Medical Necessity Has Arrived

Brace yourself and get ready for a rough ride.    For over a year now, whenever the subject of medical necessity has been raised, the standard response from CMS has been “medical necessity is not being reviewed at the present time”, or close variations thereof.    “At the present time” gave goosebumps to those who follow the RAC auditing program closely.   The other shoe would fall, we just didn’t know when.

Medical Necessity is a BIG issue.   About 40% of all funds recovered in the initial RAC demonstration project came from medical necessity recoupments.

The Stage is Now Set

Well, it’s finally here.   CMS has now approved Medical Necessity reviews.   But here’s the scary part.

One of the concerns of medical providers has been the question of whether ADR (Additional Documentation Request) claims that have been audited for DRG issues could also be audited for Medical Necessity once such audits would be approved.   The fear was that with all the documentation already in the possession of the RACs, it would be so quick and easy for them to turn right around and audit those same claims again, this time for Medical Necessity.  Double jeopardy!

In  their response to the question, CMS said in their FAQ section on April 13th  of this year “at this time, if the RAC has already requested documentation and issued a review results letter to the provider for a DRG validation, the RAC will not be allowed to re-review the claim again for medical necessity.”  (Note again those troubling words – “at this time”)   They went on to explain that RACs could conduct both DRG validation and Medical Necessity reviews simultaneously on claims where the ADR was made after Medical Necessity was approved.

Now Let’s Connect the Dots

The recent ruling by a federal judge in the case of Palomar Medical Center (see our “Doctors Beware!” article) essentially renders Medicare guidelines meaningless.   It sets the stage for the RACs to take more and more liberties with the law.   With this precedent, how long do you think it will be before a RAC decides to ignore the CMS guidelines, take the path of least resistance, and reopen a previously audited claim for medical necessity?    For those who think this won’t happen – did I ever tell you about this beautiful alligator-free marshland I have for sale down in the Florida Everglades?

Physicians Won’t Escape

Basically, here’s the deal.   Hospitals are going to be hit hard with Medical Necessity takebacks.    However, it’s doctors who send patients to hospitals.   If a RAC audit finds there was no medical necessity for hospitalization, will the physician who made the decision in the first place get to keep his fees?   Of course not!

It’s time – past time actually – for many physicians to get deadly serious about this RAC thing.   Do something now.   Be proactive.   The rules of the game really haven’t changed – it’s just that now consequences will be felt by those who aren’t listening.

Winston Creath is an independent healthcare consultant working in the compliance and revenue cycle management arenas on behalf of physicians and clinics.  He serves as President of National Business Solutions of GA, LLC.  He can be reached at for questions or comments.

Doctors Beware!

On July 28, 2010, a U.S. District Court in the Southern District of California rendered a decision of monumental significance to all providers who may consider challenging a RAC Contractor for violating the law.     The original lawsuit, filed by Palomar Medical Center on March 24, 2009, was the first lawsuit filed against a RAC.  The charge was that HHS (Health and Human Services) had allowed PRG-Schultz, the RAC Contractor for California, to unlawfully reopen a claim without showing “good cause” as required by Medicare regulations.  The appeal was made, and the judge rendered his verdict – bottom line?   The decision to reopen a claim with or without good cause is not subject to appeal.

Not Subject to Appeal??    Surely you jest, Your Honor!

The regulation is not complicated on this issue.   (Pss … Judge Benitez – Your Honor – didn’t you check out the CMS website?   No?   You never heard of it?  Umm … Sir, that would be the “official government website” that spells out the regulations all providers have to live by.)

Medicare’s regulation states that “A [RAC] contractor’s decision to reopen based on the existence of good cause, or refusal to reopen after determining good cause does not exist, is not subject to appeal”.   The operative words are “based on the existence of good cause”.

So … What is “Good Cause”?

Again, let’s go straight to the CMS website for the answer.  Here’s what it says.   “Good cause exists when there is new and material evidence … used to make the initial determination.”

They go on to define new and material evidence.   “New and material evidence includes any evidence that (1) was not readily available or known to the person or entity requesting/initiating the reopening at the time of the initial determination or redetermination; and (2) may result in a conclusion different from that reached in the initial determination or redetermination.”

In reopening the claim in question, PRG-Schultz did so without showing good cause, HHS arrogantly said they didn’t have to, and now a federal judge has upheld this flagrant disregard for the law.   Wonderful.   This does not bode well for the future, ladies and gentlemen.

What Can You Do?

Do as more and more of your fellow physicians are doing.   Get serious about compliance in your practice.   Drop me an e-mail at and I will help you.

Winston Creath is an independent healthcare consultant working in the compliance and revenue cycle management arenas on behalf of physicians and clinics.  He serves as President of National Business Solutions of GA, LLC.  He can be reached at for questions or comments.

Medicare Fraud Not Acted on?

As mentioned before, it is not in the interest of the RAC’s to report a physician for fraud.


The RAC’s get ZERO if they report for fraud…BUT if they retract funds paid to a Doc, they then get a percentage of that take.

Make sense?

How about this:

As report in USA Today on 9 Aug 2010, the contractors that are hired to investigate and report fraud are slow to do anything.

Hmm, why might this be?

The contractors that are hired to investigate Medicare fraud are called “Program Safeguard Contractors”.

These PSC’s are hired to research fraud, then report the fraud (if it exists) to law enforcement.

Apparently it takes an average of 178 day for the PSC’s to refer fraud cases.

The amount of time tends to allow the trail to go cold.

As reported:

Out of $834 million in questionable Medicare payments identified by private contractors in 2007, the federal government was only able to recover some $55 million, or about 7% of the funds.

The hoopla is centered around this – the federal government has to find a way to pay for what they are trying to provide.

This means fun and exciting things like:

  • 1099’s for any purchase of a product or server greater than $600…for everyone!
  • more fraud investigations
  • more RAC audits
  • more of anything that can increase the revenue brought into the federal government

Watch out…the Fed’s aren’t just coming after individuals, but all you private practice Docs out there are the prey also.

Do what you can to protect yourself.