Recovery Audit Contractor (RAC) Adjustments and the Effect on the Cost Report
For most providers, the RAC audit results will have minimal effect on the cost report as long as the Provider Statistical and Reimbursement System (PS&R) is used to final settle the cost report.
For providers paid on a per claim basis, any RAC adjustment will revise the elements used in determining payment based on how the claim was processed and the attendant payment amount. For instance, for a Prospective Payment System (PPS) hospital, the Diagnostic Related Group (DRG), outlier, capital payment, Disproportionate Share Hospital (DSH) add-on, and indirect medical education (IME) add-on will all be revised based on how the claim was originally processed, along with the revision of the payment amount. This is all done through the claims system, with the original claim being reversed and the revised claim processed on a Remittance Advice (RA). Any net payment difference will be made in the electronic funds transfer related to that RA. For PPS providers paid on a per claim basis, the only effect on the cost report will be the differential in the DSH and IME add-ons due to using an estimated ratio for these elements for interim payment purposes and the final ratios.
Cost based providers such as Critical Access Hospitals paid on a per claim basis will be similar to the PPS hospitals noted above. The differential for these providers will the final average cost per patient day compared to the average cost per patient day used for processing the original claim.
The providers with the most significant cost report effects are those providers paid on the Periodic Interim Payment (PIP) methodology. Because the payment for these providers is made outside of the claims processing system, if there is any adjustment for a claim (not just RAC), there is no revision to the payment. Therefore, if there is a RAC claims adjustment, only one-half of the correction (the elements that feed into determining the payment amount) is addressed and revision for the associated payment is not made. The only way the payment is adjusted is through the cost report by comparing the total of the elements that comprise what the provider should have been paid to the sum of the PIP payments and the outliers.
Those PIP providers that were part of the RAC demonstration project that ended March 28, 2008, where the cost report was final settled will not have the cost reports reopened for outstanding overpayments. CMS has issued separate instructions for direct recoupment of any outstanding overpayments.
In summary, for providers paid on a per claim basis, the effect on the cost report will, most likely be negligible. If there are RAC claims adjustments that are not captured in the PS&R used for cost report settlement, no reopening of the cost report would be needed because of the expected minimal impact. On the other hand, if there are outstanding RAC claims adjustments for a PIP provider, the cost report most likely will require reopening (unless the adjustments are minimal) as the only way the effect of the adjustment will be incorporated is through the cost report settlement process. As noted above the demonstration project was handled differently.