RAC Best Practices: Utilization Management

By Karen Bowden, RHIA, Senior VP of Craneware InSight Consulting

RAC Wrong Setting Denials

The one area most often targeted by Medicare’s Recovery Audit Contractors (RACs) also happens to be an area that many hospitals overlook when preparing for the RAC program.

The RACs are paid on contingency by CMS, and consequently it makes financial sense for them to focus primarily on higher-dollar inpatient services. In fact, “wrong setting” denials – where a RAC complex review has determined that the service was rendered in a medically unnecessary setting – were one of the most targeted and lucrative areas for the RACs, and represented over a third of the total $992 million collected during the demo phase.¹

From Craneware InSight Consulting’s experience with the RAC appeal process and the feedback we’ve received from Administrative Law Judges (ALJs), we have developed several Case Management best practices for our client hospitals. Our efforts at these facilities have been focused on defining admission leveling criteria and ED Observation level criteria and defending hospitals in RAC denials.

Our experience has found that many hospitals utilize nationally published screening criteria not only as screening criteria but as the only criteria to level inpatient admissions. This approach does not always qualify sick patients with multi-system issues as inpatient. Additionally, some screening criteria define procedures that are “inpatient”, but within the inpatient list are procedures that have an asterisk (*) which denotes the procedure may be done as outpatient. Unfortunately, no further definition to describe when a procedure can be inpatient or outpatient is provided.

Medicare’s Definition of Inpatient

Medicare does not require that hospitals use published screening criteria. In the Medical Benefits Policy Manual, Medicare defines an inpatient as:

“An inpatient is a person who has been admitted to a hospital for bed occupancy for purposes of receiving inpatient hospital services. Generally, a patient is considered an inpatient if formally admitted as inpatient with the expectation that he or she will remain at least overnight and occupy a bed even though it later develops that the patient can be discharged or transferred to another hospital and not actually use a hospital bed
overnight."

The 24-hour Benchmark and Other Critical Factors

The physician or other practitioner responsible for a patient's care at the hospital is also responsible for deciding whether the patient should be admitted as an inpatient. Physicians should use a 24-hour period as a benchmark, i.e., they should order admission for patients who are expected to need hospital care for 24 hours or more, and treat other patients on an outpatient basis. However, the decision to admit a patient is a complex medical judgment which can be made only after the physician has considered a number of factors, including the patient's medical history and current medical needs, the types of facilities available to inpatients and to outpatients, the hospital's by-laws and admissions policies, and the relative appropriateness of treatment in each setting. Factors to be considered when making the decision to admit include such things as:

The severity of the signs and symptoms exhibited by the patient.
The medical predictability of something adverse happening to the patient.
The need for diagnostic studies that appropriately are outpatient services (i.e., their performance does not ordinarily require the patient to remain at the hospital for 24 hours or more) to assist in assessing whether the patient should be admitted.
The availability of diagnostic procedures at the time when, and at the location where, the patient presents.

Noncovered Admissions

Admissions of particular patients are not covered or noncovered solely on the basis of the length of time the patient actually spends in the hospital. In certain specific situations coverage of services on an inpatient or outpatient basis is determined by the following rules:

Minor Surgery or Other Treatment - When patients with known diagnoses enter a hospital for a specific minor surgical procedure or other treatment that is expected to keep them in the hospital for only a few hours (less than 24), they are considered outpatients for coverage purposes regardless of: the hour they came to the hospital, whether they used a bed, and whether they remained in the hospital past midnight.”

Building RAC-proof Admission Screening Criteria

Craneware InSight Consulting recommends that your hospital’s Utilization Management Committee expands its mission to actively address admission leveling criteria which will meet Medicare regulation and assures consistent application of the criteria to all patients by hospital case managers. The specific recommendations we address below are intended to supplement published inpatient screening criteria and allow case managers to assign inpatient level of care by implementing three methods approved by the Utilization Management Committee:

Adoption of all procedures on published inpatient only lists:
- Medicare.
- Any other payor with a published inpatient only list.
- Inpatient lists published in proprietary screening criteria.
Develop hospital-specific leveling criteria approved by the Utilization Review Committee to address “grey area” procedures that are sometimes booked and billed as inpatient and other times as outpatient. The process builds criteria sets to define complex patients and/or complex procedures to delineate inpatient/outpatient status for grey area procedures. Professional journals can be researched for medical evidence that defines combinations of diagnoses that increase risk of complications or death, require increased monitoring and/or require additional intervention, each of which can justify inpatient level of care. Additionally, clinical literature can also help define complex procedures. Clinical specialists at your facility can review all documentation and create criteria to define a complex patient/procedure that justify inpatient level of care for grey area procedures. The criteria are then approved by the Utilization Management Committee for use by case managers.
A well-defined second-level review process by a case manager who reviews specific cases will assure consistent leveling practices and provides your hospital with defensible practices that meet Medicare regulations. The 2nd level reviewer will be allowed, by authority of the Utilization Management Committee, to override screening criteria and approve cases as inpatient if a solid, defensible case can be documented based on clinical documentation. A Physician Advisor will provide oversight of the admission screening criteria override process to assure it is consistent with Medicare regulations. Override data will be reviewed by the Utilization Review Committee at each meeting. Cases that will be referred to the 2nd level reviewer include :
- Cases that do not meet admission screening criteria as inpatient status but the case manager feels the patient should be leveled as inpatient based on clinical documentation.
- All cases leveled as inpatient that the case manager recommends be flipped to Observation status. If the 2nd level reviewer agrees, cases are referred to the Physician Advisor prior to a change to outpatient status. Medicare cases can only be changed to outpatient prior to a patient’s discharge.
- Every observation patient in a bed on a nursing unit.

Our recommendations meet Medicare regulation and have recently been supported by the overwhelming overturn rate of RAC denials at Administrative Law Judge (ALJ) hearings where judicial decisions are based upon Medicare regulations. The ALJ feedback we have received provides positive proof that override admission policies developed by hospitals is a best practice and is compliant with Medicare regulation.

⁽¹⁾ June 2008, CMS, The Medicare Recovery Audit (RAC) Program: An Evaluation of the 3-Year Demonstration, pg. 18, http://www.cms.gov/RAC/Downloads/RACEvaluationReport.pdf