Medical Billing Blog

Medicare RAC Program - Proposed Update

Posted by Scott Shatzman on Mon, Apr, 14, 2014 @ 07:04 AM

1234Under the Medicare Recovery Audit Contractor (RAC) program, the Contractors get paid a percentage of the” inappropriate” payments they identify and recover.  Some have compared this to a Medicare “bounty hunter” program.


Recent data suggests that there is a very high rate at which the payments the RAC identifies as “inappropriate” are later deemed appropriate by physicians and hospitals who challenge the RACs findings.   This raises the question of whether the RACs are challenging too many payments and whether these audits are truly identifying inappropriate payments.


In order to try to “level the playing field” the Senior Democrat on the House Ways and Means Health Subcommittee has proposed that in the event a Medicare payment challenged by a RAC is later overturned under appeal, the RAC should be assessed a financial penalty.  Proponents of this proposal argue that this will cause the RACs to “Think twice” before undertaking an audit to ensure that only truly inappropriate payments are being challenged.


The proposal, put forward by Congressman Jim McDermott (D-WA), recommends that auditors that challenge Medicare billings face a penalty if the claims they flag turn out to be legitimate.  According to the American Hospital Association, nearly 75% of hospital appeals of RAC findings filed in the 1st quarter of 2012 were overturned in favor of the hospital. 


In a letter to HHS Secretary Kathleen Sibelius, McDermott said, “I suggest that there needs to be some financial penalty associated with RA collections that are overturned on appeal.  Whether the RAs are forced to pay the cost of the appeal or whether there is some percentage penalty assessed against the RA, some penalty should be assessed.”


According to recent data released by CMS, in 2013, over 130,000 RAC determinations were appealed.  The appeal backlog is so large that on average, it is taking nearly a year to process the appeals


Instead of being paid a flat fee, the firms get to keep a portion of the improper payments that they find, with this contingency fee having ranged from 9 percent to 12.5 percent in fiscal 2009 and fiscal 2010, according to Medicare.


In a related development, CMS announced changes to the RAC program for the new Contract cycle – which is currently in review. 


Thanks to Bill Finerfrock, Matt Reiter, Lara Burt and Carolyn Bounds for contributing this article.