Revenue Cycle

CMS publishes RAC improper payment vulnerabilities

HCPRO Website, September 24, 2010

In an effort to propagate useful information on RAC high-dollar improper payment vulnerabilities, CMS released two additional special edition MLN Matters articles.

The articles, published September 23, offer education to providers regarding RAC demonstration-identified vulnerabilities in an effort to prevent the same problems from reoccurring. The three publications cover the following areas of risk:

Special edition article SE1027 specifically provides inpatient hospital education regarding 17 RAC demonstration-identified medical necessity vulnerabilities. According to CMS, the following inpatient hospital vulnerabilities may have occurred because the submitted medical documentation did not contain sufficient, accurate information to: support the diagnosis; justify the treatment/procedures; document the course of care; identify treatment/diagnostic test results; and promote continuity of care among healthcare providers:

  • Cardiac defibrillator implant (DRG 514/515)
  • Heart failure and shock (DRG 127)
  • Other cardiac pacemaker implantation (DRG 116)
  • Chest pain (DRG 143)
  • Misc. digestive disorders (DRG 182)
  • Other vascular procedures (DRG 478)
  • COPD (DRG 88)
  • Medical back problems (DRG 243)
  • Nutritional and misc. metabolic disorders (DRG 296)
  • Transient ischemia (DRG 524)
  • Other circulatory system diagnoses (DRG 144)
  • Kidney and UTI (DRG 320)
  • Cardiac arrhythmia (with CC DRG-138)
  • Degenerative nervous system disorders (DRG 012)
  • Atherosclerosis (with CC DRG-132)
  • Other digestive system diagnosis (DRG 188)
  • Percutaneous cardiac procedure (DRG 517)

In addition to these issues, three general categories of denials are also high risk:

  • Medical necessity denials for multiple codes
  • ASC list violations for codes paid in the inpatient rate that should have been paid as outpatient (no complications identified to justify inpatient stay)
  • Other outpatient charges that should have been billed since services were not medical necessary in the inpatient setting

It is important to note that the improper payment amounts for specific RAC denial targets listed in CMS’ article reflect pre-appeal monetary values, according to Michael Taylor, MD, vice president of clinical operations at Executive Health Resources in Newton Square, PA.

Our experience in the appeals process suggests that many of the denials associated with target areas high on the [SE1027] list, such as cardiac defibrillator implantation, heart failure and chest pain, were reversed in the appeals process – especially at the ALJ level,” he say. “Providers should find these target lists helpful as a starting point for self-audits, but should understand that denials of target list DRGs are not always correct, and in some cases can be appealed successfully.” 

Based on these findings, CMS recommends that providers must remember that “the medical record must contain sufficient documentation to demonstrate that the beneficiary’s signs and/or symptoms were severe enough to warrant the need for inpatient medical care.” In addition, CMS recommends that “providers document any pre-existing medical problems or extenuating circumstances that make admission of the beneficiary medically necessary.”

In essence, compliant documentation should help to avoid unnecessary RAC denials or recoupments, says Elizabeth Lamkin, MHA, president of Dalzell Consulting Group, Inc., in Hilton Head, SC.

“None of this should come as a surprise to anyone paying attention to RACs,” she says. “Documentation is the key to everything, but it takes intense focus and communication, especially with medical staff.”

Taylor agreed, saying: “These articles rightly emphasize the need for thorough and appropriate documentation. Hospitals that fail to ensure appropriate documentation of claims risk denial and may find themselves unable to defend their claims.”

The second MLN Matters article, SE1028, provides inpatient hospital education regarding four RAC demonstration-identified coding vulnerabilities. According to CMS, the following claims were denied because the demonstration RACs determined that the medical record documentation submitted did not support the codes billed:

  • Respiratory system diagnosis with vent support – (CMS DRG 475) – Principal diagnosis on the claim did not match the principal diagnosis in the medical record.
  • Closed biopsy of lung (CMS DRG 076, 077,120) - A transbronchial lung biopsy was billed but the medical record showed a transbronchial biopsy was performed.
  • OR procedure for infections, parasitic diseases (CMS DRG 415) – The codes on the claim did not match information in the medical record.
  • Coagulopathy (CMS DRG 397/143) - Principal diagnosis on the claim did not match the principal diagnosis in the medical record.

Based on these findings, CMS reminds inpatient hospital providers that “all inpatient admissions must have the principal diagnosis specifically identified by the attending physician, and that the principal diagnosis is that condition established after study to be chiefly responsible for occasioning the admission of the patient for care.” CMS recommends that the principal diagnosis be documented in the medical record and on the discharge summary.

In addition to principal diagnosis, all inpatient admissions must also have all “other” or “secondary” diagnoses — additional conditions that affect patient care identified by the attended physician. The general rules for reporting secondary diagnoses are:

  • Must be documented by the attending physician and:
  • Clinically evaluated or
  • Diagnostically tested or
  • Therapeutically treated or
  • Causes an increase in the length of stay (LOS) or nursing care (Federal Register, July 31, 1985, volume 50, No., 147, pp. 31038-40)

In addition, CMS reminds providers that “any information that is acquired after physician documentation is complete must be added to the existing documentation in accordance with accepted standards for amending medical record documentation.”

Based on the information presented in this article however, some of these RAC recommendations are in part inconsistent with official coding guidelines, says Deborah Hale, CCS, CCDS, president and CEO of Administrative Consulting Service, LLC in Shawnee, OK.

“Coders, for example, are permitted to code from documentation provided by any physician responsible for the care of the patient so long as the attending physician documentation does not conflict,” she says. “If CMS and the RAC auditors require all conditions be documented by the attending physician in the discharge summary, hospitals can expect recoupments that far exceed those from the demonstration project.” 

Editor’s note: See Chapter 6, Section 6.5.2 of Medicare’s Program Integrity Manual at for more detailed information.

CMS Official ICD-9-CM Coding Guidelines can be found at


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