RAC Program to Resume Limited Reviews

by Polsinelli

On August 4, 2014, the Centers for Medicare and Medicaid Services (CMS) announced that it would allow the Recovery Audit Contractor Program (RAC) to resume a limited number of reviews in August. The program has been dormant since the current RAC contracts expired June 1. CMS stated that the program has experienced continued delay in beginning modifications to the current contracts. CMS additionally noted that there will be no inpatient status reviews during this restart period. Furthermore, most reviews beginning in August will be done on an automated basis, which does not require the analysis of a medical record. RACs will only perform complex reviews on a limited number of claims including spinal fusions, outpatient therapy services, durable medical equipment, prosthetics, orthotics and supplies, and cosmetic procedures. Additionally, CMS stated that it "remains hopeful" that the new round of RAC contracts will be awarded this year. The announcement can be found here.

Providers should be advised that this announcement comes on the heels of significant controversy surrounding the RAC program. First, the Medicare payment appeals process through the Office of Medicare Hearings and Appeals (OMHA) is currently experiencing significant backlog, delaying a provider's ability to obtain relief if a claim has been improperly denied. Additionally, legislators and providers have expressed concerns that RACs are over incentivized to deny claims, leading to time-consuming, costly, and often unnecessary appeals.


The RAC program officially began in 2009, after Medicare reform mandated the establishment of a permanent and nationwide Recovery Audit Program. Since its inception, the RAC program has recouped an estimated $8 billion in improper Medicare payments. Just this year, the program has collected more than $471 million in overpayments to providers. RACs are currently paid a commission of between 9 and 12.5 percent of the dollar amount of the claims the RACs deny.

Appeals Process

Once the RAC contractor makes the initial determination, providers have the option to appeal the auditor decision. The first level of appeal is called a "redetermination." If a provider is dissatisfied with this appeal, providers may file a second level of appeal to request a "reconsideration." After the reconsideration stage, a provider may request a third level of appeal by an Administrative Law Judge (ALJ) through the Office of Medicare Hearings and Appeals (OMHA). However, OMHA has been experiencing significant delays in the past year, and most new requests for hearing have been temporarily suspended in 2013 due to a "rapid and overwhelming increase in claim appeals." This delay in the appeals process greatly prolongs a provider's ability to reclaim funds that were deemed overpayments if a provider is dissatisfied with the initial determination.

Recent Controversy Surrounding RAC Program

Legislators and providers have recently criticized the RAC process for its unfair compensation methods and its burden on providers to appeal denied claims. In February, more than 100 members of the House of Representatives urged then-HHS Secretary Kathleen Sebelius to take "immediate action" to reform the contractor program. House members advised Congress to consider an alternative payment arrangement to RACs to ensure that they are not improperly incentivized to deny claims for profit, and to focus instead on preventing errors. Additionally, the American Hospital Association urged Congress to take immediate action in the RAC appeals process and to adopt RAC reforms that were contained in the Medicare Audit Improvement Act of 2013. The Association stated that "overzealous" denials by private RACs cause the appeals process to be backlogged with hundreds of thousands of claims.

The Senate Special Committee on Aging reiterated these concerns at a July round table, stating that providers are burdened by the RAC process and that RACs are unfairly compensated based on their recoveries. The Committee recommended that the RACs should be paid through an incentive-based arrangement that would track an auditor's effectiveness of reducing the rate of improper payments over time, which would urge auditors to work more closely with providers to ensure accuracy.

What Providers Should Know

  • Providers billing Medicare fee-for-service may have payments subject to review by Recovery Auditors with the restart of the RAC program in August.
  • Providers performing spinal fusions, outpatient therapy services, durable medical equipment, prosthetics, orthotics and supplies, and cosmetic procedures should be advised that RACs will be performing a small number of complex reviews.
  • Although level 3 appeals to an ALJ are prolonged due to significant backlog at the Office of Medicare Hearings and Appeals, providers should continue appeals of improperly denied claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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