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Tuesday, June 1, 2010


The “RAC” program (“Recovery Audit Contractors”) was instituted by the Center for Medicare & Medicaid Services (CMS) in order to identify improper Medicare payments and fight fraud, waste and abuse in the Medicare program. Since it is inevitable that almost all physicians who bill for Medicare services will be involved with a RAC audit in the future, it is imperative that every physician understand and be prepared for these investigative, and potentially invasive, audits.

RAC Audits: What are they?

RAC audits are specialized Medicare audits implemented with the goal of recovering “improper payments” to CMS which were not detected using previously existing error detection and prevention program efforts. These “improper payments” include both overpayments collected from all health care providers, as well as underpayments that may need to be repaid to health care providers, although the majority of the “improper payments” discovered and acted upon are for overpayments.

RAC Audits: Where did they come from?

The RAC program began as demonstration/pilot program in 2003 to detect and correct improper payments in the Medicare program. The demonstration initially operated in New York, Massachusetts, Florida, and California and later expanded into Massachusetts, South Carolina, and Arizona. The demonstration ended on March 27, 2008 and resulted in over $900 million in overpayments being returned to the Medicare Trust Fund between. As a result of the success of the RAC demonstration program, Section 302 of the Tax Relief Health Care Act of 2006 made the RAC program permanent and required its expansion to all 50 states by 2010.

RAC Audits: Who are the RACS?

CMS has contracted with the following private auditors to identify these “improper payments” in the different regions:

• Diversified Collection Services, Inc. of Livermore, California (Region A, working in New York, New Jersey, Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, Delaware, DC, Maryland and Pennsylvania).

• CGI Technologies and Solutions, Inc. of Fairfax, Virginia (Region B, working in Michigan, Indiana, Illinois, Kentucky, Ohio, Wisconsin and Minnesota).

• Connolly Consulting Associates, Inc., of Wilton, Connecticut (Region C, working in Alabama, Arkansas, Colorado, Florida, Georgia, Louisiana, Mississippi, North Carolina, New Mexico, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia and the territories of Puerto Rico and U.S. Virgin Islands)

• Health Data Insights (Region D, working in Alaska, Arizona, California, Hawaii, Iowa, Idaho, Kansas, Missouri, Montana, North Dakota, Nebraska, Nevada, Oregon, South Dakota, Utah, Washington, Wyoming, Guam, American Samoa and Northern Marianas)

RAC Audits: How do they operate?

RACs conduct audits by reviewing medical data and billing data on a post‐payment basis. RACs can only look back three years from the date the claim was paid. It is important to note that the RACs are financially incentivized to identify errors as they are paid on a contingency fee basis.

RACs conduct 2 types of reviews as follows:

• Automatic reviews: These reviews do not involve medical records. Instead, they involve a computerized analysis of claims and coding practices utilizing existing databases. These reviews identify errors such as duplicates in billing and inappropriate bundling or unbundling of claims.

• Complex medical reviews: These reviews require the review of a medical record which will be requested from the provider. In this instance, billing and coding experts review samples of medical records and billing documentation. These reviews identify errors such as incomplete documentation and lack of medical necessity based upon Medicare guidelines.

Once a review has been completed by the RAC, the RAC will issue a demand letter detailing the results of the review and the amount of any “improper payments”. The physician will then have an opportunity to discuss the determination with the RAC as well appeal the decision.

RAC Audits: What should physicians do to prepare?

Since almost all physicians will be involved with a RAC audit within their careers, it is important that physicians prepare for these audits, in order to limit their exposure, by doing the following:

• Know what the RACs are looking for and assess whether these issues occur within your practice. This information can be found on each governing RAC website.

• Conduct internal audits to identify potential overpayments and develop a corrective action plan to reduce the risk of future over payments.

• Consider moving toward and utilizing an Electronic Medical Record (EMR).

• Utilize certified billing and/or coding experts on a yearly or biennial schedule to conduct reviews, ensure compliance, update templates and train staff on issues involving coding and billing.

• Make sure your billing staff is properly qualified, trained and provided with continual training/updates as to the audit process, applicable Medicare guidelines, and coding and billing practices.

• Select a higher‐level point person within your practice who will handle all RAC requests and future communications. This will ensure that the process goes more smoothly.

• Understand the appeal process in order to ensure that no deadlines are missed.

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