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What You Need to Know About the Medicare Recovery Audit Contractor Program


Updated October 27, 2013

Medicare processes over 1.2 billion claims each year, submitted by more than 1 million health care providers such as hospitals, physicians, skilled nursing facilities, labs, ambulance companies, and durable medical equipment (DME) suppliers. A January 2008 report by the Office of Management and Budget (OMB) indicated that Medicare is among the top three Federal programs with improper payments, totaling an estimated $10.8 billion in 2007. In 2005, the Centers for Medicare and Medicaid Services (CMS) introduced the "RAC" demonstration project for the purpose of identifying underpayments and over-payments and recouping over-payments under Medicare Part A or B. RAC stands for Recovery Audit Contractor. Contractors selected by the government are charged with auditing providers and paid on a contingent basis for detecting and correcting over-payments and under-payments. That includes collecting over-payments from providers and refunding under-payments to providers.

The demonstration project found $1.03 billion in Medicare improper payments; 96% of which were provider over-payments. Millions of dollars were returned to the Medicare Trust Funds. Most over-payments (85 percent) were collected from hospitals, 6 percent from inpatient rehabilitation facilities (IRFs), and 4 percent from outpatient hospital providers. Most over-payments occur when providers submit claims that do not comply with Medicare's coding or medical necessity policies.

Let's put it simply. The audit program was so successful that Medicare not only decided to implement it on a permanent basis but also extend it to Medicaid. Why?

  • Audits find a large volume of improper payments.
  • Providers do not often appeal.
  • Over-payments recouped are greater than program costs.

RAC Basics

There are four Medicare RACs, each responsible for a different region.

  • The RACs review Part A and Part B claims on a post-payment basis following Medicare Policies.
  • There are two types of reviews: automated and complex.
  • An automatic review is a computerized analysis of claims and coding practices. Typically billing errors are found.
  • In a complex medical review, auditors study the actual medical record or other documentation. Such a review could lead to a denial of payment for admission to an inpatient rehabilitation facility (IRF) as not medically necessary for example.

RAC Process for a Complex Review

  • The RAC sends a request for medical records to the provider.
  • The provider has 45 days to submit requested charts.
  • The audit contractor must notify the provider within 60 days of its disposition.
  • If the provider owes money because of over-payment, they are sent a "Demand Letter."
  • You can agree with the determination or submit a rebuttal with the rationale.

Impact on Aging Service Providers

Medicare requires a 3-day inpatient hospital stay before qualifying someone for a Medicare-funded skilled nursing stay. So let's say the patient was hospitalized for the three days then discharged to a skilled nursing facility. Upon audit, the contractors may find that the patient did not meet the criterium for an inpatient stay. In essence that invalidates payment for the stay and the subsequent payment for care in the skilled nursing facility.

In the future this will make it more difficult to place patients in nursing homes or to obtain needed therapy services.

So What Can You Do?

  1. Perform a self-audit targeting known vulnerabilities targeted by RAC auditors. Stay abreast of RAC information by subscribing to CMS updates.
  2. Put in place key processes that can help address and avoid audits. These could include admissions screening criteria; coding reviews and training; and comprehensive case management.
  3. Likewise put in place the technology to aid these processes.
  4. Develop a denials management process to monitor and track denials.
  5. Form a taskforce that meets regularly and can be mobilized upon a RAC request. You don't have much time to respond to a medical records request. So you must organize yourself to respond when the time comes, making sure you have the resources available to make the RAC response a top priority.
  6. Develop an Appeals Process
    • Put in a process for mobilizing your taskforce upon notice.
    • Create standardized appeal letters with standard rationale for justifying various claims.
    • Involve your compliance and legal team or your appropriate outside counsel.
  7. Educate and Simulate
    • Conduct coding reviews yourself or through a third party.
    • Share the findings with your taskforce.
    • Develop a corrective action plan.
    • Develop ongoing staff training, particularly around coding issues.

While hospitals will continue to be main targets, increasingly look for physicians to be as well. And as Medicaid RAC develops, this opens the possibility for many other providers to be ensnared. So educate and prepare yourself. And budget accordingly - preparing for or defending yourself will not be cheap!

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