Ready for the Recovery Audit Contractor?

The federal government will soon nationally implement a system of Recovery Audit Contractors whose focus is to recover improper payments to healthcare providers. This article clarifies the RAC process and how to manage it.

History and Purpose of the Recovery Audit Contractor Program (RAC)

In fiscal year 2007 alone, it was estimated by the Office of Management and Budget that the Medicare program received $10.8 billion in improper payments. This finding made Medicare one of the top three offending federal programs regarding this controversial issue.

As a result of these findings, and to meet the requirements of the Improper Payment Information Act with its statutory requirement for annual review of areas susceptible to significant improper payments, the Centers for Medicare & Medicaid Services (CMS) developed a variety of tools to reduce payment errors and ensure proper use of taxpayer dollars. One part of this effort was the advent of the Recovery Audit Contractors.

After a three-year demonstration period which focused on Medicare Parts A and B, the Recovery Audit Contractors successfully corrected a total of more than $1 billion in overpayments from providers and underpayments refunded to providers. Of the $1 billion in RAC recoveries, approximately $119 million were recovered from skilled nursing facilities and approximately $125 million were recovered from physicians. Aside from the large number of dollars collected, it is of importance to note that the demonstration program only cost 20 cents for every dollar it collected.

Because of the success of the demonstration program, Congress authorized the Recovery Audit Contractor program to be become permanent. The RAC program is to be implemented nationwide no later than January 1, 2010. RACs will start with reviewing all claims paid to providers that occurred on or after October 1, 2007.

Protocols and Standards for Incident RAC Audits

Recovery Audit Contractors will focus primarily on coding errors and are not tasked with identifying civil or criminal fraudulent payments. However, RACs are paid on a contingency fee basis and receive a certain percentage of any funds recouped by them; therefore, they are clearly incentivized to look for overpayments, rather than under payments.

For the purposes of the RAC process, the country has been divided into four different sections. Each section will have its own RAC auditor. These sections are known as Regions A, B, C, and D. Any official notification of a RAC audit will come from one of these four auditors. Some states have already been assigned to these various regions; they are not shown in the image below. Additional states will be phased into the RAC regions throughout 2009 as indicated by the map.

The Recovery Audit Contractors have three primary responsibilities:

• Conduct data analysis from the Medicare Common Working file
• Review medical records to further analyze claims
• Identify and correct improper payments (overpayments and under payments)

The RACs will search for payments made to providers for services rendered that may not be supported by evidence-based care. The goal for recouping funds is $10.8 billion from Medicare payments to health care providers. Approximately $500 million of this, or 5%, is anticipated to be recovered from skilled nursing facilities.

There are two types of RAC reviews that are used in the audit process: the Automated and the Complex. For an automated review, no medical records are needed, only the claims. A complex review requires the medical record.

Eighty percent of the time, the automated review is the audit process that detects items with mistakes on claims-this results in 5% of the recovered funds. The other 95% of funds recovered from automated reviews tend to be due to items on the UB-04 which do not match the coding in the MDS assessment files. If an automated review indicates overpayments to the provider, CMS must first grant the request for recoupment and then the fiscal intermediary will immediately re-direct any future Medicare payments to the RAC until the repayment amount is satisfied.

Internal Follow-up Procedures

Because of the complexity of the RAC audit processes, and the potential impact that recoupment of funds may have on facilities; it is highly recommended that every organization prepare a type of RAC Audit Response Team whose purpose is to organize and respond to audit requests.

It is paramount that the coordinator of this team knows that RACs may only request up to 10% of the average monthly Medicare claims, with a maximum of 200 records every 45 days, from inpatient providers such as hospitals, skilled nursing facilities, inpatient rehabilitation facilities, and hospice. Variation from this review guideline on the part of the RACs is a basis for appeal and may result in the denial of the RAC to recover funds.

Preparation for RAC audits and assurance of compliance with Medicare rules consists of seven steps:

1. Review of data sources (MDS, UB-04, patient/resident chart)
2. An audit of how the chart is converted to the MDS and the UB-04
3. Research items difficult to code and bill
4. Review each issue identified
5. Perform chart and claim audits
6. Communicate results of these steps over and over until each record request is individually assembled for transmission to the RAC
7. Send the RAC requested records via certified mail with signature requested on the receipt

The Appeals Process

If a facility disagrees with a finding of overpayment, there is a five-step appeals process that may be utilized. Timing is crucial to the appeals process. The different steps are driven by the number of calendar days between the findings and the written requests for an appeal.

To start the process, a rebuttal must first be sent to the RAC requesting a re-evaluation of the decision. This is a one-time opportunity for the provider to refute the RAC's review and MUST occur within 15 calendar days of receipt of the initial determination. If satisfaction is not rendered based on the rebuttal, the appeals process as outlined below may then be initiated by the facility.

For a thorough and detailed examination of the Recovery Audit Contractor process, preparations, response, and the appeals process, please read our white paper "Recovery Audit Contractor Standards for Audits: Policies & Procedures to Increase Transparency" at www.ehds.biz.