The RACs are charged with detecting improper Medicare underpayments and overpayments, correcting them, and implementing actions to prevent future payment errors.

“Not having a plan in place to respond to the RAC’s requests and notifications could have a negative financial impact on your organization,” explains Steve Rader, health care reimbursement principal with LarsonAllen.

Demonstration program identified millions in over and underpayments
In 2003, Congress directed the Department of Health and Human Services to conduct a three-year demonstration program using RACs to detect and correct improper Medicare payments. It ran from March 2005 through March 2008 in California, Florida, and New York, and was expanded in 2007 to include Arizona, Massachusetts, and South Carolina. The Tax Relief and Healthcare Act of 2006 mandated CMS to implement a RAC program on a permanent and nationwide basis no later than 2010.

According to CMS, as of March 27, 2008, the RAC demonstration project had identified $992.7 million in overpayments and $37.8 million in underpayments. The RACs are paid a contingency fee—a percentage of the dollar amount of the improper payments identified.

RAC program time frame and expansion
For the permanent nationwide RAC program, CMS will select four RACs and assign them to certain states. The following map indicates how CMS intends to divide the states into four regions and gives the projected time frame for the RAC program expansion to each state.

How to prepare for the RACs
Providers can prepare for the RAC program by developing a strategy and creating policies and procedures to respond to all RAC requests. Your plan should address interdepartmental communication to notify clinical, reimbursement, and financial staff of any and all RAC requests. Providers should keep detailed records of all correspondence from and with the RACs including their inquiries and determinations.

The RAC review processes
Under the permanent RAC program, the contractors will review claims paid on or after October 1, 2007, and will not look back more than three years.

During the demonstration project, the RACs performed two types of reviews: automated reviews and complex medical reviews. The automated reviews were designed to identify the “low hanging fruit” and used data mining techniques to identify multiple units billed, missing modifiers, and payments for discontinued Health Care Procedure Code/Current Procedural Terminology (HCPC/CPT) codes. The complex medical reviews involved reviewing medical records or other documentation. It is uncertain if the audit process will remain the same in the next phase. “The RACs may change their approach to keep some unpredictability to their audits,” Rader says.

The claim review process for medical records reviews is:

1. The RAC requests medical records or other documentation.
2. Providers have 45 days to comply with the request.
3. If the requested documentation is not submitted within 45 days, the RAC may identify the claim as an overpayment by default.
4. The RAC has 60 days to review the chart and issue a denial or an “all clear” letter to the provider.

How to dispute Medicare claim adjustments
To dispute a RAC adjustment, providers can submit a rebuttal to the RAC within 15 days of the denial and/or file an appeal following normal Medicare appeal rules. An appeal must be filed soon after the RAC’s notice of its decision (initial determination), and the initial determination date is presumed to be five days after the date of the denial notice or the date of the take-back. The various appeal levels and strict deadlines are outlined below:

1. File an appeal or re-determination with the Medicare fiscal intermediary (FI) within 120 days after the initial determination.
2. File an appeal with a qualified independent contractor (QIC) within 180 days of receiving the decision from the FI.
3. File an appeal with an administrative law judge (ALJ) within 60 days of the QIC decision.
4. File an appeal with the Medicare Appeals Council (MAC) within 60 days of the ALJ’s decision.
5. If still dissatisfied with the determination, the provider can file legal proceedings in U.S. District Court within 60 days of the MAC determination.

How to dispute Medicare denials
In the event of any denials, the provider should consider the value of filing a rebuttal and/or appeal. Keep in mind these factors:

• The financial impact and the cost versus the benefit of the appeal
• The availability and accuracy of the medical records
• The implications of not filing an appeal

Not filing an appeal could force the provider to institute changes in policies and procedures and could potentially expose the provider to higher scrutiny and increased medical audits.