• Please search to find attorneys
Close Btn



Post Payment Review of Physician Medicare Payments: RAC "Bounty" Audits In Nebraska

Over the years, the Centers for Medicare and Medicaid Services (CMS) have implemented numerous initiatives to identify improper Medicare payments made to healthcare providers. The goal of these initiatives has been to reduce payment error by identifying and addressing billing errors concerning coverage and coding made by healthcare providers. Buoyed by the success of one such initiative, the recovery audit contractors (RAC) demonstration program conducted from 2005 to 2008, which featured bounty-hunter contingency fees for each of the RACs, CMS has now expanded the RAC “bounty” audit program nationwide.  Healthcare providers in Nebraska, including physicians, must now prepare for RAC audits in which the auditor (the RAC) is entitled to a contingency fee in excess of 9 percent of the identified improper Medicare payments.

Background.  Congress created the RAC program to help CMS identify improper payments made by Medicare.  In the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Congress established the RAC program under Section 306 as a three year demonstration program.  The demonstration program began in March 2005 in three States (Florida, New York and California) and when the program ended in March 2008, it had been expanded to cover an additional 3 States (Massachusetts, South Carolina and Arizona).

The RAC demonstration program was designed to: (1) detect and correct past improper payments in the Medicare Fee For Service (FFS) program; and (2) provide information to CMS and Medicare contractors that could help protect the Medicare Trust Funds by preventing future improper payments, which in turn, would lower the Medicare FFS claims payment error rate.  CMS has reported that the three year RAC demonstration program succeeded in correcting more than $1.03 billion in Medicare improper payments.  Of that amount, approximately 96% ($992.7 million) of the improper payments were overpayments collected from providers, while the remaining 4% ($37.8 million) were underpayments repaid to providers.  As reported by CMS, the RAC demonstration program identified overpayments most often in the following situations:

  • Payment for services that were medically unnecessary (40%)
  • Payment for incorrectly coded claims (35%)
  • Payment for services with insufficient or no documentation (8%)
  • Payment for duplicate claims (17%) 1

Congress Makes The RAC Program Permanent.  Under Section 302 of the Tax Relief and Health Care Act of 2006 (2006 Act), Congress authorized the creation of a permanent RAC program to be expanded to all States by January 1, 2010.  The 2006 Act provides for contingent payments to RACs for collecting overpayments as well as payments to RACs for identifying underpayments as the Secretary of the Department of Health and Human Services may specify.  On October 6, 2008, CMS awarded contracts to four RAC contractors, each covering one of the four RAC jurisdictions of the country (Regions A, B, C and D).  Nebraska, along with Alaska, Arizona, California, Hawaii, Idaho, Iowa, Kansas, Missouri, Montana, Nevada, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming comprise Region D.  The RAC contractor for Region D is HealthDataInsights, Inc.  The contingency fee for HealthDataInsights, Inc. for 2009 is 9.49%.

RAC Audit Scope.  Prior to initiating a provider review, CMS requires that each of its four RACs have CMS pre-approve any issues subject to a RAC review, and that once approved, the issues must be posted to the respective RAC’s website.  HealthDataInsights, Inc., the Region D RAC, has identified on its website2  the review issues for Region D which have been pre-approved by CMS for audit.  The issues which apply to Medicare Part A outpatient and Medicare Part B services include:

  • Neulasta
  • Newborn pediatric CPT codes billed for patients exceeding age limit
  • Once in a lifetime procedures
  • Excessive units – Untimed codes
  • Excessive units – Blood transfusions
  • Excessive units – Bronchoscopy
  • Excessive units – IV hydration

Under the RAC program, the following areas are not subject to RAC reviews: (1) services provided under any program other than Medicare; (2) claims three years past their initial determination date; (3) claims paid prior to October 1, 2007; and (4) claims already reviewed in some manner by Medicare.

Types of RAC Audits.  There are two kinds of RAC audits: automated and complex. The automated reviews generally allow for a decision to be made without the RAC requesting medical records.  RACs utilize automated reviews where there is certainty that the claim contains an overpayment and does not involve a need for a human to review claims data or medical records in order to determine that an improper payment was made.  Complex medical reviews on the other hand, are less black and white as they involve a manual review of the medical records or related documentation.  The RAC will typically first contact the provider with a notice of possible overpayment and a medical records request.  The RAC will then review the medical records provided and make a decision about a suspected improper payment.

RAC Record Requests.  There is a limit to the number of records a RAC can request from a provider at one time.  For physicians, the limit is determined based on the size of the practice.  The limits applied to RAC record requests from physicians are as follows: (1) solo practitioner – 10 medical records per 45 days; (2) partnership of 2 – 5 individuals – 20 medical records per 45 days; (3) group of 6 – 15 individuals – 30 medical records per 45 days; and (4) large group (16+ individuals) – 50 medical records per 45 days.  Physicians are required to respond to the RAC record request within 45 days unless an extension is obtained.  The RAC will generally complete its review within 60 days of receiving the requested records.

Appeals.  Providers dissatisfied with a RAC audit determination have the right to appeal through the Medicare appeals process. This process generally includes five potential stages: (1) a redetermination to the Carrier or Fiscal Intermediary; (2) a reconsideration submitted to a Qualified Independent Contractor; (3) a hearing with an Administrative Law Judge; (4) an appeal to the Medicare Appeals Council; and finally, (5) an appeal to Federal district court.  Each level of appeal carries with it certain requirements with which appealing providers much comply, and failure to follow the requirements could result in dismissal of the appeal. 3

Recommendation for Providers.  RAC audits may soon become one of the most significant regulatory and financial challenges health care providers face.  In addition, many providers are also concerned that RACs may be motivated to find questionable “errors” in RAC audits because of the way RACs are rewarded by the government.  While providers can do little to change the existence or “bounty” nature of the RAC program, each provider can focus on its own policies and procedures regarding Medicare claims and take steps to minimize any such “errors” which might arise in a future RAC audit.

Such steps may include focusing on the four areas identified by the RAC demonstration program as giving rise to most overpayment situations: medically unnecessary claims, incorrectly coded claims, claims with no/insufficient documentation and duplicate claims.  Providers may also want to consider identifying a RAC audit point of contact in the event of a RAC audit to ensure all RAC requests are handled efficiently and in a timely manner; conducting an internal audit of a sampling of past claims; reviewing existing compliance programs to make sure the provider is up to date on current Medicare rules and regulations and that all Medicare services are documented correctly; and/or utilizing external audit sources to help identify any problem areas in the provider’s Medicare claim processes.  Taking steps now to prepare for a RAC audit will not only help ease the strain such an audit places on the provider, but will also help minimize the amount of any Medicare reimbursements lost as a result of the RAC audit. 4

This article appeared in the January/February 2010 issue of the Physicians Bulletin (A publication of the Metro Omaha Medical Society).


1 The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of the 3-Year Demonstration, June 2008 ( 3A detailed review of the Medicare appeals process is beyond the scope of this article.  For a detailed explanation of the Medicare appeals process provided by CMS, access the CMS website at 4This article should not be considered as legal, tax, business or financial advice and is designed to provide general information about the subject matter covered. If legal advice or other expert assistance is required by the reader, the services of a competent professional should be sought.