Healthcare entities in the Midwest have watched from the sidelines as the Centers for Medicare & Medicaid Services (“CMS”) Recovery Audit Contractor (“RAC”) program has unfolded over the last few years. No more.

Healthcare entities in the Midwest have watched from the sidelines as the Centers for Medicare & Medicaid Services (“CMS”) Recovery Audit Contractor (“RAC”) program has unfolded over the last few years. No more.

Healthcare entities need to be prepared to handle upcoming RAC reviews and the inevitable repayment/recoupment demand letters that will surely follow.

Started in 2005 as a demonstration project by CMS, the RAC program targeted the three (3) states with the greatest Medicare expenditures: California, Florida and New York. The RAC demonstration project was authorized by the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The goal of the RAC demonstration project was to test a new method for recovery of Medicare improper payments, namely the utilization of private companies operating on a contingent fee basis to indentify and recoup Medicare overpayments and underpayments. The RAC demonstration project concluded on March 27, 2008, and was declared a success by CMS that resulted in identification of $1.03 billion dollars in improper payments (96% of that amount being overpayments) over a three (3) year period.

As a result of the RAC demonstration project, the Tax Relief and Healthcare Act made the RAC program permanent and required it to be fully implemented nationwide by January 10, 2010. A gradual implementation plan has been developed by CMS. It has already begun in several Upper Midwest states, including Minnesota, Michigan, Indiana, and the Dakotas, and will begin implementation August 1 in Wisconsin, Illinois, Iowa, and the remaining states not already in the program.
Who is the subject to the RAC program?
Medicare providers and suppliers that bill Fee-For-Service programs will be subject to RAC review. The RAC demonstration project identified improper payments related to the following services: inpatient hospital, inpatient rehabilitation, outpatient hospital, skilled nursing facility, physician, ambulance and DME.

How far back can the RAC review claims?
The permanent RAC program limits claim review to a maximum of a three (3) year look back period. In no case may claims paid prior to October 1, 2007 be reviewed.

What is the RAC review process?
The RAC review is based upon claims post-payment. The RAC uses the same payment policies as fiscal intermediaries, carriers and Medicare administrative contractors. RACs are prohibited from selecting claims at random for review. They must instead use proprietary data techniques to identify improper payments. Two (2) types of reviews may be conducted by the RAC: (1) automated (no medical record review needed); and (2) complex (medical record required).

What are the medical record limits for a RAC complex review?
The CMS limitation on RAC records requests for fiscal year 2009 depends upon the provider/supplier type as shown below. Failure to timely provide records will permit the RAC to deny claims for insufficient documentation and may mean the loss of appeal rights for those claims.

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