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RAC Audits: Changes Are Coming

The increase in RAC audits hit HMEs hard, but major changes are in the works.

With audits playing as pivotal a role in the industry as they are, it is critical for providers to understand a key figure in CMS’s audit program: the Recovery Audit Contractor (RAC). The RAC is a Medicare contractor that identifies overpayments and underpayments (a rare find indeed!) to providers and suppliers. And, most importantly, big changes are in the works for the RACs.

The RACs are not fraud and abuse contractors. Actually, if the RAC suspects or identifies fraud, it is to refer the matter to the ZPIC. The RAC began as a demonstration project from 2005 to 2008. CMS determined the project was very successful when it returned over $900 million in overpayments to the Medicare Trust Fund and $38 million returned to providers. Due to this success, the RACs became a permanent and national program in 2009 with four RAC jurisdictions.

In 2013, the RACs reported $3.65 billion in overpayments collected and $102.4 million in underpayments repaid to providers and suppliers. The overpayments total did not include the costs, various levels of appeals, etc., which reduces the return to the Trust Fund. (To read the report, visit bit.ly/HMEB-2013RACreport.)

The remarkable increase in RAC audits has put a huge financial burden on providers and suppliers to just respond, much less appeal these audits and have monies recouped until appeals are had. Unfortunately, appeals of RAC audits have overwhelmed the Administrative Law Judges (ALJs) also and their workload has hit an all time high that is completely unsustainable. This backlog has resulted in a two-year wait just to be assigned an ALJ and at least another year for a hearing, while the RACs have the recouped funds.

Change is on the Way

For years, providers, suppliers, Congress and now the ALJs have complained about the RACs and the extreme volume of audits and appeals with a huge overturn rate. Finally, CMS is responding!

First, as CMS RAC contracts expired and were put out for bid in 2014, CMS “responded” to “industry feedback” and made numerous changes to the RAC program to be more effective and efficient. Some of the changes include:

  • Enhanced oversight, reduced provider burden and more program transparency.
  • Changes will be effective with each new contract.
  • As RACs are rebid, they will no longer audit all claims types.
  • The RAC jurisdictions are rezoned from A,B,C & D to RAC jurisdictions 1, 2, 3, 4 & 5.
    • RACs 1, 2, 3 & 4 will audit Part A and Part B claims
    • RAC 5 – National DMEPOS, Home Health and Hospice
  • Dec. 30, 2014 award of the new National RAC for DMEPOS and Home Health and Hospice to Connolly LLC.

It’s important to note that all the new RAC contract awards are under bid protest, and none of the RAC program changes will go into effect until the new contracts are finally awarded. For a full list of improvement changes for the RAC program, visit go.cms.gov/1RRezAI.

Second, CMS RAC “improvements” under the new contracts include:

  • Additional Document Requests (ADRs) limits will be established based on a provider’s compliance with Medicare rules; lower denial rates will equal lower ADR limits, and providers with higher denial rates will have higher ADR limits. The ADR limits will be adjusted as a provider’s denial rate decreases.
  • RAC look-back period will be limited to six months from the date of service vs. the current three year look back period. (If hospital submits the claim the look back is three months from date of service)
  • ADR limits will incrementally apply to new providers under review.
  • Broaden RAC topics for audit to include all claim/provider types.
  • RACs will have 30 days to complete complex reviews and notify providers of findings.
  • RACs must wait 30 days to allow for discussion with the provider before sending to the MAC for adjustment and must confirm receipt of discussion with provider request within 3 business days.
  • RACs will NOT receive a contingency fee until after the 2nd level of appeal is exhausted.
  • RACs must maintain an overturn rate of less than 10 percent at the first level of appeal — excluding claims denied due to no or insufficient documentation or corrected during appeal process.
  • RACs will be required to maintain an accuracy rate of at least 95 percent and failure to do will result in a progressive reduction in ADR limits. CMS will use a validation contractor to assess RAC identifications and ensure accuracy of RAC automated reviews.

Implement Proactive Internal Audits

With the coming changes to the RAC program, there is a great opportunity to reduce the time, money and risks dealing with RACs. While it may appear that having a National RAC for DMEPOS and Home Health and Hospice is not a “good” thing, we believe it will be very beneficial. Many contractors have no background and little understanding of the DMEPOS and Home Health and Hospice worlds. These areas have their own “language” in billing codes, as well as policies and procedures and coverage issues that many don’t know or understand. At least with this “specialty” RAC, they should have more expertise and better understanding to perform audits; which will hopefully reduce the “nuisance” audits.

For all providers and suppliers, effective internal auditing and monitoring of your claims will reduce errors. If you reduce errors in billing, it will lower your denial rates. With lower denial rates, the RAC ADRs will be reduced accordingly. And remember, RACs are only paid if they recover an overpayment or an underpayment. If they don’t find errors and make overpayments in your claims, they’ll move on to the next provider or supplier. Finally, you now have some control and ability to reduce the number of RAC audits. Perform internal audits, know your numbers, and reduce your errors.

This article originally appeared in the June 2015 issue of HME Business.

About the Author

Pam Felkins Colbert, JD, is vice president of Medicare consulting and auditing firm The van Halem Group (www.vanhalemgroup.com), a Division of VGM Group Inc.

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