Recovery Audit Contractors
Congress created the recovery audit contractors (RAC) program to help the Centers for Medicare and Medicaid Services (CMS) identify improper payments made by Medicare. The RAC contractors are private entities that are retained by the government to identify overpayments or under payments made to physicians and other healthcare providers, as well as, to recoup overpayments or return underpayments. Reportedly, $10.8 billion in improper Medicare payments were made in 2007, the third highest amount of improper payments among federal programs surpassed only by the Earned Income Tax Credit and Medicaid programs. It is also estimated that 3.9 percent of the Medicare dollars paid did not comply with one or more Medicare coverage, coding, billing, or payment rules. This equates to $10.8 billion in Medicare fee-for-service (FFS) overpayments and underpayments.
The RAC was created by Congress first as a demonstration program and was subsequently expanded as a permanent, nationwide program. The RACs focus on reimbursements for traditional Medicare FFS and not Medicare managed care or the prescription drug benefit. Rather than being paid an upfront fee to perform these functions, the government pays these contractors a contingency fee for each inappropriate payment identified and recovered. For example, for every $100 in payments identified as improper and recovered by the RACs, CMS pays the RAC a percentage of the recovery.
The AMA remains deeply opposed to utilization of contingencies for RACs since it is a bounty hunter-like program that creates a financial incentive for RACs to identify overpayments. The AMA has been very vocal with both the Administration and Congress about our concerns. The AMA has successfully advocated for improvements to the program that reduce the burdens on physicians. CMS has incorporated many of the changes we have asked for but there are many others that remain and we continue to press CMS to make further changes.
Recovery Audit Contractors Fact Sheet
Recent Changes to the Medicare Appeals Process Impacting RAC Audits
Prior to the passage of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA), Medicare maintained that it was permitted to recoup overpayments regardless of whether a physician appealed the overpayment determination. With the passage of the MMA, this has changed. Section 935 of the MMA requires Medicare to halt recoupment if an overpayment determination is appealed at certain times in the appeals process or successfully overturned in whole or in part. Also, the new law changes the way Medicare treats interest payments.
Visit the Section 935 Fact Sheet to learn more.
Improvement to the RAC Program as a Result of AMA Advocacy
Due to considerable advocacy by the AMA, CMS made several changes to the expanded RAC program including:
- “Look-back Period”: CMS shortened the timeframe a RAC can go back and recover monies from four years to three. Certified coders: Were not mandatory in the demonstration. In the permanent program each RAC must have certified coders.
- Medical Record Request Limit: There was an optional medical record limit set by the individual RAC in the demonstration. Under the expanded program RACs will only be able to request up to 10 medical records per single practitioner within a 45 day period. We continue to advocate however for reducing this further to no more than 3 within a 45 day period.
- Medical Directors: Each RAC is now requires to have a Medical Director.
- RAC Websites: Under the demonstration the RACs were not required to maintain a website. Under the expanded program each RAC is required to maintain a web presence. Also, physicians will be able to look up the status of their audits involving medical record reviews.
- Sharing Problems: Under the demonstration there was little information shared with physicians about the types of improper payments they were auditing. Under the expanded program, there will be much more transparency and problem areas to be reviewed by each RAC (referred to as “vulnerabilities”) will be required to be posted on their respective websites.
- Contingency Fees: During the demonstration, the RACs only had to pay back the contingency fee if they lost at the first level of appeal. This has been changed to all levels of appeal for the permanent program. Also, now the rate RACs receive for locating improper payments will be public.
- Validating Areas Targeted by RACs: An independent external validation process to help ensure that the audit areas the RACs planned to focus on are appropriate, is now mandatory.
AMA Correspondence on the RACs
- February 8, 2006 letter to CMS on the RAC Demonstration Program on poor communication, lack of focus on underpayments, and poorly writtent demand letters
- November 3, 2006 letter to Representative Charles B. Rangel opposing the RAC program
- April 9, 2007 letter to CMS on their Request for Information (RFI) proposing various improvements
- November 28, 2007 letter to CMS commenting on the RAC contractor Statement of Work (SOW)
- February 5, 2008 letter to Representative Lois Capps supporting a bill to impose a one year moratorium on the RACs
- March 9, 2009 letter to CMS signed by 101 state and specialty medical societies opposing the RAC program and advocating for excluding E&M including consultations
- CMS response to March 9, 2009 letter
AMA Testimony on the RACs
- March 6, 2006 testimony to CMS' Practicing Physicians Advisory Council (PPAC)
- March 5, 2007 testimony to CMS' PPAC
- March 3, 2008 testimony to CMS' PPAC
- March 14, 2008 testimony to the House Small Business Committee on burdensome nature of RAC program
- May 19, 2008 testimony to CMS' PPAC
- March 9, 2009 testimony to CMS' PPAC
- June 1, 2009 testimony to CMS' PPAC
