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January/February 2 0 1 22012: The Yearof the Medicaid RACby Gary W. Herschman, Jack Wenik, and Laura L. HuntA little over one year ago, New Jersey – along with mostother States – was scrambling to meet the Patient Protectionand Affordable Care Act’s (“PPACA”) December 31, 2010deadline for establishing a Medicaid Recovery Audit Contractor (“Medicaid RAC”) program.1 New Jersey submitted itsState Plan Amendment on December 29, 2010, and in theintervening year, the provider community has waited anxiouslyfor additional details to emerge that shed light on the detailsof this new Medicaid recovery initiative. Until recently suchdetails have been few and far between.On August 1, 2011, New Jersey awarded its Medicaid RACcontract to an existing cost containment contractor, HealthManagement Systems (“HMS”).2 The Centers for Medicareand Medicaid Services (“CMS”) later published the finalMedicaid RAC regulations, effective January 1, 2012 and,with the exception of a handful of requirements, it left thedetails of the Medicaid RAC programs in the hands of theStates.3Toward the end of last year, New Jersey’s Medicaid FraudDivision (“MFD”) made publicly available HMS’s Scope ofWork for the Medicaid RAC program. As providers preparefor the coming year, it appears the pieces of New Jersey’sMedicaid RAC puzzle have finally fallen into place. For thefirst time since “Medicaid RAC” became part of the healthcare community’s vernacular, New Jersey providers have beenoffered meaningful insight into what to expect if faced with aMedicaid RAC audit in 2012.The Audit ProcessEach Medicaid RAC audit project (e.g., review of aparticular Diagnosis Related Group, or DRG) begins withHMS submitting an Improper Payment Scenario DevelopmentRequest, specifically detailing the proposed project, to theDepartment of Medical Assistance and Health Services(“DMAHS”) and MFD. After consulting with stakeholdersand subject matter experts, MFD and DMAHS will do oneof the following: approve the audit project as described, denyit outright or reject it on the basis that additional work byHMS is needed before approval will be granted.If approved, HMS prepares an Audit Plan that, amongother things, describes the claim sampling and methodologyto be utilized in implementing the audit project. To identifyincorrectly paid claims under the Audit Plan, HMS will con-duct data mining by applyingan “incorrect payment algorithm” to New Jersey’s comprehensive claims data repository.Gary W. HerschmanThis data mining process willgenerate “pools” of potentiallyimproper payments, which, inturn, will result in one of twotypes of possible retrospectiveprovider reviews: automated orcomplex. All of this occurs before any notification is providedto the providers.Automated reviews will occur in scenarios where improperpayments can be identified clearlyand unambiguously based uponthe claim data elements and wellJack Wenikestablished policy and rules.For automated reviews, HMSmust obtain approval for thecriteria it utilizes in determiningthat a complex review of documentation is not needed.In contrast, complex reviews will occur when HMS’sanalysis identifies potentiallyimproper payments that cannot be validated automatically.These claims will be flaggedfor further review and HMSwill determine what otherLaura L. Huntinformation may be requiredto validate that an improper payment exists.Regardless of the type of review, a provider’s first notification from HMS of a Medicaid RAC will be an AuditNotification. With the exception of certain timing differences, the Medicaid RAC process, summarized below, islargely the same once HMS issues an Audit Notification (seechart at the end of this article). If an Audit Notification isreceived, providers should consider the following: Providers only have 15 calendar days to respond to anAudit Notification; andcontinued on page 8Focus7

January/February 2 0 1 2continued from page 7 All Medicaid RAC audits are limited to claims over athree (3) year look-back period.Audit Notifications regarding complex reviews may alsoinclude a request from HMS for additional documents and/orpermission to conduct an on-site visit. If so, providers shouldconsider the following regarding record requests: Requested records that are not received by HMS withinthe required 15 day time frame, will subject the affectedclaims to a technical denial and the matter will bereferred to MFD;Medical record requests are limited to 150 per request and500 per three (3) month period (an exception to these requirements may be available if requested by a providerfrom the Manager of Fiscal Integrity at MFD); andSubmissions may be made electronically (e.g., on CD),or through other secure means of electronic transmission(HMS will not pay for copy charges related to its request).Once the 15 calendar days for providers to respond to theAudit Notification has passed, HMS will have 60 calendardays (renewable for reasonable cause) to conduct its audit. IfHMS determines that improper payments have been made,the provider will receive a Preliminary Findings of Fact Letter as4862 7.3125x4.68 FNL.qxp:Layout 1 4/4/11 5:15 PM Page 1Focused.Experienced.Trusted.Sun National Bank’s