• Getting Ready for the RACs: CMS Begins Nationwide Rollout of Medicare Audit Program
  • December 3, 2008
  • Law Firm: Pepper Hamilton LLP - Philadelphia Office
  • This month the Centers for Medicare & Medicaid Services (CMS) implemented a nationwide expansion of the three-year pilot program designed to identify fraud and abuse in the Medicare system. The aim of the agency’s Recovery Audit Contractor (RAC) program is to identify and correct improper Medicare payment through the use of independent auditors.

    Under §306 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the RAC demonstration program was launched in March 2005 in the three states with the highest Medicare utilization rates per capita (California, Florida and New York). The scope of the demonstration program was later enlarged to include Arizona, South Carolina and Massachusetts. On July 11, 2008, CMS released an evaluation of the three-year demonstration program, which showed that RACs allegedly corrected more than $1.03 billion in improper Medicare payments, over 95 percent of which were overpayments (see http://www.cms.hhs.gov/RAC/Downloads/RAC%20Evaluation%20Report.pdf). After accounting for underpayments, overpayments overturned on appeal and administrative costs, CMS reported $693.6 million was returned to the Medicare Trust Funds.

    Following the conclusion of the demonstration program, CMS has begun to implement auditing on a rolling basis.1

    Reflecting the concerns of Congress that providers needed to be treated more fairly, CMS has made a number of changes to the RAC program since the demonstration was initiated. These changes include establishing a “sliding scale” limit for the number of medical records a RAC can request from a provider; not performing a review in excess of 10 medical records without CMS approval and having a third party entity review a random sample of overpayment claims from each RAC. Additionally, each RAC will be required to post an online portal allowing providers to track medical records and review the status of their respective audits.

    CMS recently awarded contracts to four companies to execute the auditing: Diversified Collection Services, Inc. (Region A), CGI Technologies and Solutions, Inc. (Region B), Connolly Consulting Associates, Inc. (Region C) and HealthDataInsights, Inc. (Region D). These companies will be paid contingency fee basis, causing critics of the program to express concern that the contractors will have a financial incentive to aggressively identify and pursue errors.

    RAC Review Process

    The four RACs will rely on data analysis and OIG, CMS and GAO reports to identify Medicare claims that contain improper payments for which payment was made, or should have been made, under Medicare Parts A and B. Examples of improper payments include incorrect payment amounts, payments for-covered services, incorrectly coded services and/or payments for duplicate services. RACs are not permitted to identify improper payments arising from other Medicare programs (such as the Medicare managed care or drug card programs) or claims paid earlier than October 1, 2007. Additionally, the RAC program uses a three-year look-back period; accordingly, RACs may not identify claims more than three years past the date the claim was originally paid.

    The RAC program uses two types of review:

    • Automated review occurs when a clear improper payment is determined by the RAC’s proprietary software program. The RAC may contact the provider without evaluating the medical records associated with the claim.
    • Complex review occurs when the RAC has identified a high probability that an improper payment has occurred. The RAC may request from the provider copies of relevant medical records to assist in its claim review. All RACs must employ a physician medical director to oversee the medical review process.

    Complex reviews must be completed within 60 days of receipt of the requested medical record documentation. The RAC may classify the overpayment as either 1) a “full denial” if no service was provided, or if the service provided was not reasonable and necessary and no other service would have been reasonable and necessary; or 2) a “partial denial” if the service provided was not reasonable and necessary and another level of service was reasonable and necessary.

    Upon identification of an overpayment, the RAC will notify the appropriate Medicare Fiscal Intermediary and send a findings letter to the provider listing the relevant coverage, coding or payment policy or article that was violated. Overpayments are recouped by reducing the provider’s present or future Medical payments and applying the amount withheld to reduce the amount owed. Providers may opt to repay overpayments through an installment plan and may attempt to negotiate a settlement directly with CMS.

    RAC Appeals Process

    Within 15 days of receiving notice of recoupment of an overpayment, a provider may dispute the RAC’s determination via an informal rebuttal statement. The RAC may consider the rebuttal statement in its decision to maintain the recoupment. Should the provider desire to further contest the RAC determination, any RAC appeals will follow the customary Medicare appeals process, which may take 12-24 months:

    • First Level of Appeal. The provider must request redetermination in writing to an independent Medicare contactor within 120 days of the initial determination. The RAC responsible for the initial determination must respond within 60 days. 
    • Second Level of Appeal. Within 180 days of the redetermination, the provider must request a reconsideration, to be provided to a Qualified Independent Contractor (QIC). The reconsideration must be processed by the QIC within 60 days.
    • Third Level of Appeal. Within 60 days of the QIC’s reconsideration, the provider may request a hearing before an Administrative Law Judge (ALJ). The minimum amount in controversy for this level of appeals is $120.
    • Fourth Level of Appeal. Within 60 days of the ALJ’s decision, a provider may escalate the case to the Medical Appeals Council (MAC). The MAC may modify, reverse or remand the ALJ’s decision.
    • Fifth Level of Appeal. Within 60 days of the MAC’s decision, the provider may file suit in federal district court. The minimum amount in controversy for this stage is currently $1,180.

    How to Prepare for the RACs

    Providers should begin to prepare for the implementation of the RAC program in their states by taking the following steps:

    • Develop Best Practices for Responding to RAC Requests. An effective RAC plan should be developed to ensure ongoing compliance with a provider’s administrative practices. Each provider should staff a team of employees to address all RAC-related issues. Members should include representatives of compliance, financial and medical staff. The team leader should keep both the CFO and the Board of Directors aware of its RAC initiatives.
    • Educate the Staff.  A provider’s staff should be aware of any updated coverage and care documentation requirements and coding, billing and payment rules. Employees should be given an overview of the RAC audit process, including what to expect from the process and how to respond. The RAC team also should be familiar with the appeals process.
    • Conduct an Internal Assessment.  A proactive self-review can help a provider identify any procedural deficiencies before an RAC audit is initiated. An internal assessment also may help a provider improve its operations and policies.
    • Engage Outside Counsel to Assist with Appeals Process. A provider should conduct a cost-benefit analysis to determine whether an aggressive appeal of an RAC determination is worthwhile. Given the short deadlines for each level of appeal, consider enlisting an attorney experienced in such matters and tracking key dates to handle appeals.


    1 Chart available at http://www.cms.hhs.gov/RAC/Downloads/RAC%20Expansion%20Schedule%20Web.pdf.