RAC contracts get renewed—but with new limits. What it means for hospitals.

Six month limit to be instated on all claims reviews

CMS has said it will revamp its Recovery Audit Contractors (RAC) program in order to increase transparency between the agency and providers and to enhance its oversight of the program.

Background on the RAC program

Through contracted auditors, the RAC program seeks to identify situations in which providers have inappropriately billed Medicare and recoups overbilled funds. The program has recouped more than $8 billion in wasteful and fraudulent payments since 2009, but contracts for the program expired on June 1, 2014.

Hospitals have criticized the RAC program because of its long appeals process. Currently, appealing a RAC decision can take up to five years, according to Modern Healthcare.

RACs recouped $3.75 billion for Medicare in 2013

In March, the agency temporarily suspended the program until it finished procuring new contracts. Then, in August, CMS said that it would restart the program on a restricted basis under a new contract that allowed them to review a limited number of claims, including those for:

  • Cosmetic procedures;
  • Durable medical equipment;
  • Prosthetics;
  • Spinal fusions;
  • Orthotics and supplies; and
  • Outpatient therapy services. 

However, Lauren Aronson, director of CMS's Office of Legislation, said auditors "will not conduct any inpatient hospital patient status reviews during this limited restart period."

Our RAC Appeals Cost-Benefit Analysis Calculator

Details of new rule

CMS has renewed RAC contractors for CGI Federal, Connolly, HealthDataInsights, and Performant Recovery, allowing them to audit claims until Dec. 31, 2015. Those auditors will all be subject to the new rules, which limit the patient status claims review period to six months, as long as the provider submits its claim within three months of the service date.

In addition, the contractors will be permitted to perform administrative and transitional activities, such as reviewing last-minute claims and overseeing the appeals process, until April 30, 2017.

Despite the rule change, RACs still are not permitted to audit short-stay inpatient admissions (Herman, Modern Healthcare, 1/3 [subscription required]; Budryk, FierceHealthcare, 1/6; AHA News, 1/5).

The Advisory Board's take

Christopher Kerns, Managing Director

The rule change limiting lookback periods is a big assist to providers wishing to re-bill certain denied Part A claims under Part B.

Because CMS limits re-billing to one year from the date of service, those providers who submit claims in a timely manner (within three months), will have lookbacks limited to only six months from the date of service. Previously, many providers were often hamstrung in their re-billing efforts with longer lookback periods allowed.

But while the change is an important acknowledgement from CMS that the RAC program is in need of overhaul, it is also a reminder to the industry that the program has been incredibly successful in its goal to reduce overpayments/fraud and slow the growth rate of health care costs. It's also a reminder that the federal government remains committed to continuing these efforts for the long-term.

Organizations will need to continue their efforts not only to manage the audit process, but to prevent and eliminate the potential for audit success. The new incentives for reduced audit volumes for lower takeback rates provide a tangible return for organizations to redouble their efforts in this space—just as the shorter lookback period for patient status reviews and reduced audit volumes for lower success rates provides a clear incentive for the RAC contractors to improve the accuracy of their data mining and overpayment identification mechanisms.

Best practices for audit preparations

After Medicare's highly successful recapture of payments through the RAC program, post-payment audits from government and private payers are expected to occur more frequently. This study will help institutions comply more efficiently and successfully with auditors' requests.

After reading this study, members will be able to:

  • Conduct periodic self-audits and data-mining exercises;
  • Create a simplified audit workflow to minimize employee stress; and
  • Identify rulings whose appeals process is cost justified and selectively pursue such cases


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