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Recovery audit contractors: Don’t get RAC’d

Posted May 08 2009 10:33pm

A constant challenge in today’s highly regulated health care environment is managing medical records requests from a variety of sources.

Soon you may begin receiving requests from the Recovery Audit Contractors (RACs). As part of Section 302 of the Tax Relief and Health Care Act of 2006, the RAC Program is permanent and will be expanded to all 50 states by no later than 2010. The RAC program is administered by CMS to identify claims processing errors - both underpayments and overpayments. A 3-year demonstration project of this program was recently concluded and found the program to be highly effective in identifying payment errors, recovering $1 to CMS for every $.22 spent on the program.

The 3-year RAC demonstration program in California, Florida, New York, Massachusetts, South Carolina, and Arizona collected over $900 million in overpayments and returned nearly $38 million in underpayments to providers (CMS press release 10/6/08. For more information visit:

Part of the RAC program’s success is attributed to the contingency fees paid out to the RACs for the overpayments that they identify. Each RAC’s contingency fee is established with CMS and varies from 9%-12.45% of collected payments. Provider types targeted included inpatient rehabilitation facilities, hospitals,physicians, skilled nursing facilities, durable medical equipment suppliers, laboratories, ambulance, home health agencies, and hospices.

RACs may use Automated Reviews and Complex Medical Reviews of CMS claims data to request improper payments. Automated review must have clear policy that serves as the basis for the overpayment (”clear policy” means a statute, regulation, National Coverage Determination, coverage provision in an interpretive manual, or Local Coverage Determination that specifies the circumstances under which a service will ALWAYS be considered an overpayment); be based on a medically unbelievable service; or occur when no timely response is received in response to a medical record request letter. Complex Medical Record Review includes coding reviews and medical necessity reviews. Requests for records can go as far back as October 1, 2007.

In the demonstration project, the majority of requests were made of inpatient hospital stays. Analysis revealed the following breakdown: Inpatient hospital 85%; rehabilitation 6%; outpatient 4%; physician/DME/ambulatory/other 4%; and SNF 2%. Recover of payments were due to the following reasons: Medical necessity 40%, incorrect coding 35%, incomplete documentation 8%, and other unspecified reasons 17%.

Consider the following questions when beginning to prepare for RAC records requests…

  1. Does your organization have a RAC Readiness Committee? If so, how frequently do you meet and what functional areas are represented on the committee?
  2. Does your organization have a RAC Coordinator responsible for overseeing RAC readiness as well as responses to requests received from the RAC? If so, what are this person’s qualifications and previous position, if applicable? What responsibilities will this person have and who will they be reporting to?
  3. Has your organization either developed or purchased a tool to track RAC requests and the status of claims from the point of the RAC request through resolution of the request, including any appeals?
  4. Has your organization been participating with your state hospital association or other industry organizations to assist with preparations for the RACs, including identifying contact people at the RACs and sharing of common issues faced by other healthcare organizations?
  5. How is your organization planning on handling appeals of RAC determinations? Are you planning on partnering with a law firm and/or any outside consultants with expertise in medical necessity, coding and documentation requirements?

There can be tremendous added costs of responding to the RAC requests. It is important to know that providers can be reimbursed for medical records photocopying costs reimbursed as follows…

  • PPS provider records $.12 per page plus first class postage
  • Non-PPS institutions and practitioner records,$.15 per page
  • Dialysis /capitated facilities receive $.12 per page plus first class postage
  • Specifically, hospitals and other providers (such as critical access hospitals) under a Medicare cost reimbursement system, receive no photocopying reimbursement.


CMS RAC Status Reports, Statement of Work, FAQs, Expansion Schedule, Fact Sheets, Press Releases, etc.

CMS Appeals Process

American Hospital Association RAC Resources

Transmittal 1457 - Redeterminations of Overpayments

Limitation on Recoupment (935) for Provider, Physicians and Suppliers Overpayments

Transmittal 1671 - New & Material Evidence (Good Cause)

OIG Audit of Medicare ALJ Hearings 7/08

OIG Audit of QIC Medicare Appeals Processing 7/08


Bridget Morehouse PT, MBA is a consultant with Steffes and Associates, a rehabilitation consulting firm based in Wisconsin.
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