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Editor’s note: This is part one of a two-part series. This month’s discussion focuses on how to keep good records to avoid a RAC audit. If you are notified of a RAC audit, next month’s article will focus on how to get through it.

The discussion about the Recovery Audit Contractor Program (RAC) is very active in the post-acute care world. The program was designed to control the loss of millions of dollars in improper payments to providers with a focus on coding errors and documentation quality. Most operational professionals have seen the figures from the demonstration project report and the maps showing the rollout strategy by state, by date, and by the contractors. Curbing improper payments under the Medicare program is appropriate. The second part of the RAC process involves the return of funds for overpaid claims.

Stated purpose

The Centers for Medicare & Medicaid Services (CMS) has stated that the purpose of the program is to help providers avoid submitting claims that do not comply with Medicare rules and to lower claims’ error rates. We need to make certain that we are aware of the “rules” for admitting the proper beneficiary, providing appropriate services (appropriate defined by the Medicare program for the skilled nursing facility [SNF]), and documenting our clinical, service delivery, and billing records properly.


There are four RACs. For more information about the program and the contractor for your state, go to The responsibilities of the RAC are threefold:

  1. To conduct data analysis from the Medicare Common Working File

  2. To review medical records to further analyze claims

  3. To identify and correct improper payments from providers

The RAC contractors have very interactive and sophisticated software to analyze Universal Billing and MDS clinical assessment documents submitted for payment. Both documents are influenced by considerable policy and procedure guidance from CMS and are part of the facility’s responsibility to request federal funds for services provided to Medicare beneficiaries. The RAC will conduct two types of data review: The automated review (just claims data-no medical record requested) and the complex review (request for medical records required). It is estimated that 80% of the audit process will be from automated review activity. Ninety-five percent of the recovered funds to date are the result of the billing file and the Minimum Data Set (MDS) file not matching or errors in the submission process.

When a RAC performs an automated review (offsite with no provider notification), no review of medical records is needed before the demand for repayment is issued. Complex reviews will be done on those claims where the facility billing data indicates that the treatment plan may not be compliant with the rules of the Medicare Benefit Policy Manual for coverage and medical records will need to be reviewed to decide if the care and treatment was within the stated benefit guidelines. The RACs are required to use a targeted approach in selecting which claims to review; this will not be a random selection or a selection on the basis of the amount of payment. CMS will require that they justify their audit activity and all complex reviews will need “good cause” before the review is requested. These are important protections for the facility, however the quality of your submitted data and request for payment are being reviewed in this process. The facility must be aware of its data and be careful that the data is accurate and the documents match.

Let’s take a look at the reasons for collection of funds from providers by the RAC in the demonstration project:

  • Services were found to be delivered and documented but not medically necessary.

  • Services were incorrectly coded on the MDS or the Universal Bill.

  • Services had insufficient documentation in the record to support the treatment or the services billed.

  • Services identified in the assessment and billing documents contained inconsistencies in the record or the care process that suggested overpayment.

First steps

So what can the SNF do to decrease its risk of audit and have the necessary records to appeal the decision if needed? First, you must be aware of the federal policy documents that guide your MDS and billing process as well as the internal decisions you make about Medicare benefits for the residents in your facility. Remember, a high percentage of the reviews will be statistical and compliance based.

The first step is to make certain that the MDS documents that are transmitted by the facility are accurate and the dates and coding on the forms are compliant with all the structure and definitions in the most updated Resident Assessment Instrument manual. The data created for the resident by the MDS documents during the Medicare Part A stay is a very important part of the audit analysis. This includes the primary diagnosis and the accurate activities of daily living (ADL) score value for the resident’s functional performance during the assessment reference period. Where is the copy of that manual in your facility and is it being used as the basis for documentation time lines, definitions, and decisions related to coding of the MDS document? Where is the admission diagnosis documented and communicated? Make sure it relates to the treatment in the skilled facility and the reason for care in the hospital. Make sure it is on the Universal Bill. Frequently, I see that the interdepartmental communication is not adequate to make sure all documents read the same.

The second step is to make sure that the facility staff are aware that Part A Medicare benefits are described with examples of coverage in the Medicare Benefit Policy manual (Chapter 8, section 30 to 30.7.3). The facility should have this document and review the coverage definitions as well as the requirements for inpatient services in an SNF and therapy services and definitions of daily skilled services. One very important section of the Medicare Benefit Policy Manual is chapter 8, section 30 that states: “Care in a skilled nursing facility is covered if all the following four factors are met:

The patient requires skilled nursing services or skilled rehabilitation services, i.e., services that must be performed by or under the supervision of professional or technical personnel, are ordered by a physician, and the services are rendered for a condition for which the patient received inpatient hospital services, or for a condition that arose while receiving care in a skilled nursing facility for a condition for which the individual received inpatient hospital services.

