Provider Strategy


New changes to the RAC program will start this month. What does that mean for providers?

Despite concerns identified by Congress and provider groups, CMS announced in November the contract awards for the Medicare Recovery Audit Contractor (RAC) program. This includes the RAC for Jurisdiction 5, which is a national contract to perform audits of durable medical equipment, prosthetic, orthotic and supplies (DMEPOS) claims as well as home health and hospice claims. As a provider submitting claims to a DME MAC, you are subject to these types of audits. The first round of RAC audits that occurred in 2011-2013 really had a significant impact on providers. The previous RACs identified many types of claims for review and the audits resulted in millions of dollars of recoupments. Many of these recoupments are still making their way through the backlogged appeal system, which ironically, was a result of the huge volume of RAC audits.

There have been some changes to the program for the first round that is important to know and will be discussed in this article. The most important item to note; however, is that these audits are expected to begin around March 1 of this year and will likely be just as intensive as they were previously. They will be auditing the claims you have submitted over the last 3 years. The RAC that was awarded this national contract, Performant Recovery, had previously identified and got CMS approval for a number of automated, semi-automated, and complex reviews; therefore, it is likely many of these types of reviews will begin again immediately. There were not many product categories that were not subject to RAC reviews. Some other changes that are important to note:

Establishing ADR limits based on a provider’s compliance with Medicare rules.

Due to the nature of this program with these contractors reimbursed a contingency fee (new RACs negotiated rates between 7-17 percent), this element actually occurred naturally; however, CMS has now written into the Statement of Work (SOW) for the new RAC. Essentially, this means that if you perform well in your RAC audits, then the RAC limit to how many audits they can conduct is reduced. The RAC is limited to the number of claims they can audit per provider based upon a formula that is dependent on claim volume for the previous year. Previously, if you performed well, they would naturally focus their audit efforts on other providers that did not perform as well.

RACs must wait 30 days to allow for a discussion request before sending the claim to the MAC for adjustment.

Previously, when the RAC identified an overpayment, they would simultaneously send the notification to the provider as well as the DME MAC, which is responsible for implementing overpayment proceedings. However, they would also offer the provider 30 days to request a “discussion” with the RAC. If the provider also wanted to take advantage of the limitation on recoupment provisions to stop collection of the overpayment, they would have to submit their Redetermination Request within 30 days as well. If a provider received a favorable outcome during the discussion period, they then had to submit a request to withdraw the Redetermination. CMS implemented this change to avoid this unnecessary step. So, now the DME MAC will be notified once the discussion period is over and then overpayment proceedings will begin.

SOW also says that RACs are expected to support CMS in a minimum of 50 percent of the cases that make it to the ALJ.

We have definitely seen an increase in our practice of contractor participation at our ALJ Hearings. It is usually the DME MAC or the QIC, but now it seems that the RAC will also be expected to participate. The main difference here is that the RAC has a vested interest in making sure the claim remains denied. This certainly makes our job a little harder at the hearings themselves, but understanding the policy requirements and preparation is the key to success. Do not give up appealing these denials despite this additional hurdle. We regularly receive favorable decisions in our appeals even with contractor participation.

CMS also says in the SOW that the agency has the authority to settle appeals without RAC approval or input.

This is interesting and likely related to the settlement conference pilot program that has been initiated to help try to reduce the ALJ backlog. In some cases if they qualify, a provider can elect to participate in a settlement conference as opposed to waiting years to get a hearing scheduled. The backlog, caused in large part by the first round of RAC audits, continues to be extremely high. A court order recently announced requires HHS to reduce the backlog entirely by 2021. It is unclear how that will occur, but the previous administration had proposed in its budget to use some of the funds recovered from the RAC program to fund the Office of Medicare Hearings and Appeals, but it is unclear if the incoming administration will adopt this budget proposal. If not, it is very likely to expect the appeal volume to increase again causing an ever larger backlog. Regardless, CMS clearly wants the ability to settle some of these claims outside of the ALJ process.

RACs will not receive their contingency fees until the 2nd level of appeal has been exhausted.

In the first round of RAC audits, the RACs received their contingency fee up front and then later, if the denial was overturned, it was offset off of their future payments. CMS has realigned the program so that the contingency fee is not received until after the Reconsideration, which coincides with the time period in which the provider must refund the overpayment to Medicare. CMS claims this change ensures that the RAC is properly applying Medicare rules and regulations on the claims they audit, but it also reduces a burden on CMS to calculate and offset payments to the RAC, especially with the amount of claims that were being overturned.

RACs must maintain an accuracy rate of 95 percent and an overturn rate of less than 10 percent.

For the first time CMS has publicly announced error rates for a contractor. This is unique and the error rates they must maintain are significant. An error rate no more than 5 percent must be maintained and less than 10 percent of claims should be overturned at the Redetermination or Reconsideration level of appeal. A failure to meet these requirements will result in decreased ADR limits or elimination of certain reviews until the problems are corrected. In the first round of RACs, we certainly saw a number of errors by the RAC, so it will be interesting to see how well they perform in this most recent round.

The RAC is conducting outreach sessions and you can visit the DME MAC web-sites for details on upcoming RAC events. The bottom line is that these audits are back and providers must be ready. Documentation is your only defense, and with complex reviews, the medical records must be very comprehensive. The van Halem Group offers many proactive and reactive RAC audit defense services. Do not wait until the RAC comes knocking to prepare.

This article originally appeared in the March 2017 issue of HME Business.

About the Author

Wayne van Halem is the founder and President of audit consulting firm The van Halem Group ( Established in in 2006, the Atlanta-based firm merged with VGM Group in 2014. The van Halem Group helps providers navigate complex issues related to audits, appeals, enrollment, coding, education and compliance. Since its foundation, van Halem's company has saved clients over $100 million in over-payments and denial recoveries.

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