R A C

The RAC program has been established to identify and recover improper Medicare payments to providers that are under fee-for-service Medicare plans, including medical practices, hospitals and nursing homes.

Practices that bill Medicare may be subject to an audit to review inaccurate reimbursements and may be required to refund the money back to Medicare. There are four RACs, each pertaining to a region of the country. 

Types of government audits :

Medicaid Integrity Contractors (MICs) conduct audits of Medicaid claims instead of Medicare. Unlike RACs and Zone Program Integrity Contractors (ZPICs), whose appeal processes are determined by federal regulations, MIC appeals processes vary by state.

ZPIC audits look for cases of fraud by analyzing claims data.

Medicare Administrative Contractor (MAC) audits determine whether particular billed services are medically necessary and should be covered under Medicare.

Looking to eliminate Medicare overpayments to providers, the Centers for Medicare and Medicaid Services from 2005 until early 2008 conducted pilot tests of a new program to audit provider billings, called the Medicare Recovery Audit Contractor program.

Medicare started rolling out the RAC program nationwide during 2009. But 2010 was when its effects were widely felt by hospitals, with some health systems undergoing multiple RAC audits while others were notified they'll soon be up to bat. CMS intends to eventually audit all U.S. hospitals, and is now expanding the RAC program to physicians, laboratories, pharmacies and other providers.

There was no shortage of health care payer audit programs before RACs came around. Medicare already conducts audits under the Medicare Administrative Contractors program, state Medicaid agencies have audit programs, and so do commercial insurers and quality improvement organizations. And a proposed federal rule published in November 2010 has put the wheels in motion for establishment of Medicaid RAC programs.

Lately, commercial carriers are starting to copy RACs and that has really increased audits across the country.

RAC Audits :

There are two types of RAC audits-automated and complex. An automated review, also called a claims review, is a computerized analysis of a provider's Medicare claims based on algorithms that look for specific discrepancies in the claims. These include medical procedure that don't match the patient's age or gender, inpatient claims without a discharge disposition, or two or more units for a colonoscopy when only one unit can be billed a year.

Medicare has contracted with four companies to serve as the Recovery Audit Contractors in four regions that span the nation. These contractors can and do subcontract with other companies to conduct audits.

RACs can conduct an automated review anytime without notifying providers. Following an automated review that finds discrepancies, a RAC will send a "demand letter" to a provider organization identifying the overpayments found and stipulating reimbursement. RACs also are finding underpayments in favor of providers, but those account for about a fifth of the findings.

Under a complex audit, RACs can demand up to 300 medical charts from a hospital every 45 days, based on Medicare claims volume, for comprehensive review. These charts include any paper and electronic documentation that support a flagged encounter.

How RACs work :

The biggest difference with the RAC program compared with other payer audits is how contractors are reimbursed. Contractors for other audit programs get paid a fixed amount for doing their work. But RAC contractors get paid via contingency fees. They make money finding overpayments and underpayments, and the more they find the more money they make. So, RACs tend to be more aggressive than other audit programs.

The payment set-up for RACs has been perceived as bounty-hunting by many industry stakeholders.

Physician practices also fall under the RAC program. The number of records that can be demanded every 45 days for a complex review is based on the practice size and tops out at 50 for the largest practices. RAC auditors spent much of 2010 focused on automated reviews of hospital claims, which give quick results and cash in the door, with complex hospital reviews and physician audits starting to build toward year-end.

Following the receipt of a demand letter, a provider can appeal the findings and present documentation to support its position.

After a provider submits the requested medical records for a complex audit-with the RAC contractor, the contractor then has 60 days to review the records and inform the provider of findings.

Providers increasingly are using software specifically designed for the RAC program and embedded with the RAC rules to manage request fulfillment within 45 days, and generating supporting documentation to use during the appeals process.