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The Medicare RAC Program is Set to Begin Finding Your Billing Errors

Health Law Alert

The Medicare RAC Program is Set to Begin Finding Your Billing Errors
The Centers for Medicare & Medicaid Services (“CMS”) have taken a major step toward the
implementation of its new audit program that will affect countless Medicare providers. Congress
authorized the Recovery Audit Contractor Permanent Program (the “RAC Program”) in the Tax
Relief and Health Care Act of 2006. Under the RAC Program, private companies selected by
CMS will serve as Recovery Audit Contractors (“RACs”). RACs will be paid on a contingency-fee
basis to identify and correct improper payments made under Parts A and B of Medicare. The
RAC Program is to be implemented nationwide no later than January 10, 2010.

CMS’s focus on minimizing improper payments to providers for services that are not medically
necessary, improperly coded, or lack sufficient documentation is not new. The Government
Accountability Office reported in January 2008 that estimated $10.8 billion in improper Medicare
payments were made in 2007. During the CMS Demonstration project, RACs in three states
corrected over $1 Billion in improper payments covering a three year period. While hospitals will
face the most significant burden, other providers should not become complacent. Every provider
under Parts A and B of Medicare should prepare to face some form of audit under the RAC

How RAC works
RACs will use automated and complex reviews to identify Medicare underpayments. Any
underpayment findings on claims will be communicated to the affiliated contractor. Once the
affiliated contractor validates the occurrence of an underpayment, an “Underpayment Notification
Letter” will be sent to the provider.

The scope of the reviews will not be unlimited. CMS has excluded several potential sources of
information about improper payments from RAC scrutiny, including programs other than Medicare
Fee-For-Service, the cost report settlement process, E & M services, and several others. If an
overpayment is identified, the RAC will document its rationale for the overpayment determination
and include references to Medicare rules and policies.

Once identified and validated, the RAC will seek to correct the overpayment. The overpayment
determination can result in full or partial denials. Any potential fraud or quality issues will be
reported. The overpayment amounts will commonly be collected through recoupment through
present or future Medicare payments. Collection is a crucial component of the RACs’ work: the
recovery of overpayments is a prerequisite to the RAC’s receipt of contingency payments.

Types of RAC reviews
The first way RACs will identify improper payments is through automated reviews. Automated
reviews are allowed in circumstances when it is “certain” that payment for services is improper.

The second way for RACs to identify improper payments is a complex medical review. Complex
medical reviews are allowed in circumstances where there is a high probability, rather than a
certainty, that the services billed are not covered. A complex medical review involves the
inspection of medical records.

While RACs are required to follow Medicare policies, and are required to be staffed by a
physician medical director and certified coders, providers should know that RACs will have the
authority to use medical literature and clinical judgment to deny claims in the absence of a
national or local policy. Providers should be prepared to exercise their Medicare appeal rights in
order to challenge such judgments when appropriate.

What to do

1. Designate a RAC Coordinator to facilitate organizational preparation for the RAC Program.
The same person can also keep current on reviews, corrective actions, and appeal deadlines.

2. Conduct an internal risk assessment to detect problem areas. The assessment should focus
on detecting coverage and coding issues, with special emphasis on the problems identified during
the Demonstration. Going forward, providers should also use the “Internal Guidelines” that are to
be published by each RAC.

3. If your internal risk assessment reveals any problem areas, take corrective action to ensure an
adequate resolution. Corrective actions may involve the development or revision of internal
policies or the training of key personnel. CMS has listed several corrective actions that might
prevent a number of common problems that result in improper payments.

4. Maintain familiarity with and participate in RAC provider outreach and professional educational

5. Participate in any opportunity to provide feedback. CMS has already indicated that it will
regularly use provider surveys.

6. Consult with legal counsel if serious issues are identified in the risk assessment or upon
receipt of a written notification or demand letter from a RAC.

Harrang Long Gary Rudnick P.C.


Our firm’s Health Law Alerts are intended to provide general information regarding recent changes and
developments in the health law area. These publications do not constitute legal advice, and the reader
should consult legal counsel to determine how this information may apply to any specific situation.

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