Volume 4, #1

April 2007

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RAC: What You Need to Know

Ann Florer, RN, CCS-P
Corporate Compliance Analyst

Recovery Audit Contractors (RACs), referred to as “bounty hunters” by some, are currently being used in a three year pilot project conducted in California, New York and Florida. The Medicare Prescription Drug Improvement and Modernization Act of 2003 directed the Secretary of the U.S. Dept. of Health and Human Services (DSHS) to conduct a demonstration project to determine if the use of RACs would be a cost effective means to ensure correct payments are being made to Medicare providers and that taxpayer funds are used for the purpose intended. RACs are paid based on a percentage of what they identify and collect.

In November 2006, CMS published a status document for fiscal year 2006, the half way mark for the project, and concluded that using RAC is extremely cost- effective. The document may be found at:

http://www.cms.hhs.gov/RAC/Downloads/RACStatusDocument--FY2006.pdf

In 2006, RACs identified $68.6 million in overpayments, while only $2.9 million in underpayments. The project incurred $14.5 million in expenses, which included payment to RACs and Medicare claims processing expenses to support the program, resulting in a net payback to the Medicare Trust Fund of $54.1 million. In addition, another $232 million in either over- or under-payments were identified, which have not yet been processed. Due to the large volume of claims identified by RAC, CMS contractors who had to adjust these claims manually could not keep up with the processing. Funds recovered by the RACs will be used to offset Medicare spending.

A provision of the Tax Relief & Healthcare Act of 2006 requires RAC to operate in all 50 states by 2010. However, CMS’ goal is to beat this deadline by nearly two years. Some providers may see their claims audited for “overpayments” as early as March 2008. Up to this point, RACs have mainly focused on inpatient hospitals and skilled nursing facilities due to higher dollar Part A claims. CMS is now unleashing RACs on physicians and suppliers. RACs in Florida are already looking at physician claims. One RAC identified problems with the use of modifiers to bypass Correct Coding Initiative (CCI) edits. At least for now, RACs do not review any E/M services.

The AMA and other specialty organizations are vehemently opposed to these contractors, arguing that the auditors do not have enough clinical knowledge to properly evaluate claims or determine medical necessity for services, nor do they adequately understand Medicare payment rules. In response to these concerns, RACs will be required to have on staff a medical director by April 1, 2007 and all RACs must have appropriate clinical knowledge and understanding of payment rules, or contract with someone who does. Another complaint was that RACs were initially only to be paid for over-payments they found. As of December 2006, CMS now pays for under-payments as well as over-payments to RACs, although not necessarily the same payment for both.

Appeals

Many physicians are not currently appealing RAC decisions, presumably due to the fact that the requested repayment is relatively low; in Florida $135 and in California $216 according to figures provided by CMS. During any appeal process, providers are instructed to follow their CMS contractors billing guidance and not RACs implied guidelines in there demand letter. A RAC letter does not prove you were wrong. If you wish to appeal a RACs demand letter, you should follow the same CMS appeal process you normally would. If you win the final appeal decision, the claim will be adjusted, this time in your favor. You will be repaid with interest.