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The Recovery Audit Contractor

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In an effort to ensure that correct payments were being made to providers and suppliers in the Medicare Fee-for-Service program, the Centers for Medicare and Medicaid Services developed the Recovery Audit Contractor program.

The RAC program started out as a 3 year demonstration project in California, Florida and New York - Section 306 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 directed the U.S. Department of Health and Human Services to establish the demonstration program to determine whether the use of independent auditors is a cost-effective way to identify Medicare underpayments and overpayments and recover Medicare overpayments made under Part A or Part B of Title XVIII of the Social Security Act.

The success demonstration project allowed for the legislation of Section 302 of the Tax Relief and Health Care Act of 2006 to make the RAC program permanent. The estimated amount of overpayment on Medicare claims in 2007 was $10.8 billion. CMS determined that the preliminary results of the demonstration projects in California, Florida, and New York indicate that the use of recovery auditors is a viable and useful tool for ensuring accurate payments.

CMS found that the demonstration was a successful tool in returning money to the Medicare Trust Funds – approximately $693.6 million. Some of the common payment errors CMS found were:

  • Payments do not meet Medicare's medical necessity criteria

  • Payments are incorrectly coded

  • Providers fail to submit documentation when requested, or fail to submit enough documentation to support the claim

  • Claim payments are based on outdated fee schedules

  • Provider is paid twice because duplicate claims were submitted

The RAC program not only provides CMS a new tool for identifying past improper payments, but also will be used to prevent future overpayments. To ensure accuracy, RACs are required to use nurses, therapists, certified coders, and physician Carrier Medical Directors.


In order for rheumatology practices to be prepared for the start of the RAC in their regions, the College recommends that they consider performing an internal audit of past filed claims. Listed below are some tips on how to prepare for the RAC:

  • Evaluate your practice to identify any past improper payments and review the RAC’s Web site to find a list of the most common errors.

  • Put in place an action plan on how your practice will respond to a RAC request for any medical records.

  • Learn the RAC response times – failure to respond in a timely manner to requests will result in automatic denial(s).

  • Once a practice has identified a problem, determine and document what corrective actions have been put in place to ensure proper coding in the future.

  • Learn your RAC’s name and have staff watch for any letters.

  • Tell your RAC the precise address and contact person to whom they should send Medical Record Request Letters.

  • Supporting staff should know that they have 120 days from the first letter to file a first level appeal.

Let Us Help

The College has two certified coders on staffs that are available to answer any coding and billing questions for members and their staff. The ACR staff also travels to state society meetings and gives presentations on documentation guidelines and self-audits. To address any further questions concerning the RAC or on billing and coding, contact Melesia Tillman, CPC, CRHC, CCP at (404) 633-3777 ext 820 or via e-mail at .




What improper payments will be subject to a RAC review?




RACs may attempt to identify improper payments resulting from:

  • incorrect payment amounts (except where CMS directs contractors otherwise);
  • non-covered services (including services that are not reasonably necessary);
  • incorrectly coded services (including DRG miscoding); and
  • duplicate services.

For purposes of the RAC program, an "improper payment" will be an overpayment or underpayment. Therefore, situations where a provider submits a claim with an incorrect code, but the mistake does not change the payment amount, will not be considered an improper payment.




How will RACs identify overpayments and underpayments?




CMS will supply the RACs with a data file containing claims history followed by monthly updates. RACs will use proprietary software to analyze claims for possible improper payments. RACs will primarily identify overpayments and underpayments through 2 claim review methods. The 2 methods are referred to as "automated review" and "complex review."

An "automated review" occurs when a RAC makes a determination at the system level without a qualified individual to review the medical record. For this type of review, there must be a certainty that the service is not covered or is incorrectly coded.

A complex review, on the other hand, occurs when a RAC makes a claim determination utilizing a qualified individual to review the medical record. Whenever a complex coverage or coding review is performed, the RAC will ensure that the coverage/medical necessity determinations are made by an R.N.s or therapists, and that coding determinations are made by certified coders.

RACs should complete complex reviews within 60 days from receipt of the medical record documentation and document the rationale for the determination. The rationale is to list the review findings, including a detailed description of the Medicare policy or rule that was violated and a statement as to whether the violation resulted in an improper overpayment.




How long will providers have to respond to medical record requests?




A provider has 45 calendar days to respond to a medical records request by submitting copies of the medical records. However, providers may be able to obtain an extension - if an extension request is made within the 45 day response period. If a provider does not submit the requested medical records within 45 days, a RAC may deem a claim to be an overpayment and request recoupment of the payment.




Will RACs be required to pay for the medical records they request?




CMS reports that RACs will be required to pay for medical records associated with acute care inpatient prospective payment system hospital claims and long-term care hospital claims. However, RACs are permitted (but not required) to pay for medical records associated with other types of claims.




Will providers receive the results of RAC reviews?




RACs are required to advise providers of the results of automated reviews (including any coverage, coding or payment policy or article violated) only if an overpayment determination is made. However, RACs will be required to advise providers of the results of complex review (including any coverage, coding or payment policy or article violated) even if no improper payment is identified.




Will RACs have to follow Medicare policies when making determinations?




When making determinations, RACs will be expected to comply with:

  • national coverage determinations;
  • coverage provisions in interpretative manuals;
  • national coverage and coding articles;
  • local coverage determinations;
  • local coverage/coding articles in their jurisdiction; and
  • relevant joint signature memorandums supplied by CMS