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The Medicare Recovery Audit Process and Skilled Nursing Facilities

August 30, 2012

George W. Thomas, CPA


This article will discuss how the Medicare Recovery Audit Process could affect skilled nursing facilities and key items that all skilled nursing facilities should consider.

If your organization has significant Medicare volumes or has a large percentage of your Medicare patient days in the upper RUGS’ categories you could be a target for a Medicare Recovery Audit.

Medicare Recovery Audits have been created by legislation and were implemented by CMS (Centers for Medicare and Medicaid Services) beginning in government fiscal year 2010. Since their creation, over 2 billion dollars of recoveries have been obtained from various healthcare providers, predominately hospitals and durable medical equipment providers across the country. To obtain these recoveries, CMS has contracted with four vendors (one for each region of the country). In Region A (which includes Connecticut and Massachusetts), Diversified Collection Services of California  was selected to perform the recovery audits.  Below are some of the background and highlights of the program and how you can prepare for an audit:

The objectives of the Medicare Recovery Audit program:

  1. To detect and correct past improper payments that can also help implement actions to prevent future improper payments
  2. Assist providers in avoiding claim submissions that do not comply with Medicare rules
  3. To lower provider error rates
  4. To protect taxpayers and future Medicare beneficiaries

To meet these objectives, each recovery audit contractor has hired certified coders, nurses, therapists and physicians to perform the audits. Under the current arrangements, the recovery audit contractor can perform three types of reviews:

  1. Automated Review - These are performed on an algorithm basis, and no review of the medical record is performed. This can occur when a clear policy exists indicating that a specific service is never reimbursable or when repeated medical record requests have been unanswered.
  2. Complex Review - Involves a detailed medical record review for coding, RUGS and medical necessity issues.
  3. Semi-Automated Review - An automated review is performed which results in a letter to the provider requesting additional documentation to dispute the recovery auditor findings.

The specific areas which the auditor can review must be identified by each individual recovery audit contractor and must be approved in advance by CMS. To date only a limited numbers of areas have been approved for skilled nursing facility audits in Region A, but all have been approved since April 2012, and it is anticipated that the list will expand. We are anticipating future audit areas will include issues related to consolidated billing, up-coding through RUGS and MDS errors, medical necessity of physical, speech and occupational therapy services and other part B services.

If your organization is selected for an audit, a minimum of 35 patient records will be selected and a maximum of 400 records can be requested every 45 days. This volume can cause a strain on any size organization as all related documentation is required to be submitted to the recovery auditor within 45 days from the request.

Actions You Should Take:

To prepare for a possible audit, we suggest performing the following steps:

  1. Develop a team.

    This team should understand the potential risks the organization has related to an audit and develop a plan to deal with a potential audit including identifying a RAC coordinator to be the key contact to the recovery contractor and a process to handle and track medical record requests. 

    We believe this team should include:

    • Administrator
    • Medical Director
    • Director of Nurses
    • Director of Therapy Services
    • Medical Records
    • Coder
    • MDS Nurse
    • CFO or Controller
    • Compliance Officer
    • Information Technology
    • Internal Audit, if applicable
  2. Analyze audit risk
  3. Understand the audit process
    • Audit Identified
    • Provider Informed
    • Records Request Received
    • Entrance Conference with Recovery Auditor
    • Audit Performed
    • Exit Conference to discuss findings
    • Report Findings
    • Collections and Appeals Process
  4. Coordinate a plan on how to prepare for and handle an audit
  5. Use the collections and appeals process

    Over 43% of all claims which are appealed have been decided in the providers’ favor, but only 5% of all claims are appealed.  The appeals process includes five levels:
    1. Redetermination
    2. Reconsideration
    3. Administrative Law Judge Hearing
    4. Appeals Council Review
    5. Judicial Review

Going through all five steps may take years and require significant legal resources. This should be considered when determining which claims to appeal.

CMS has prepared a brochure to explain the appeals process: The Medicare Appeals Process

While you can sit back and hope that your organization will never undergo a recovery audit, in   time that does not seem realistic. With the significant recoveries the government has obtained, and the continuing importance placed on compliance, most large skilled nursing organizations will be faced with a recovery audit in the future. You should prepare using the steps above and not be blindsided when that recovery audit request appears.

George W. Thomas, CPA, is a Principal at BlumShapiro, specializing in hospitals and long-term care.  BlumShapiro is New England's largest regional accounting, tax and business consulting firm based in Connecticut with offices in West Hartford, Shelton, Westport and Waterbury.  The firm serves as business advisors for today's leading middle market companies, non-profit organizations and government entities, working to strategically tailor and consistently deliver tested solutions for unlocking an organization's full potential.  For more information about BlumShapiro, visit 


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