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The Medicare Recovery Audit Contractor Program

The Medicare Program’s Recovery Audit Contractor (RAC) Program significantly increased the volume of post-payment reviews conducted on providers, including hospitals, and has been very burdensome on providers, especially given that RACs are paid based on a percentage of their overpayment recoveries. RAC reviews also have resulted in a large percentage of payment denials that are then reversed during the Medicare appeals process, creating a significant and problematic Medicare appeals backlog.

CMS has undertaken RAC reforms in recent years, for example:

  • The RAC look-back period is six months from the date of service for patient status reviews (when the hospital submits the claim within three months of the date of service);
  • RACs cannot receive a contingency fee until after the second level of appeal is exhausted;
  • RACs are required to have a Contractor Medical Director, and CMS encourages RACs to have a panel of specialists available for consultation;
  • RACs must maintain an overturn rate of less than 10 percent at the first level of appeal and maintain an accuracy rate of at least 95 percent;   
  • Providers with low claims denial rates will have lower additional documentation request (ADR) limits;
  • QIOs are the primary reviewers of short stay hospital inpatient cases, rather than the RACs whose review of these cases is limited to those referred by the QIO in limited circumstances.

These reforms are a positive step in the right direction, but greater reforms are needed to properly balance the interests of the RAC program. 

  • The FAH supports the following policies and additional reforms regarding RACs: RACs should not be permitted to recoup payments from hospitals until after a RAC denial is upheld by an ALJ, and similarly, RACs should not be paid until a final ALJ determination is made upholding their denial. Since RAC denials often are upheld at the first two levels of appeal, delaying the RAC contingency fee only until after the second level of appeal likely will not provide adequate incentives for the RACs to limit inappropriate denials.
  • RACs can conduct patient status reviews for providers that are referred by a QIO as exhibiting persistent noncompliance with Medicare payment policies, and since these RAC referrals will materially increase overall appeals volume, especially for patient status denials, these RAC reviews should be delayed and CMS should exercise oversight of RAC activities to prevent incentives for inappropriate claims denials.
  • RACs should be penalized when their post-payment denials are overturned on appeal at a significant rate at the ALJ level;  
  • RACs (and QIOs) should be prohibited from issuing determinations for claims when they miss deadlines for those claims;

FAH will continue to communicate with CMS as we work toward these reforms.