A Primer on RAC Audits


The Recovery Audit Contracts (RAC) program was created in 2005 as a part of CMS’ Medicare Integrity Program with a goal to discover incorrect payments for uncovered services (including services that are not reasonably necessary), erroneous coding, duplicative services, and fraud.  Due in large part to immense success in collecting inappropriate payments, the RAC program blossomed from a trial program to being implemented in all 50 states in under 5 years.

There are two types of RAC audits – automated and complex.  Automated reviews, also known as claims reviews, search and flag suspect healthcare provider claims using propriety algorithms.  An example of a claim that would be readily flagged is a cervical exam for a male patient.   Complex audits, meanwhile, utilize medical records and typically involve the issue of whether the service is covered and medically necessary.

To identify incorrect payments, CMS uses contractors that are paid on a contingency-fee basis as a percentage of what CMS collects.  This “eat what you kill” model aligns financial incentives between CMS and RAC contractors but may also result in overly aggressive audits.  Currently RAC auditors receive between 9 and 12.5 cents on every dollar recovered for CMS.  When a RAC auditor determines a claim was inappropriately paid, it notifies the provider of the amount due.  Providers have the right to appeal the outcome in several stages (from re-determination to judicial review), however.

Providers have become increasingly worried about RAC audits recently, and with just cause.  Some hospital systems have millions of dollars of claims under appeal.  With margins at hospitals becoming increasingly thin due to lower reimbursement rates and higher costs, a RAC audit can have devastating implications to the bottom line of a hospital.

As RAC audits continue to increase, a wide variety of vendors are offering solutions geared at shielding providers from their financial implications.  The most effective solutions to RAC defense are real-time and proactive compliance assurance.  Popular technologies that shield against automated RAC audits are solutions that ensure accurate coding and charge capture.  These solutions aim to ensure that all claims to CMS are accurate and have no risk of erroneous coding.   Many vendors also offer retrospective solutions that seek to optimize workflows in order minimize submission errors in the future.  Companies like MedAssets utilize proprietary technology to mine providers’ claims to determine which claims are at risk and find process improvements that will minimize future mistakes.   For complex reviews, companies like Executive Health Resources deliver medical necessity compliance functions including real-time, secondary physician review for inpatient admissions and retrospective appeals support.

As CMS continues to enforce their payment standards, innovative technology will be at the forefront of both sides of the battle.  It is becoming vital that providers track and validate every stage of their workflow to ensure compliance to the mounting number of standards from CMS and avoid costly RAC audits.  The RAC activities fall into a broad landscape of healthcare compliance initiatives which are well covered by our team at TripleTree – watch our published research and this blog for continued insights.

Let us know what you think.

Jeff Farnell
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