RECOVERY AUDIT CONTRACTORS (RACs)

What are RACs?

The RAC program was developed to reduce “improper payments” in the Medicare system.  The term “improper payments” relates to overpayments as well as underpayments.  Under the RAC program, Medicare has hired contingency-fee based independent contractors to review claims on a post-payment basis.  RACs use the same policies as Carriers, Fiscal Intermediaries (FIs), and Medicare Administrative Contractors (MACs). 

Why are they here?

The Medicare Modernization Act, Section 306, provided for a three year demonstration project that ended in March, 2008.  The demonstration project was conducted in California, Florida, New York, Massachusetts, South Carolina and Arizona.  It collected over $900 million in overpayments while returning $38 million to providers in underpayments. The overall effect was a substantial net gain to Medicare Trust Funds. Overall, 40% of the overpayments resulted from medically unnecessary services; 35% from improper coding; and 8% for insufficient documentation.  At the conclusion of the demonstration project, CMS reported paying only $.20 for every dollar recovered.  Given the return on investment and projected Medicare shortfalls, this means RACs will be with us at least for the foreseeable future.             

The Tax Relief and Health Care Act of 2006, section 302, requires a permanent and nationwide RAC program in place no later than January 1, 2010.  Its stated goal is to prevent future improper payments.   Medicare providers beware; the odds have increased that your Medicare bills will be reviewed by an audit contractor with a vested interest in getting money back for the government.  CMS will soon be holding Town Hall type meetings in each state with healthcare providers in preparation for the RAC program and to further explain the process.      

How do they work?   

RACs cannot select claims at random and cannot audit claims older than three years.    They must use proprietary data analysis techniques to perform “targeted reviews” and CMS must approve the issue being reviewed prior to the review.  Approved issues will be posted on a RAC website before widespread review.   

There are two types of review:  (i) automated reviews that identify clear errors and do not require medical records; and (ii) more complex reviews involving medical necessity issues that require medical records.  RACs can extrapolate error findings.       
During the demonstration project, RACs made errors of their own.  Accordingly, there is an appeal process in place.  Appeals must be filed before the 120th day after receipt of the demand letter.  If the RAC loses at any level of appeal, the RAC must return its contingency fee. 

What should you do to prepare?
 
(i) Identify areas of potential interest to RACs.  Know where improper payments have been found by RACs during the demonstration project and subsequently.  The results from the demonstration project are posted and, going forward, there will be a website for RAC findings.  Also, stay on top of improper payment issues found by the OIG and identified in the Comprehensive Error Rate Testing (CERT) reports.
(ii) Conduct an internal assessment to identify if your billing practices are in compliance with Medicare rules.
(iii) Keep track of denied claims and look for patterns.  This may give you insight into a potential problem. 
(iv) Your practice may have an existing compliance program and a compliance officer.  If so, the potential RAC issues could be incorporated into the practice’s existing compliance structure.  If not, consider appointing a RAC officer for your practice.  This person could stay on top of the potential issues and be ready to respond to a RAC request for medical records.   

  For more information, contact Brenda Laigaie, Esq. - Blaigaie@wadegold.com

News Archive:
Exclusive Contacts In Peril