3 ways to proactively identify underpayments before CMS audits

A Recovery Audit Contractor (RAC) review from CMS isn’t cause for celebration for most healthcare organizations, but it can be beneficial if those facilities take proactive steps to identify underpayments.

Finding underpayments is rare in CMS audits, wrote Lisa A. Eramo, MA, in the February issue of Journal of AHIMA. Recovery auditors are supposed to be looking for those in addition to searching for overpayments. The latter, however, are found far more frequently, according to a 2016 RACTrac Survey, which said 40 percent of RAC determinations discovered an overpayment, while only 3 percent found an underpayment.

The latest CMS quarterly newsletter on audit recovery illustrated this gap. Between April 1 and June 30, 2016, the agency identified three times the amount of overpayments as underpayments ($75.22 million vs. $24.29 million).

Organizations may believe CMS auditors make overpayments a higher priority as a way to bring in additional revenue to the agency. However, those auditors are required and incentivized to find both, with contingency fees being paid even when an auditor identifies an underpayment.

Eramo recommended three ways facilities can proactively search for underpayments.

1. Don’t let underpayments “slip out the door”

Some of the blame falls on how providers behave long before a recovery auditor is sent out. For instance, not all organizations understand the definition of an underpayment. Lines or payment groups which were incorrectly billed at a lower level would qualify, but if lines or group are left out of a claim altogether, those aren’t considered underpayments.

Providers may be shooting themselves in the foot, so to speak, by “down-coding” to avoid audits completely.

The better tactic would be to conduct pre-bill audits, according to Edward M. Roche, PhD, JD, founder of Barraclough NY, a firm which assists providers in “fighting against statistical extrapolations.”

“[Providers] will eventually wake up to the fact that they’re fighting statistical software that has nothing to do with medical judgment,” Roche said.

2. Build data mining tools

If providers have the right IT staff, they may be able to build software to identify the claims with the highest probability of being underpaid.

HHS data can be used as a starting point. In 2015 claims data, codes for “Other respiratory system diagnoses without MCC” and “Laparoscopic cholecystectomy without CDE without CC/MCC” had the highest underpayment rates.

Even if an organization doesn’t have the resources to have a data scientist develop a special algorithm for identifying underpayments, off-the-shelf software could be used.

3. Use audit results to train staff

The final point in Earmo’s article is simple: don’t let internal, external or CMS audit results go to waste. They can be used to better train and educate physicians and other professionals about vulnerabilities for underpayment and mitigate those risks.