The RAC audit: What you need to know

David M. Glaser, JD, answers 4 Questions about Medicare recovery audit contractors and what to do if you are facing one.

Issue: September 2010

During this decade we will have more audits and reviews of our charges and reimbursements then ever before, as the government brings in outside reviewers to examine our billings related to Medicare and Medicaid. For this month’s interview, I turned again to a leading health care attorney who has contributed to our Hawaii course and has been a frequent contributor to our publication. He has given succinct and specific answers to the four specific questions I asked. I feel his responses will give you insight into what a recovery audit contractor (RAC) does and what we all should know if we are reviewed by one. Once we understand the rules, we can adjust our practices to abide. The penalties can be quite significant for those who do not comply and function within the current regulations.
Douglas W. Jackson, MD
Chief Medical Editor

Douglas W. Jackson, MD: What are RACs and what services do they perform?

David M. Glaser, JD: An RAC is a recovery audit contractor. RACs are private companies that the government hires to audit Medicare payments under both Part A and Part B. A few years ago, the Centers for Medicare & Medicaid Services (CMS) decided to investigate whether their Medicare overpayment recoveries would be higher if the contractor worked on a contingency or commission basis. They began a demonstration project and concluded that the RACs recovered more money than Medicare carriers and intermediaries. As a result, CMS elected to implement the program nationwide. The RACs receive a percentage of all overpayments and underpayments that they identify. The RAC does not receive its fee if the RAC’s finding is reversed on appeal.

Jackson: What does an RAC review mean?

Glaser: An RAC review is an audit. While many consultants have suggested that the emergence of RACs is a major development, I view them as simply another acronym for an entity that can complicate life for a physician. An RAC review is essentially the same as the Medicare audits that have been conducted by Medicare carriers for years. An RAC review means that an outside entity is going to be reviewing your claims to determine whether they are properly documented, whether the services were medically necessary, and whether you complied with all Medicare policies.

There is a slim possibility that RAC reviews will ultimately prove to be slightly less problematic to physicians than traditional Medicare audits. Because the RACs are paid only if their audit standings survive appeal, the RACs have a financial incentive to be accurate in their audits. By contrast, Medicare carriers were paid on a cost basis, and had less incentive to worry about their accuracy. However in my experience to date, the RACs, much like Medicare carriers, have regularly taken positions that are entirely inconsistent with Medicare policy, attempting to collect overpayments for services that should be covered.

In short, a RAC review is exactly like any other Medicare audit.

Jackson: What are some suggestions for getting one’s practice ready for an RAC review?

David M. Glaser

Glaser: Since RAC reviews are just like any Medicare audit, the preparation is identical. First, make certain that your services are properly documented. While “if it isn’t written it wasn’t done” is not the law, RACs believe that it is, and they will attempt to recover any insufficiently documented service. Make certain that you are complying with the basic Medicare policies like those governing services “incident to” a physician’s services and the supervision of diagnostic tests. Also, make sure that your physicians and practices locations are properly enrolled, and that any necessary reassignment forms have been completed.

You may consider having an outside coding expert periodically review your practice. If you have internal experts, a review of a small number of claims should confirm that your coders are doing a good job. Ask the outside coding expert or competent health law counsel to describe the policies most likely to result in an audit and make certain that you are taking steps to comply with those policies.

Jackson: If an RAC determines that you owe money, what are some options?

Glaser: Appeal. You might fear that an appeal is expensive; However, many, if not most malpractice policies now include a free rider that covers the cost of administrative issues like RAC audits. These policies typically provide $25,000 or $50,000 to cover the defense of audits. Depending on the complexity of the audit and the expertise of your counsel, your costs may be far less.

If you don’t have insurance coverage, it is still possible to do an appeal at relatively low cost. You are not required to use a lawyer in an appeal, so if the dollars involved are small, you can run your own appeal. If the amount involved is larger, or the facts involved would set a significant precedent if you lose, you should involve a lawyer early in the case.

The second level of appeal is the Qualified Independent Contractor (QIC). You are not allowed to present any evidence to the Administrative Law Judge — the third level of appeal — unless there is “good cause” for failing to present it to the QIC. Therefore, you will want a lawyer involved at the QIC level, if not sooner. If you work with counsel who is experienced with appeals, he or she should be able to make certain that the benefit of their work outweighs the cost.

David M. Glaser, JD, is a health care attorney at Fredrikson & Byron, P.A., 200 South Sixth St., Suite 4000, Minneapolis, MN 55402; 612-492-7143; e-mail: dglaser@fredlaw.com.