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CMS releases details of recovery auditor prepayment review demonstration

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On November 15, CMS announced that it will launch a number of demonstration programs that are set to begin in January 2012, one of which is its recovery auditor prepayment review initiative.  On December 21, CMS held a special open door forum to further discuss the program.

Each year as part of its financial reports, CMS produces an estimate of its improper payments in the Medicare program. In fiscal year 2011, the rate of error in the Medicare program was 8.6%, which translates to roughly $29 billion in error, according to George Mills, director of provider compliance group at the office for financial management at CMS, who spoke on the call.

The goal of the prepayment recovery auditor demonstration, as stated on the open door forum by Amy Cinquegrani, Division of Recovery Audit Operations at CMS, is to prevent improper payments before they are made and to thereby lower this error rate.

Areas of focus

CMS identified short hospital stays in its CERT (comprehensive error rate testing) report as a problematic area. The prepayment review demonstration will address these short stays.

Specifically, the three CMS focus areas of short hospital stays are:

  1. Incorrectly coded claims
  2. Patients who came through the emergency department but should have subsequently gone to observation rather than being admitted
  3. Patients who received elective surgery during short-day stays when they should have been outpatient procedures

CMS extracted a number of short stay DRGs from analytics within the CERT report that present billing problems for providers that will come under focus in the demonstration project. These DRGs represent the first group of DRGs that will be held for prepayment reviews. As the project moves forward, there will be additional DRGs added to the list, according to Mills. The initial list is as follows:

  • January 1: MS-DRG 312, syncope and collapse
  • March 1: MS-DRG 069, transient ischemia and MS-DRG 377, gastrointestinal (GI) hemorrhage with MCC
  • May 1: MS-DRG 378, GI hemorrhage with CC and MS-DRG 379, hemorrhage without a CC or MCC
  • July 1: MS-DRG 637, diabetes with MCC, MS-DRG 638, diabetes with CC, and MS-DRG 639, diabetes without a CC or MCC

In addition, James Cope, MD, a medical director with the CERT testing program ran through some of the problems that the report identified with these specific DRGs. For a more detailed summary, an audio recording and transcript of the call will be posted at, and will be accessible for download beginning on or around December 29 and will be available for 30 days.

How the process will work

The demonstration will begin on January 1, 2012 and will run through the end of 2014. It will be applicable to 11 states, seven of which are HEAT (Healthcare fraud prevention and enforcement action team) states: California, Florida, Illinois, Louisiana, Michigan, New York, and Texas; and four states with high volumes of short inpatient stays: Missouri, North Carolina, Ohio, and Pennsylvania. All facilities who bill to the FI/MAC within those states are subject to the program, according to Cinquegrani.

This demonstration will not replace the ongoing MAC prepayment review program and will serve as a separate entity that aims to help lower the error rate. Providers will not be subject to review for the same topic or issue by two different contractors, according to CMS.

Additional documentation requests will come from the FI/MAC and will contain specific details regarding where providers should submit documentation. Providers will have 30 days to do so; the claim will automatically be denied if documentation isn’t received within 45 days. Provided that the recovery auditor receives the documentation, it will then review the claim and communicate a payment determination back to the FI/MAC, according to CMS. Providers will receive the payment determination on the remittance advice within 45 days. Recovery auditors will also send detailed review results letters.

Operational details

The following is a list of operational details that CMS clarified during the call:

  • Limits on prepayment reviews won’t exceed current post-payment ADR (additional documentation request) limits.
  • Providers may appeal the denial and have the same appeal rights as with other denials. Appeal time frames start on the date of the denial as indicated in the remittance advice.
  • Medical records provided on appeal will be remanded to the recovery auditor for review. (This only applies to claims that were denied as a result of nonreceipt of medical records).
  • Claims will be off-limits from future post-payment reviews from MACs and recovery auditors

Question and answer period

CMS officials took many questions on the details of its upcoming prepayment recovery auditor demonstration. To view a transcript or to listen to an audio recording of the call—both of which will be made available on or around December 29 for 30 days—visit

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