CMS RAC - Recovery Audit Contractor Program

According to the Government Accountability Office (GAO) Medicare is one of the top three federal programs with improper payments (with an estimated $10.8 billion in improper payments in Fiscal Year 2007). The Medicare Modernization Act of 2003 established the Medicare Recovery Audit Contractor (RAC) three-year demonstration program to identify these improper Medicare payments -- both overpayments and underpayments.  

The History
The RAC demonstration program began in March 2005 and ended March 2008 and was initially conducted in New York, California and Florida (CMS later expanded the jurisdictions to include providers in 9 states). The success of this 3-year demonstration has led to permanency of the RAC program; Congress has mandated the program be nationwide by January 2010.

The demonstration project had 2 primary goals:
1)Detect and correct past improper payments in the Medicare FFS program; and
2)Provide information to CMS and the Medicare claims-processing contractors that can help protect the Medicare Trust Funds by preventing future improper payments thereby lowering the Medicare Fee-For-Service (FFS) payment error rate.

For fiscal year 2007 the RACs identified and corrected $371 million dollars of Medicare improper payments. Over 96% of these improper payments were overpayments collected from providers and the remaining 4% were underpayments repaid to providers. The results of the demonstration revealed that nearly half of the overpayments resulted from incorrect coding. The second biggest reason for overpayment was due to services paid which were not deemed medically necessary. Only 5% of the RAC determinations were overturned on appeal. After taking into account any repaid underpayments and monies overturned on appeal, plus the costs of operating the RAC program, the RACs returned about $247.4 million to the Medicare Trust Fund.1

Improper payments can occur in the Medicare program when:

1) Services are not medically necessary
2) Incorrect coding is applied
3) No documentation, or insufficient documentation is provided
4) Duplicate payments are made or incorrect rates are paid

The Future
In the Tax Relief and Health Care Act of 2006, the RAC program became permanent and the Centers for Medicare & Medicaid Services (CMS) was authorized to expand the program to all 50 states by January 2010. Under the permanent RAC program the look back period for review of paid claims has been set at 3 years (but only back to October 1, 2007).

The RAC claims review process is similar to that of Medicare claims-processing contractors. The RACs are guided by Medicare policies, regulations, national and local coverage determinations and manual instructions when conducting claim reviews. The RAC program does not detect or correct payments for Medicare Advantage or the Medicare prescription drug benefit.  Although during the demonstration period the RACs often chose to review services highlighted by the Office of Inspector General (OIG) as being vulnerable to improper payments, CMS does not specify which claims the RACs can select to review, or how the RACs are to identify claims for review.

RACs are authorized to perform “automated reviews” (ie: no human review of claims data) and “complex reviews” (human review of claims data) to identify potential payment errors. When conducting reviews each RAC is required to use certified coders and medical personnel such as nurses and therapists. Additionally, each RAC must have a physician medical director to oversee the medical record review process.

Although RACs did not review claims for Home Health and Hospice providers during the 3 year demonstration, these provider types are not excluded from the permanent program.

What You Can Do
Tips for RAC readiness:

1) Perform internal billing audits on a sample of claims PRIOR to claim submission, focusing on potential RAC target areas
2) Implement education initiatives on chart documentation and billing practices
3) Develop a corrective action plan based on findings from internal reviews
4) Designate dedicated staff to receive and respond to RAC requests. (Providers have 45 days to respond to requests.  If the medical records are requested by the RAC but not supplied by the provider within 45 days, the RAC may, by default, identify the claim as an overpayment)
5) Be proactive and positive in your dealings with RAC personnel
6) Examine RAC denials and their criteria for appropriateness
7) Appeal RAC decisions that you disagree with only when completely supported

In the Spring of 2008* CMS is to announce the names of the companies chosen to be the permanent RACs for the 4 regions. In the Summer of 2008 CMS and the new RAC contractors will begin conducting extensive provider education and outreach. By January 1, 2010 each RAC will have a web-based application that will allow providers to see the status of cases.

*As of the date of this newsletter CMS has made no announcement of the permanent RACs chosen.
1 Source: “CMS RAC Status Document FY 2007”