Providers must prepare for RAC audit requests and demands for repayment.

Since the conclusion of the Recovery Audit Contractor (RAC) pilot program undertaken by the Centers for Medicare & Medicaid Services (CMS) in 2005, health care providers have been anxiously waiting for the full launch of the program. The wait is now over: the nationwide launch of the RAC program has begun for roughly half the United States, with the first wave of audit letters from the RAC contractors expected to be delivered to providers in 24 states this month, followed by another wave of deliveries to the remaining 26 states in August. CMS has set the goal of a full rollout of the RAC program by the end of the summer.

RAC auditors will audit claims submitted on and after October 1, 2007, to identify Medicare payments that the RAC determines to be inappropriate. The RAC has a clear incentive to find inappropriate payments—if RAC auditors identify and recover improper payments from providers, the RAC is allowed to keep 9 percent to 12.5 percent of overpayments?which could translate to large sums of money depending on the amount of potentially improper payments. Although critics have charged that this conditional recovery may lead to abuse by the RACs, CMS is confident that it can monitor and prevent any abuse. It should be noted in this regard that RACs are required to report underpayments as well as overpayments to CMS; however, and perhaps not surprisingly, during the RAC pilot program, reported underpayments were significantly outweighed by reported overpayments.

As the nationwide RAC program rollout gets underway, providers must be ready to respond to audit requests and demands for repayment, analyze determinations by the RAC auditors and file appeals, if necessary. Although most providers already have compliance functions built into their systems, the RAC audit process can be expected to place new pressures on compliance staff, current compliance functions and facility budgets. Extensive requests for medical records can be expected from the RAC contractors, who will examine records for signs of noncompliance with CMS rules. Providers who take proactive steps to prepare for the RAC audits can save time and money over the long term.

  • First, providers should create internal systems to gauge compliance in anticipation of the RAC program, including the establishment of internal auditing in advance of the RAC audits. Because the time period of audited claims extends from 2007 forward, internal audit results that identify current issues will permit providers time to implement corrective actions and thereby reduce the risk of findings in those areas going forward.
  • Second, and to help guide the above, providers should review the list of common issues for RACs as identified in the RAC pilot program (for example, inpatient rehabilitation) and include such areas in its pre-RAC internal audits. In addition to helping assess a provider’s overall compliance, this focus on hot topics will help educate the provider on RAC audit requests and provide valuable information to avoid issues with potential rebilling deadlines.
  • Third, providers should each establish a “RAC Response Team” to coordinate and facilitate the provider’s response to the RAC contractor. Providers have 45 days from the date of the initial RAC audit letter mailing to submit a response. Given the amount of information that will be requested, a coordinated team approach can help the provider meet this tight deadline. Coordination is key. The provider’s RAC Response Team should carefully compile and keep meticulous track of what materials are sent to the RAC contractor and when the response was provided. The RAC Response Team should include administrative and operations staff, including representatives from accounting and billing, as well as in-house and/or external counsel. Involvement of counsel early in the RAC process will facilitate their participation in any discussions with the RAC or preparation of an appeal.
  • Fourth, providers should maintain communication with the RAC. For example, even if a provider has designated personnel for compliance, it is important to ensure that the RAC auditors are informed of the primary provider contract. If RAC correspondence languishes in the mailroom or in the office of someone who is unaware of the need for a speedy response, a RAC auditor may move forward to designate the claims as overpayments and begin recoupment after the response period has expired, putting the provider in the disadvantageous position of having to move directly to the appeal process.
  • Finally, providers must continue to educate themselves on issues such as coding, documentation, admissions and utilization as part of the expanding compliance focus of CMS and other government agencies. Government agencies have made no secret of the fact that they plan to more aggressively seek repayment of potentially inappropriate payments as part of the new health care compliance environment.

Understanding the entire process, including deadlines for responses and appeals, is critical to navigating this new compliance landscape. The multilevel appeals process that is part of the RAC program sets up an additional set of arduous hurdles for providers who find themselves in an appeal posture once an audit has commenced.

The RAC program, interacting with RAC auditors and handling RAC audit requests are new to most providers. The combination of access to CMS claims data, inherent financial incentive to find billing errors, and the significant expenditure of time and resources needed to respond to a RAC audit should make preparation a priority for providers.