Recovery Audit Contractor (RAC) Part 1: The History Of RAC

The RAC program has been controversial ever since its inception when the Centers for Medicare and Medicaid Services (CMS) instituted the program to identify and correct Medicare improper payments through the detection of overpayments and underpayments made on healthcare claims.

CMS implemented actions to prevent future improper payments throughout all 50 states and the program began as a demonstration project from FY 2005-2008. The project was incredibly successful. Over $900 million overpayments were returned to the Medicare Trust Fund and nearly $38 million in underpayments were returned to healthcare providers.

As a result, Congress authorized the Secretary of the Department of Health and Human Services to institute a permanent national Recovery Audit program to recoup overpayments associated with services conducted under Medicare part A or B. The Recovery Auditor, a private, third-party insurance and/or auditing agency, was responsible for identifying overpayments and underpayments in approximately 25% of the country with jurisdictions matching the Durable Medical Equipment Prosthetics & Orthotic Supplies (DMEPOS) jurisdictions.

CMS emphasized that their “Three Keys to Success” were to:

1. Minimize provider burden
2. Ensure accuracy
3. Maximize transparency

However, many providers experienced increased burden: data gathering for audits in the form of pulling records, copying charts, preparing appeals, and updating their staff on the new RAC program. Some providers voiced their concerns over the need for additional staffing to meet the RAC audit requirements, and the lack of expertise in dealing with audit appeals and processes.

Providers soon discovered that upon appeal, especially at the Administrative Law Judge (ALJ) level, adjudications were overturned with some providers seeing an 86% success rate in their appeals process. However, the burden of data collection, audit and appeals preparedness eventually took its toll on both providers, CMS, and the ALJ. Many providers chose to simply pay the stated overpayment amounts back to Medicare, but those who chose to appeal eventually saw delays, and a backlog of appeals that totaled nearly 1 million claims and represented several years of work.

Reports to Congress by Office of the Inspector General (OIG) in 2012 and the General Accounting Office (GAO) in August of 2015 made it abundantly clear that the RAC program needed a serious overhaul. CMS had already begun working on many changes as early as January of 2015 and, by November of the same year, they had not only outlined changes but also enhancements and additional expansion of the RAC audits to include Medicare Part C, and a single RAC auditor for DMEPOS, Home Health, and Hospice claims.

In December of 2015 Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) introduced the Audit & Appeal Fairness, Integrity, and Reforms in Medicare (AFIRM) Act of 2015 (S. 2368). The legislation aims to improve the Medicare audit and appeals process.

Stay tuned for the next RAC blog post where we’ll be discussing many of the intended enhancements and expansions of the RAC program along with what healthcare providers can expect in the beginning of 2016 and the future.

We also welcome you to watch our on-demand webinar, "10 Tips to Minimize Recovery Audit Contractor (RAC) and Other Audit Risk Exposure Webinar", by clicking the button below: