A Look at RACs — Part II: How Should Physicians and Other Providers Respond to a RAC Audit?

RAC Audit

(June 29, 2010): In Part I of this series, we reacquainted you with the design and purpose of the now permanent Recovery Audit Contractor (RAC) Program. Although RACs largely focused on inpatient care during CMS’ demonstration program, RACs are a real threat to small providers that don’t have the intensive compliance programs in place that most hospitals do. In this Part II, we will look at how physicians, home health, hospice, and durable medical equipment (DME) suppliers can prepare for and respond to RAC audits.

Even if no demands are issued, the RAC audit process exposes providers to substantial risks and administrative costs. Fortunately, both can be managed with thoughtful implementation of effective compliance measures and a well-planned response to an audit.

I. How Should Physicians and Other Small Providers Prepare for a RAC Audit?

It is essential that the preparation for a RAC audit begins before the RAC ever knocks on the door. Deadlines are tight and so physicians without effective compliance programs in place run the risk of claims being denied simply because they can’t show that they crossed all the “T’s” and dotted the “I’s” in time.

Physicians, home health, hospice, and DME suppliers can begin to target their compliance efforts by examining the reasons for denials issued during the recently concluded RAC demonstration program. During the course of that program, of improper payments identified,

  • 35% were the result of incorrect coding;

  • 8% were the result of insufficient documentation (including failure to submit information on time or to submit enough information); and

  • 17% were the result of other issues, such as basing claim payments on outdated fee schedules or duplicate claims. Meanwhile,

  • 40% were deemed medically unnecessary.

In other words, 60% of denied claims had nothing to do with patient care. No one goes into health care to spend their time creating and perfecting paper trails but long experience with Medicare tells us that doing so cannot be avoided.

Thus, to prepare for a RAC audit, as a provider you can:

  • Implement and continuously review your compliance plan;

  • Review the documentation requirements for each item or service you provide;

  • Maintain your files thoroughly and consistently;

  • Do NOT rely on other suppliers or providers for record-keeping; and

  • Make sure all your documentation is legible.

II. How Should Physicians and Other Small Providers Respond to a RAC Audit?

The RAC audit process starts with a request for records, upon which the provider has a strictly enforced 45 days (plus mail time) to respond. Upon receiving a request for records, providers can take several steps to protect yourselves:

  • Take care before conducting an internal review of the claims requested. While an internal analysis can be invaluable, you want to avoid creating a non-privileged paper trail of identified problems that could later be referred to law enforcement if a RAC makes a fraud referral.

  • Review past claims audits and evaluations to determine whether the requested claims have been previously evaluated.

  • Remember that filing deadlines are strictly enforced so calculate early on when appeals must be filed and begin to gather supporting documentation.

  • Consider retaining an expert in extrapolation.

  • Do NOT assume the contractor’s arguments are meritorious. Carefully review Medicare policy to see if the RAC cited it correctly.

  • Retain duplicates of any information that you submit to the RAC.

III. Is Anything Different in the Permanent Program?

Small providers with experience being audited in the demonstration program should be on the lookout for the several changes implemented under the permanent program that may help protect them. For instance,

  • RACs’ Contractor Medical Directors are now required to speak with a provider regarding a claim


    if requested, and a reviewer must provide credentials upon request.

  • The reason for the review must be listed on a request for records letters and overpayment letters.

  • The look-back period is reduced to 3 years from 4.

  • CMS has set uniform limits on the number of records that can be requested in a 45 day period (sliding scale).

More details concerning these and other changes to the permanent program can be found in the CMS RAC Demonstration Evaluation Report, available at https://www.cms.gov/RAC/02_ExpansionStrategy.asp.

Read A Look at RACs -- Part I

Read A Look at RACs -- Part III

Health Care Attorney

Should you have any questions regarding these issues, don’t hesitate to contact us. For a complementary consultation, you may call Robert W. Liles or one our other attorneys at 1 (800) 475-1906.