Recovery Auditor Contractor (RAC) Part 3: Ramifications Of CMS Enhancement And Expansion

Recovery Auditor Contractor (RAC) Part 3: Ramifications Of CMS Enhancement And Expansion

Posted by Lamon Willis
Mar 24, 2016 1:04:16 PM

Welcome back to our RAC blog post series. In this installment we’ll consider some of the ramifications for the CMS enhancement and expansion of the RAC program. If you're just now jumping into this series, you might be interested in reading Part 1: The History of the RAC Program, and Part 2: Expectations And Enhancements For 2016.

Hospital Funds Tied Up in the Appeals Process

RACs will face new limits on the timing of their payments under changes meant to address the backlog of appealed short-stay inpatient claims. CMS obtained new RAC contracts, replacing those in existence which were extended until July 2016 after the lack of replacement contracts at the original February 2014 expiration date. 

The current contracts, which began in 2009, pay RACs upon recovery of payment from rejected claims, which usually is completed within 30-45 days. However, a hospital that successfully appeals those claim rejections could have to wait until the end of the appeals process-sometimes as long as four (4) years-to have their funds returned. 

The new provision for the contracts was scheduled to begin in July, 2016. This provision would withhold RAC payment until their finding survives two levels of appeal or until the appeal time frame expires. This is essentially a commentary on problematic overturns of appeals from the past and the intent is to ensure that RAC audits can withstand scrutiny. 

Ramifications are that new RAC audits could be increased in:

  • Specificity
  • Intensity
  • Accuracy 

Hospital advocates requested withholding payment until claims survive the third level of appeal where overturn rates of RAC findings are the highest. That provision will be the second major change designed to address the large appeals backlog for inpatient status review claims that brought the Medicare appeals process to a standstill. 

The first change in May 2015, reduced the look-back period for short-stay patient status claim reviews from three years to six months. The change is expected to give hospitals time to resubmit rejected Part A claims for reduced Part B payment within the CMS one-year limit for filing claims. 

Additional Documentation Requests (ADRs) 

CMS changed existing contracts beginning January 1, 2016, to reduce the limit on ADRs from 2% to 0.5% of a provider’s submitted Medicare claims in a 45-day period. The ADR limitation would likely only apply to providers who are in compliance with the Medicare regulations, while other providers with higher rates of denial could see an increase in their ADR limits. 

This enhancement would also require existing RACs to broaden their audit scope across all claim types for facilities, limiting their ability to target care provided in a particular setting. 

CMS intends that providers view the process as more impartial and that they have a voice as to the efficacy of the program. 

The American Hospital Association (AHA) RACTrac Report 

The AHA released the 3rd Quarter RACTrac report on December 3, 2015, ( The results nationwide are as follows:

  • Overpayments represent 40% of the claims, and 
  • Underpayments represent 3% of the claims. 
  • Outpatient billing errors are the main reason for automated denials and, 
  • Inpatient coding and discharge status are the most common reasons for complex denials. 
  • Hospitals appealed 47% of RAC denials and 62% of claims that completed the appeals process were overturned in favor of the provider. 

To capitalize on the benefits of the enhancements and expansion details of the RAC program, healthcare providers should implement effective tracking and monitoring practices which address all areas of RAC audits that the organization is involved in and ensure that the RACs are complying with the revised rules of CMS. Healthcare providers should ensure that their coding, billing, and documentation processes can withstand the audit process. 

Looking for an even more in-depth dive into the ramifications of these recent RAC enhancements? Watch our free webinar on-demand by clicking the button below: 

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