Medicare Recovery Audit Contractors (RAC) – What is it and How will it work

The Centers for Medicare and Medicaid Services (CMS) devised the Medicare Recovery Audit Contractor (RAC) program to identify coding errors and issues of proper documentation to support medical necessity and other requirements.

CMS will choose four independent contractors to run this new program that was initially intended to commence in September 2008. However, due to issues regarding the process for choosing the contractors, this program will be delayed.

Contractors will earn 2% of the money collected from the audits. Audits will only encompass claims paid after October 1, 2007.

The expansion of this program was based on a 3 year demonstration project based on the success of the initial project that recouped Medicare overpayments, mostly from hospitals. Based on this pilot program, CMS believes there are about $1 billion in overpayments in six states including Arizona, California, Florida, Massachusetts, New York and California.

There will be two types of audits conducted. 

• Claims Reviews- Utilizing data mining they will identify obvious coding errors
• Complex Reviews – Upon complete review of medical records, a determination will be made to ascertain whether proper documentation was provided to support medical necessity or other requirements.

Providers will have 45 days to provide the records or request an extension. RAC will have 60 days to review the medical records. Records can be submitted by postal mail, fax or a CD or DVD.

Hospitals can appeal RAC’s findings providing additional information and records. The appeal will go to the local fiscal intermediary that administers Medicare for the state.

CMS is reducing the number of fiscal intermediaries from 51 to 15 chosen by competitive bidding.

If appeals are lost providers will have to pay back overpayments through deductions in future Medicare reimbursements.