Recovery Audit Contractors to Become Nationwide Program

As part of the Tax Relief and Health Care Act of 2006 which, in part, froze Medicare reimbursement rates at their 2006 level, the Recovery Audit Contractor (RAC) program was expanded to extend it from a three state pilot (California, New York, and Florida) to a nationwide program by 2010.

RAC is a Medicare auditing program that utilizes private firms to examine physician, hospital, nursing home, and other claims to find instances in which the government has overpaid providers. According to a recent status report by the Centers for Medicare and Medicaid Services (CMS) the existing RACs had recovered $303.5 million in improper payments since the spring of 2005. CMS has recouped $68.6 million in overpayments from providers, including physicians, hospitals, durable medical equipment (DME) suppliers and labs, for alleged unnecessary services, improper coding and secondary payer issues. It is expected that CMS will recover another $294.5 million in identified overpayments from providers in the future.

The RAC program has been contentious from the beginning. While they were formed to identify overpayments and underpayments, RAC fees are mainly based on a percentage of the overpayments that are collected. They currently have identified less than $10 million in underpayments, none which were from physician claims.

CMS has indicated that Evaluation and Management (E/M) claims, as well as claims that are already under investigation or that have been previously reviewed will not be eligible for auditing by the RACs. This includes claims that had been formerly reviewed by another entity, such as the provider’s Medicare carrier.

While a majority of the RAC audits have focused on inpatient hospitals and skilled nursing facilities (SNFs), physicians and suppliers in the pilot states can expect to be increasingly targeted as CMS plans to hire more Part B auditors.