healthcaregroup offers a full spectrum offinancing, treasury managementand advisory solutions forhospitals, surgical centers andpractices. Find out how we canbuild a healthy partnership and astrong future together.Sun National BankRecognized by Forbes as oneof America’s most trustworthycompanies – 5 years running.8Focuspart of the draft audit report package, which includes, amongother things: A listing of each claim for which an improper paymentpurportedly exists, including the coding guidelines and/or Medicaid policies or rules allegedly violated. If multi ple grounds exist for denying a claim, there will be aseparate section of the letter for each basis of denial; Evidence supporting the alleged overpayment determin ation; if medical necessity is an issue, a reference to rele vant InterQual and/or Milliman criteria is included; and Information and instructions for requesting a reconsid eration and/or appeal of the determination, includingan explanation of the appeal timeframes.Providers subject to a complex review will have 20 calendardays to submit a written response to the Preliminary Findingsof Fact Letter. In contrast, providers involved in an automatedreview will have only 10 calendar days to submit theirwritten response. HMS then has 30 calendar days to reviewthe provider’s response and to issue its Final Audit Report.Providers will have 20 calendar days (for complex reviews)or 10 calendar days (for automated reviews) after receivingthe Final Audit Report to provide their written response toHMS’s final audit findings.Proud Partner ofthe Medical Societyof New Jersey 800-SUN-9066www.sunnb.com/healthcare

January/February 2 0 1 2If a provider fails to respond to the Final Audit Report, HMSwill notify MFD accordingly and those claims will be voidedand recoupment will commence. In contrast, if a providersubmits a written response challenging the Final Audit Report,HMS will notify MFD that the provider disputes the findings.Thereafter, if MFD does not accept the provider’s challengeto the Final Audit Report, it will send a Notice of Claim tothe provider, which identifies the amount owed to New JerseyMedicaid, and will inform the provider of its right to file anappeal with the Office of Administrative Law (“OAL”).All requests for an appeal before the OAL must be filedwithin 20 calendar days after receiving the Notice of Claim. Thisdeadline will be stayed if the provider requests a prehearingconference with MFD, which is an informal meeting withMFD aimed at attempting to resolve, through settlement, theoverpayment stated in the Notice of Claim. HMS does nothave authority to settle an identified overpayment. Any settlement offer or request to compromise by a provider will beforwarded to MFD. Payments for claims contained in FinalAudit Reports that are disputed will not be subject to recoupmentuntil a settlement is reached regarding the overpaymentamount or the OAL renders its decision. Importantly, however,interest will begin accruing from the date of the Final AuditReport, despite the tolling of recoupment.In contrast, providers that agree with the Final AuditReport must correct the relevant claims in the New JerseyMedicaid Management Information System (“NJMMIS”)within 20 business days. Any failure to correct the claimsin NJMMIS will result in HMS voiding the claim andinitiating recoupment. Likewise, if the RAC audit discoversunderpayments, those claims will be adjusted; however,HMS will report underpayments only when it finds that theclaim was incorrectly billed at a lower level of payment thanappropriate. HMS will not report underpayments where aprovider failed to include a service on a claim.Multiple AuditsHMS will not audit claims that have already been, or arecurrently being, audited by another entity if the same issue(e.g., service) is involved. If different issues are involved, HMSmay proceed with auditing the claims. Providers may not besubjected to simultaneous audits. Thus, if another entity isauditing a claim for issues different than those to be coveredby HMS’s intended audit, then HMS must either coordinateits Medicaid RAC audit with the other entity or wait until theother entity has concluded its audit.Fraud Referrals to MFDHMS must refer suspected cases of fraud and/or abuseto the MFD within 5 business days of identification.4 Thiscomports with CMS’s new requirement under PPACA thatcredible allegations of fraud be timely referred to the MedicaidFraud Control Units of State Attorney General Offices.5 Moreimportantly, any referral for credible allegations of fraud willtrigger the automatic suspension (without prior notice) ofMedicaid payments to the provider.6Provider EducationConsistent with CMS’s requirement that Medicaid RACsdevelop an education and outreach program as part of theirrecovery initiative, as part of its correspondence to providers,HMS must offer to educate providers about the errors theyhave allegedly committed.7 This education session can takemany forms (e.g., by teleconference, webinar, or in-person).For each provider that accepts the offer, HMS must create afile, which must include, among other things: The names of the persons receiving (and providing) theeducation;The nature of the billing error (including the claims inquestion);An explanation of the basis of the error;Any questions asked (and answers given) during the education session; andA signed statement by the individuals receiving the education that they understood the explanation provided.The purpose of this signed certification is unclear, butsigned representations of this type give rise to concerns that thestatements might be used adversely against a provider in thefuture if HMS (or MFD) uncovers subsequent overpaymentsbased upon the same “billing errors.”Thus, prior to signing any such certification, providersshould ensure that those attending the sessions fully understand the information provided by HMS (and request additional sessions if they do not). Additionally, after any sucheducational sessions, providers should: (i) review and reviseinternal compliance policies and billing procedures; (ii)conduct an internal audit to confirm that staff are complyingwith the revised policies and procedures; and (iii) thereafterconduct periodic internal audits to ensure continuingcompliance with the revised billing policies and proceduresin an effort to prevent reoccurrences of the allegedly improperclaim practice.Targets for 2012Although the full range of potential audit targets cannever be known with certainty, HMS has already identifiedcertain target areas that can expect immediate Medicaid RACscrutiny, including: Miscoded Diagnosis Related Groups (DRGs) (Com plex): ventilator support of 96 hours or greater; extra corporeal membrane oxygenation; tracheostomy; oper ating room procedure unrelated to principal diagnosis;and excision debridement;continued on page 10Focus9

January/February 2 0 1 2continued from page 9 Long Term Care Audits (Complex): Patient liability reportingand claims overpayment review;Duplicate Claim Review (Automated);Transfer Cases (Automated);Claims Paid After Patient Death(Automated); andNewborn Billing Issues (Automated).Practical RecommendationsIn preparation for this newMedicaid recovery initiative, and aspart of a proactive effort to minimizethe potential financial impact of theMedicaid RAC audits, providers should:1. Be proactive in an effort to avoidbecoming the subject of a Medicaid RAC audit, which can include: (i) reviewing and updatingpolicies and procedures regardingbilling, coding and medical documentation; and (ii) self-auditing compliance in areas being targeted byHMS for 2012 (listed above) toidentify and correct any potentialissues in advance. Moreover, providers should consider the pros andcons of having any such self-auditsconducted at the direction of legalcounsel for purposes of keeping theresults under the umbrella of theattorney-client privilege.2. In the event that you receive a Noticefrom MFD regarding allegations offraud or the impending suspensionof Medicaid payments, which isrequired under PPACA when thereare credible allegations of fraud, consult with experienced legal counsel.3. Immediately develop and implementan internal policy and procedure forMedicaid RACs, which should, ata minimum: (i) designate specificindividuals responsible for triagingan HMS Audit Notification; and(ii) provide clear guidance regardingthe specific steps to be taken by staff,10Focusincluding who should be notified ifan Audit Notification is received.All relevant employees should beinformed to be on the lookout forany correspondence from HMS.This will help ensure that preciousdays within the provider responsewindows are not lost.4. Access HMS’s online “provider portal” to customize your contact information, which will help ensure thatHMS directs its correspondence tothe right person and place at thefacility.5. Develop a long-range strategy forhandling Medicaid RAC audits because, at every turn, the processaffords providers very limited timeto respond. Whether in respondingto an initial record request or disputing a Final Audit Report, time isof the essence. This strategy beginswith initial considerations, such aswhether to produce the records electronically (or not), and expands tolarger considerations about procedural grounds (e.g., are all claimswithin the 3 year look-back period)2045341 v1and substantive arguments(e.g.,medical necessity challenges) thatmay support a challenge of potentially adverse Medicaid RAC auditfindings.About the authorsGary W. Herschman, is Chair of theHealth Care Practice Group at SillsCummis & Gross, P.C., and may bereached at gherschman@sillscummis.com.Jack Wenik is Co-Chair of the HealthCare Government Investigations Practice Group and may be reached atjwenik@sillscummis.com and Laura L.Hunt, MPH, is an Associate in the HealthCare Practice Group and may be reachedat lhunt@sillscummis.com.Footnotes1Section 6411 of the Affordable CareAct (Pub. L. 111-148, enacted March23, 2010).2Health Management Systems, ThirdParty Recovery Liability ContractNumber A70703, Index NumberT1836-08-X

ments, Budgeting & Forecasting, Contract Management, and Revenue Cycle. At the conclusion of the program participants will be well on their way to being prepared to take the HFMA certification examination. In response to recent member surveys, the NJ Chapter is partnering with the other HFMA chapters in the region offer free webinars to all .