Medicare compliance and preparation for RAC audits

Tags: reiner, practice management, audit, medicare, recovery audit contractor

Medicare compliance and preparation for RAC audits

By Bradley Reiner

CMS has taken the next steps in Medicare’s comprehensive efforts to identify improper Medicare payments and fight fraud, waste, and abuse in the Medicare program by awarding contracts to four permanent recovery audit contractors. The RACs are designed to guard the Medicare Trust Fund. The basis of these regional contractors was a successful federal demonstration project involving six states that produced significant recovery results by identifying improper payments by CMS providers. Because of this outcome, the program was implemented nationwide.

The recovery audit program identifies improper payments made on claims for health care services provided to Medicare beneficiaries. Claim processing contractors are responsible for adjusting the claim, handling collections—offsets and checks—and reporting the debt on the financial statements. Believe it or not, underpayments will be identified as well as overpayments.

Underpayments occur when health care providers submit claims for a simple procedure but the medical record reveals that a more complicated procedure was actually performed. Overpayments occur when health care providers submit claims that do not meet Medicare’s coding or medical necessity policies.

The RACs are not allowed to review claims prior to Oct. 1, 2007 and are only able to look back three years from the date the claim was paid.

A RAC is paid on a contingency fee basis for all overpayments and underpayments they find. Needless to say, the RACs have a huge incentive to find overpayments and underpayments. That percentage would allow them to generate millions and millions of dollars over the next few years.

Don’t assume you don’t have to worry about RACs. If they continue to be successful, there is no doubt everyone will have a RAC audit sooner or later. In almost every practice, a RAC can find some contestable billing, coding, or documentation issue during any given audit. It is easy to make mistakes even if you have all the right processes in place. The rules are too complex and they differ from payer to payer.

Medical practices may actually benefit from an occasional RAC audit. In practices where physicians have been consistently coding at low levels for almost all services they provide, underpayments could be reimbursed. If such a practice is subject to a RAC review, they should get money back.

The flip side could be much worse. If a practice is found to be consistently coding at a higher level than the documentation supports, then the RAC will require repayment to the appropriate level of service.

Training providers in your practice on documenting correctly for code levels will help avoid the cost of overpayment in the future. It is wise to have a system in place to consistently examine your compliance and to make sure your staff is properly trained on appropriate documentation to help decrease the risk of an audit and guard against overpayments. It is not a matter of “if” but “when” medical practices will be audited, and with the recent release of Medicare payment data, overpayments are in the national spotlight.

Health care providers that might be reviewed include hospitals, physician practices, nursing homes, home health agencies, durable medical equipment suppliers, and any other provider or supplier that bills Medicare Parts A and B. The more claims billed to Medicare the greater the chance of an audit. However, don’t be fooled as even a small practice may be audited.

CMS RAC regional contracts

CMS awarded the contract for the south region, which includes Texas, to Connolly Consulting Associates, Inc. of Wilton, Conn.

The RAC employs a staff consisting of nurses, therapists, certified coders, and a physician contractor medical director. They are obviously concerned with how much money is being paid by Medicare and are encouraged to recover as much as possible. Medicare is committed to identifying providers that have been paid more than they should and will do whatever it takes. Since the contractor is paid a percentage of money recovered, they are incentivized to find these mistakes.

The RAC will review claims on a post payment basis and will use the same Medicare policies as the carriers. Issues identified by the RAC will be approved by CMS prior to a widespread review. Once an issue receives CMS’ approval, the RAC will use its own proprietary software and systems as well as its knowledge of Medicare rules and regulations to determine what areas to review. Connolly Healthcare uses data analysis techniques to identify those claims most likely to result in underpayments or overpayments. This process is called “targeted review.” Connolly Healthcare will target a claim because the claim contains information that leads them to believe it is likely to result in an underpayment or overpayment.

Compliance Reviews: three types of reviews

Automated review occurs when a RAC makes a claim determination at the system level without a human review of the medical record. Connolly Healthcare will communicate to the provider the results of each automated review that results in an overpayment determination and inform the provider of which coverage, coding, payment policy, or article was violated. If the review does not result in an overpayment, the RAC may elect to not communicate the results to the provider.

A semi-automated review consists of a  data review and potential human review of a medical record or other documentation.

A complex review occurs when a RAC makes a claim determination using human review of the medical record. The RAC may use complex review in situations where the requirements for automated review are not met or the RAC is unsure whether the requirements for automated review are met.

Connolly Healthcare will complete its complex reviews within 60 days from receipt of the medical record documentation. There may be some instances where the RAC requests a waiver from CMS if more time is needed due to extenuating circumstances.

The results of complex reviews will be communicated to the provider in a detailed review letter, including cases where no improper payment was identified. In cases where an improper payment was identified, the RAC will inform the provider of which coverage, coding, payment policy, or article was violated.

If you agree with the RAC’s determination you may pay by check, allow recoupment from future payments, request or apply for an extended payment plan, or request appeal time frames.


Bradley Reiner, formerly with Texas Medical Association, is now owner of Reiner Consulting and Associates. He can be reached at (512) 858-1570 or See more about the services Reiner provides to TAFP members at