This is followed by three additional conditions for proper admission under Part A benefits. After the four factors are listed, then the Medicare Benefit Policy Manual states, “If any one of these four factors is not met, a stay in a skilled nursing facility, even though it might include the delivery of some skilled services, is not covered.” This is a very specific coverage guideline. Can you show that each Medicare Part A admission met all four of the criteria for admission under the program? Where is the Medicare Benefit Policy Manual in your facility? Who uses it? This is the document the RAC auditors use to make their decisions on coverage as well as the narrative they use to explain their decisions with the payment denial communications to the facility. Each facility needs to have copies of the Medicare Benefit Policy Manual, Chapter 8 for policy decisions, admissions discussions, and overall coverage related to corporate compliance. I suggest that the admission documentation in the medical record or the billing file include the compliance statement that the resident has met the four criteria for admission to the skilled facility stated in the Medicare Benefit Policy Manual.

Changes in coverage

Once a resident is admitted to Medicare Part A, then when and how do you make the decisions to change, continue, or discontinue Medicare coverage? This should be done by your facility’s Interdisciplinary Team during your regular Medicare coverage meetings. Can you show that you have Medicare meetings with minutes and attendance as well as the documentation of the decisions of the group? Your facility as part of the Medicare Provider agreement makes ongoing decisions about coverage of services during the Part A Medicare stay. These coverage decisions should reflect the definitions and services described in the Medicare Benefit Policy Manual.

How do you make your determinations for coverage in your Medicare meetings and how do the minutes of the meeting document your decisions? Make a careful review of the meeting, minutes, and documentation. During a RAC audit you may have to show the decisions from the Medicare meeting related to a case with a complex review. I suggest if you use a specific section of the Medicare Benefit Policy Manual to substantiate coverage that the section of the manual is documented in the meeting minutes for a clear connection to the benefit definitions. The minutes of the meeting related to a specific case can be used to substantiate the coverage on a case appeal after a complex review decision that denies coverage.

The RAC will be looking at your Resource Utilization Groups (RUG) distribution statistics as part of the analysis of your MDS and billing records. Review your RUG distribution reports to make sure they include the ADL score component. What do the reports say about your services, length of stay, patterns of service delivery, and outcomes? These are all very important factors to consider. Monitor your length of stay and outcome documentation as well as rehospitalizations. These are all important individual and facility issues. Do the ADL scores for the resident show the need for and the outcome of rehabilitative services over time? At the time of admission does the ADL score on the admission MDS indicate the need for rehabilitative services in the skilled facility? That is what the auditors will be looking for through their analytical review of your database.

Identify your billing process for all Part A Medicare claims. Make certain you have the most updated forms and regulations for billing as well as clear monitored communication within the facility of data necessary for billing. The Universal Bill has to match the MDS document in all ways. Look at dates, types, amount of service, and primary diagnosis. Check all bills before they are transmitted. Billing and MDS editing software is very helpful here. Do not have the person creating the document audit his or her own work. Be careful that you know the current forms, rules, and formats for data in both MDS and billing. Coding must be correct and use the current coding formats only. ICD-9 codes must be current. Take a paid claim and check the data for accuracy and consistency between the Universal Bill and the MDS. That is what the audit software is doing with your claims.

Your facility and your care delivery team can begin to prepare for RAC activity today by looking at these initial steps for self-evaluation. Be honest with your team and establish good processes as soon as possible to define coverage and billing processes. Once the RAC decides that a claim has been overpaid they will send their decision in a demand for payment letter after which the facility can appeal. The policies for this and the copies of the letters and appeal forms can be found at the CMS/RAC Web site (

Preparation is key

Preparation is the key to success and looking at your case documentation, data collection, and transmission as well as your billing process will show you many of your risk areas that will need operational attention. I suggest that you openly discuss the requirements using the documents from the Medicare system for benefit determination and billing. The Medicare Benefit Policy Manual, Chapter 8, section 30, and billing guidelines and forms need to be available to all members of the team and available during the Medicare Utilization meetings for discussion and documentation purposes. MDS documents must be accurate and compliant with all current manual instructions with proper dates and backup documentation in the medical record. You cannot go back and change records unless they can be corrected, but you can be sure your process is currently compliant and accurate.

Leah Klusch is the Founder and Executive Director of the Alliance Training Center, Alliance Ohio. As an educator and consultant, she has extensive experience in presenting motivating programs for a variety of healthcare professionals.

For further information, call the Alliance Training Center, Inc., at (800) 890-5526 or (330) 821-7616. To send your comments to the editor, e-mail

Long-Term Living 2009 October;58(10):22-30

Topics: Articles , Facility management , Regulatory Compliance