CMS Acting Administrator Kerry Weems recently informed Congress of the agency's decision to direct the Recovery Audit Contractors (RACs) for the Medicare program to conduct a re-review of all audited inpatient rehabilitation facility (IRF) claims where an overpayment was found. The CMS directive, which includes audited claims currently under appeal, is in response to significant problems experienced by California providers where RAC reviews of IRF claims reportedly resulted in nearly universal denial rates and high (over 50 percent) reversal rates on appeal.

The RAC program began in 2005 as a three-year demonstration project for identifying improper overpayments and underpayments to Medicare providers under Parts A and B in three states (CA, FL, NY). The Tax Relief and Health Care Act made the RAC program permanent in 2006. Currently operational in six states (Arizona, California, Florida, Massachusetts, New York and South Carolina), the program is slated to expand to all 50 states by 2010.

One of the most contentious issues associated with the RAC program is how the RACs are paid. Specifically, the RACs recoup a percentage of overpayments they identify on a contingency basis. Critics of the RAC program claim "bounty hunter-style" payments encourage the RACs' aggressive claim denial practices as well as a disproportionate focus on overpayments.

In response to comments from the American Hospital Association and others, CMS released a revised Statement of Work in November 2007 that contains several refinements to the national RAC program. These include (1) removing the contingency payment when a provider overturns a denial at any level; (2) requiring that RACs have a medical director; (3) setting a monthly cap on the number of medical records that a RAC can request from a provider; (4) shortening the look-back period for claims review from four to three years; and (5) providing that no claims with dates of service prior to October 1, 2007 will be reviewed. The revised Statement of Work also postpones the implementation of the RAC program in a number of states. For example, the starting dates for the RAC programs in Texas and Ohio were pushed back to October 2008 and January 2009, respectively.

On November 7, 2007, U.S. Rep. Lois Capps introduced the Medicare Recovery Audit Contractor Program Moratorium Act (H.R. 4105) which would impose a one-year moratorium on the RAC program in an effort to provide CMS with sufficient time to "thoroughly examine the practices of private Recovery Audit Contractors to ensure they are properly interpreting and applying Medicare criteria and using qualified personnel to review claims." The proposed legislation also directs that CMS and the General Accounting Office examine and evaluate the accuracy and effectiveness of the Medicare RAC program in separate reports to Congress.

Meanwhile, CMS is currently analyzing data for a report on the status of the RAC program that is due to Congress by December 31, 2007. Further information on the Medicare RAC program, including a link to the revised Statement of Work and the new expansion schedule, can be obtained through the CMS website at http://www.cms.hhs.gov/RAC.