RAC roll out continues, you need to be keeping an eye out for "full denial" occurrences - cases where your practice will be required to return the full amount of the claim paid, even when the services performed were legitimate.

It's obvious that your RAC auditor will be more aggressive with any audits compared to your Medicare Part B Carrier when it comes down to identifying overpayments due to the fact they are paid on a contingency fee. This means there will be more full-denial situations in which you could potentially lose all payments for a claim.

CMS has hinted at the fact that the deciding factor that you need to be aware of is the place of service in which the services were rendered. When a RAC auditor determines you rendered a service in a setting more acute than what was medically necessary, your claim becomes questionable and the RAC has the right to completely deny the entire claim, leaving you without the opportunity to rebill the claim.

The most common overpayment situation RACs will identify wil result in a partial denial. This happens when you submit a claim with some overpayments and some services properly billed. Rather than loose everything, RAC auditors only ask for the amount of the overpayments to be returned.

For example, if a physician bills a 99214 (E&M code for office visit, established patient) and the RAC determines that a lower level E&M code is more appropriate, the claim will be partially denied. This type of denial is called a partial denial. In this scenario, the overpayment amount is the difference between the payment amount the provider originally received and what should have been paid. The RAC will be paid a contingency fee based on the denied amount.
If you get hit with extensive overpayment demands when your local recovery audit contractor (RAC) shows up in your state, CMS has some advice: appeal immediately.
During the RAC three year demonstration, the majority of appeals were won using two strategies:

New Information/Documentation: Providing new documentation or information will persuade the RAC's thought process by giving them something tangible to focus on. If you think you have additional pertinent information, "present it to the RACs and bring it to the attention of the medical director". It may become apparent that they didn't even receive the original evidence you sent.

Local Coverage Determinations (LCDs): Some RACs failed with LCDs because they change so quickly. You could potentially win an appeal by checking to see if the RAC used an incorrect LCD or if a new LCD exists that the RAC failed to consider.
The key it to save yourself headache by making sure you send all of your documentation you have in support of your claim during the discussion period, before you formally appeal. Entering the discussion period doesn't do anything to your 120 day deadline to file a RAC appeal. That deadline exists no matter how long you spend with your RAC in the discussion period.

Full denials leave you with nothing
If you are paid for services never covered, you obviously should not have received any payment. What happens when you bill the correct services but in the wrong place of service? Unfortunately if the place of service category leads to a change in benefit category, you get hit with a full denial and neither the RAC or CMS can do anything to lessen the burden of the financial loss to your practice.

For example, if an in patient rehabilitation facility claim is billed and the Medicare carrier or RAC reviews the claim and comes to the conclusion that although some of the therapy services were warranted and necessary, such services could have been performed in a less acute setting (i.e. home health agency, outpatient setting, etc.), the claim will be denied in full. In this situation, the rehab facility cannot re-bill the claim and the overpayment is for the entire amount of the original claim billed. The RAC would then receive a contingency payment based on the denied amount.

It's imperative that you monitor these types of denials if your organization is audited by a RAC contractor so that you can determine which ones have the most likely hood of winning an appeal.
Dallas L Alford IV, CPA is a licensed Certified Public Accountant in the state of North Carolina and owner of Atlantic Financial Consulting, a consulting firm that provides comprehensive medical billing services, practice management consulting, coding audits, Medicare compliance, and other general medical practice consulting services.