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August 2012


A Polsinelli Shughart Update:

Recovery Auditor Prepayment Review Demonstration to begin August 27, 2012


In yet another audit program designed to reject Medicare Claims, the Centers for Medicare and Medicaid Services (CMS) is now forcing hospitals to respond to pre-payment audits.  On August 27, 2012, the CMS Recovery Auditor Prepayment Review Demonstration will begin. The demonstration, a three-year program, represents the latest expansion in Medicare Recovery Auditors’ ability to conduct prepayment claims reviews. 

Although Medicare Administrative Contractors (MACs) currently perform some prepayment reviews, this demonstration will expand CMS’ Recovery Audit Contractors (RACs) role to include prepayment reviews as well.  The demonstration, however, will not replace the MAC prepayment review process.

Subjects of the Pre-Payment Review

The demonstration will be reviewing claims related to short-stay inpatient hospital admissions only.  Although CMS has identified eight MS-DRG codes for the RACs to review during the course of this demonstration, only one code will be reviewed when the demonstration begins on August 27, 2012.  For the first months of the demonstration, the RACs will only conduct prepayment review related to:

  • MS-DRG 312 Syncope & Collapse

CMS will add the other MS-DRG codes gradually during the demonstration.  The addition of new codes will be communicated via the CMS website.  The other MS-DRG codes that will eventually be part of the demonstration are:

  • MS-DRG 069 Transient Ischemia
  • MS-DRG 377 G.I. Hemorrhage w/ MCC
  • MS-DRG 378 G.I. Hemorrhage w/ CC
  • MS-DRG 379 G.I. Hemorrhage w/o CC/MCC
  • MS-DRG 637 Diabetes w/ MCC
  • MS-DRG 638 Diabetes w/ CC
  • MS-DRG 639 Diabetes w/o CC/MCC

CMS will identify the claims that the RACs will review.  Although CMS representatives have stated that they will be reviewing a small percentage of claims, there is no clear understanding about the volume of claims to be reviewed in this demonstration.  CMS has stated that the prepayment reviews under this demonstration should still fall within the limits for additional records requests (ADR) previously set, but CMS has also stated that they are unsure how this will be implemented.  Uncertainty about the ADR limits has understandably created significant concern among hospitals in the demonstration area.

Because the RAC prepayment review will address specific codes only, CMS has directed the MACs to coordinate with the RACs to prevent duplicate review of the same claims.

The Pre-Payment Audit Review Process

The prepayment reviews that will be part of this demonstration are initiated by an additional records request from the provider’s Fiscal Intermediary (FI) or MAC.  Providers will be given 30 days to respond to the request.  Failure to respond within 30 days will result in automatic denial and the only recourse is an appeal.

After the provider responds to the ADR, the RAC has 45 days to issue its decision.  Claims are to be reviewed in totality; meaning that once a claim has been subject to pre-payment review, it may not be subject to a post-payment review by a Medicare contractor.  (This exclusion will not apply to the Office of Inspector General or Department of Justice.)  The RAC’s decision will be communicated in the form of a Review Results Letter.  If the RAC does not issue its decision within 45 days, the claim will be paid to the provider.

In the event the RAC denies payment, the provider may appeal using the same appeals process for post-payment RAC reviews.  However, the appeals process in the demonstration does not allow for a discussion period before the first level appeal. 

As with the RAC’s post-payment reviews, the contractors are paid on a contingency.  Thus, we suspect the RACs will also aggressively deny claims during the Pre-Payment demonstration program.

What Providers Should Do Now

Expect that any MS-DRG 312 short stay inpatient admission submitted for payment on or after August 27, 2012 will be subject to this review. Hospitals in the demonstration areas should be prepared to respond to these audits and have procedures in place to respond to this expanded prepayment review demonstration.

Polsinelli Shughart, has extensive experience in Recovery Auditor Contractor audits and appeals and is ready to assist providers in their preparations, response, strategy and appeals related to this Recovery Auditor Prepayment Review Demonstration.

For More Information

If you have further questions about this demonstration or other audit programs, please contact:


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