Recovery Audit Contractor (RAC) audits are a government initiative designed to ensure the financial integrity of federal healthcare programs. These audits detect and correct improper payments made under Medicare, recovering funds paid incorrectly to healthcare providers. The program serves as a post-payment review mechanism, examining claims after they have already been processed and paid by Medicare. This article details the steps involved in the RAC audit process.
The Goal of the RAC Program
The primary mission of the Recovery Audit Contractor program is to identify and recoup improper payments within the Medicare system, a mandate established by the Centers for Medicare & Medicaid Services (CMS). Improper payments include both overpayments, where a provider received more money than they were due, and underpayments, where a provider was paid less than the correct amount.
RACs are private companies contracted by the government to perform these audits across designated regions. To incentivize aggressive auditing, these contractors are compensated through a contingency fee model, meaning they receive a percentage of the overpayments they successfully identify and recover from providers. This financial structure encourages the contractors to focus on claims where the likelihood of finding a payment error is highest. The ultimate goal is to correct past payment errors and to provide CMS with data to prevent future improper payments.
The Two Review Types
RACs employ two distinct methodologies for reviewing claims: automated review and complex review. The method chosen dictates the level of provider involvement and the type of evidence required for the audit.
An automated review relies entirely on data analysis and claims history, requiring no submission of medical records from the healthcare provider. This method is used to identify clear-cut errors, such as duplicate billing or violations of established coding rules apparent from the claim data alone. Automated audits are quick and allow the RAC to review a large volume of claims efficiently.
The complex review is a more in-depth process that requires the RAC to request and examine the patient’s medical records. This approach is used when a determination cannot be made solely on the claims data, often involving questions of medical necessity or the accuracy of documentation supporting the billed service. Since this review involves human judgment and detailed analysis of clinical documentation, it is significantly more time-intensive than an automated review.
Navigating the Audit Process
The audit process begins with the RAC identifying claims for review, often using proprietary software and data mining techniques to flag billing patterns suggesting a potential improper payment. The contractor analyzes claims paid within a three-year look-back period to find discrepancies compared to national and local norms.
For a complex review, the provider receives an Additional Document Request (ADR) letter, which serves as the official notification and specifies the claims under scrutiny. The provider is required to submit the requested medical records and supporting documentation, typically within a 45-day timeframe. Failure to submit the documents by the deadline can result in an automatic recoupment of the payment.
Following the submission of records, the RAC performs its review and issues a determination letter detailing its findings. This determination states whether an overpayment, an underpayment, or a correct payment occurred, citing the specific policy or coding rule that was violated. If an overpayment is determined, the RAC notifies the Medicare Administrative Contractor (MAC), which handles the financial adjustment.
The Appeal and Repayment Structure
When a RAC determines an overpayment, the provider receives a Demand Letter from the MAC, which outlines the total amount owed and the deadline for repayment or appeal. Providers must act quickly upon receiving this letter to avoid the automatic recoupment of the overpayment from future Medicare payments.
Providers who disagree with the RAC’s finding have the right to challenge the decision through a multi-level appeals process. This process includes five distinct levels of review, which must be initiated sequentially. Providers must meet strict deadlines for each level of the appeal to maintain their right to dispute the findings and prevent the recoupment of funds. The levels are:
- Redetermination request submitted to the MAC.
- Reconsideration by a Qualified Independent Contractor.
- Hearing before an Administrative Law Judge.
- Review by the Medicare Appeals Council.
- Judicial Review in a District Court.