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Recovery Audit Contractors

The Bean Counters Are Targeting Improper Payments


Recovery Audit Contractors
David Gould

Fraud and abuse in the federal payment system is coming under more and more scrutiny. Recovery Audit Contractors (RACs) detect and correct past improper payments so that CMS and Carriers, Financial Intermediaries (FI) and Medicare Administrator Contractors (MAC) can prevent future improper payments.

This allows:

  • Providers to avoid submitting claims that do not comply with Medicare rules.
  • CMS to lower its error rate.
  • Protection of taxpayers and future Medicare beneficiaries.

If you bill fee-for-service programs, your claims will be subject to review by the RACs. The Tax Relief and Healthcare Act of 2006 requires a permanent and nationwide RAC program.

How It Works

RACs review claims on a post-payment basis. There are two types of review. There is an Automated Review that requires no submission of medical records and there is a Complex Review that does.

RACs can look back three years from the date the claim was paid though they cannot review claims paid prior to October 1, 2007. RACs are required to employ a staff consisting of nurses, therapists, certified coders, and a physician.


Over-payments are identified and a “demand letter” is sent from the RAC. The Carrier/FI/MAC recoup their money by offsetting future payments until the money is paid unless the provider has submitted payment or filed a valid appeal. Of course you want to avoid receiving a demand letter so follow some advice here.


Providers have an opportunity to discuss the improper payment determination with the RAC. Issues reviewed by the RAC are approved by CMS prior to widespread review posted to a RAC website before widespread review.

If you agree with the RAC’s determination, you can pay all at once, allow recoupment from future payments or request to apply for an extended payment plan.


Up to 200 claims per NPI can be requested. Each RAC employs certified coders and other professionals so accuracy is key. A New Issue Review Board provides greater oversight as well. Each RAC is scored annually on performance.

CMS Recommendations

One problem the RACs have identified is that some hospitals and skilled nursing facilities do not deliver documentation timely when CMS, a RAC, or other CMS contractor requests such documentation. Avoid problems by following these recommendations:

  • CMS reminds providers that medical documentation must be submitted within 45 days of the date of the demand letter.
  • Remember that failure to submit medical records (unless an extension has been granted) results in denial of the claim.
  • CMS recommends providers implement a plan of action for responding to RAC ADR letters.
  • Providers should consider assigning a point of contact and, if necessary, an alternate, who will be responsible for tracking and responding to RAC ADR letters.
  • Providers should tell the RAC the precise address and contact person to use when sending ADR letters.
  • Providers should consult the individual RAC websites for more details. These websites are listed on the CMS website.
  • Providers should monitor these RAC websites periodically for updates on approved new issues.

By brushing up on coding you can go far in avoiding trouble down the line.

Medicare is among the top three Federal programs with improper payments, totaling an estimated $10.8 billion in 2007. The RAC 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.

While hospitals will continue to be main targets of RAC, 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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