How to Defend Against Alleged Overpayment

Recovery Audit Contractor (RAC) audits were first introduced in 2005, peaked around 2010, and experienced a slowdown during COVID-19. In 2006, Congress authorized the Centers for Medicare & Medicaid Services (CMS) to initiate the RAC program in three states: New York, Florida, and California.

Audits originally focused on detecting incorrect coding, duplicated services, fraud, and more. Arizona, Massachusetts, and South Carolina were added to the project in 2007, and Congress expanded the RAC program nationwide in 2010.

We all know about the problems.

When the RAC program was rolled out nationwide, it presented three key challenges that providers found difficult to overcome:

1. Overly aggressive RACs: RAC audit fees were (and still are) paid out by the Centers for Medicare & Medicaid Services (CMS) on a contingency fee basis, meaning the more dollars they denied and “recovered,” the higher the fees they collected. This model essentially incentivizes RACs to be aggressive in their audit approach, especially with regard to hospitals with high-value claims.
2. More paperwork, less time: Most providers were not prepared for the onslaught of medical record requests and often sustained denials, simply because they were not able to respond and submit records on time.
3. Overwhelmed appeals process: Over a short period of time, the Medicare appeals process became overwhelmed with provider claims at all levels. Appeals response became extremely slow.

With all these issues causing providers grief in the RAC audit process, change was inevitable, and RAC audits began to slow. There are conflicting anecdotes and explanations as to why, but whatever the case, CMS noticeably backed down in terms of RAC audit frequency and document requests in the mid-2010s. They ramped up again once they deemed themselves fixed. Are they fixed?

When RAC audits were introduced, providers received an unmanageable volume of audit requests from payors. Now, changes have supposedly led to fewer audits and less paperwork, giving hospitals the opportunity to focus more broadly on all types of payor audits. If that’s the truth, don’t ask my clients.

But still, every year, review contractors issue an estimated 2 million requests to healthcare providers for medical documentation and records. All too often, these requests are fulfilled through cumbersome manual processes. The sheer volume of activity reveals workflow gaps and inefficiencies in a process that can be up to 90 percent manual, and at risk for data quality issues.

These inefficiencies are only exacerbated by tightening labor markets and a shortage of team members in hospital finance departments nationwide. With fewer people doing the same amount of work, teams are prone to error.

CMS re-launched the RAC audit program in 2018 with new rules and guidelines for audits. The biggest changes included:

• Reduction in the number of documents a RAC could request in a certain time frame. This meant fewer audits with fewer document requests per audit.
• Increase in CMS’s willingness to engage in mass settlements. The backlog in the appeals process became so overwhelming that CMS began to settle appeals more often to save time.

With these key changes in place, RAC audits started back up with a bit less chaos. These audits ran as usual before pausing in March 2020 as a result of the declaration of a national health emergency due to the COVID-19 pandemic. After a brief break, RAC audits began again in August 2020 and continue today.

Today, we are where we are. RACs are not as intrusive as in 2006. But they are still intrusive. Being audited is a hassle, to say the least. RACs are not paid 13.5-percent contingency fees until the appeals process is concluded.