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Understanding Medicare Recovery Audit Contractor (RAC) Audit

What is Recovery Audit Contractor (RAC) Audit?

As a combined effort to fight fraud, waste, and abuse in the Medicare program, Recovery Audit Contractor (RAC) audit was in place from January 1, 2010. The goal of the recovery audit contractor program is to identify improper payments made on claims for services provided to Medicare beneficiaries. Improper payments may be overpayments or underpayments.

  • Overpayments can occur when providers submit claims that do not meet CMS coding or medical necessity policies. 
  • Underpayments can occur when health care providers submit claims for a simple procedure but the medical record reveals that a more complicated procedure was actually performed. 

Providers that could be reviewed under the RAC audit include hospitals, physician practices, nursing homes, home health agencies, durable medical equipment suppliers, and any other provider or supplier that submits claims to Medicare. In March 2020, CMS suspended RAC reviews due to the COVID-19 Public Health Emergency (PHE), however, in August of 2020 RAC audits resumed.

The goal of the Recovery Audit Contractor (RAC)

As discussed above, RAC contractors are tasked with identifying improper payments made on claims of health care services provided to Medicare beneficiaries. Under most circumstances, the RAC will request medical records from the provider to determine whether overpayment and/or underpayment have occurred. Payments will be deemed improper when:

  • Payments are made for services that were medically unnecessary or did not meet the Medicare medical necessity criteria.
  • Payments are made for services that are incorrectly coded (e.g., the provider submits a claim for a certain procedure, but the medical record indicates that a different procedure was actually performed).
  • Providers fail to submit documentation to support the services provided when requested or fail to submit enough documentation to support the claim.
  • The provider is paid twice because duplicate claims were submitted.
  • Other errors are made (e.g., the carrier pays the claim according to an outdated fee schedule). 
  • Medicare pays a claim that should have been paid by a different health insurance company (e.g., a beneficiary is employed and gets health benefits through his or her job, that health insurance company-not Medicare-that may be the primary payer of the beneficiary’s health care services).

Filing an Appeal

The RAC Contractor has the ability to perform extrapolation based on improper payments identified during a review. If you receive an overpayment demand letter, and if you believe the request for overpayment is unjustified, you must file an appeal. You can file an appeal within 30 days of receipt of the overpayment demand letter to avoid a Medicare recoupment action. Interest begins to accrue 31 days from the receipt of the overpayment letter regardless of whether an appeal is filed. No interest accrues if repayment occurs within 90 days. You have to call the RAC within 15 days from the date you receive the demand letter to discuss the overpayment and send any evidence to counter an offset. Note that calling your RAC does not constitute a formal appeal. There are five levels of appeal:

  • 1st level appeal/ Redetermination: You have 120 days to file the first appeal. Redeterminations are conducted by Carriers or Medicare Administrative Contractors (MAC). While you have 120 days to file the first appeal, you can only avoid a Medicare recoupment action if you do so within 30 days. The carrier’s decision is usually issued within 60 days from receipt of the redetermination request.
  • 2nd level appeal/ Reconsiderations: You have 180 days to appeal to the 2nd level. Reconsiderations are conducted by Qualified Independent Contractors (QICs). The QIC’s decision is usually issued within 60 days from receipt of the reconsideration request.
  • 3rd level appeal/ ALJ level: You have 60 days to appeal to the 3rd level. At the third level of appeal, an Administrative Law Judge (ALJ) will review your case. If the ALJ level process reverses the Medicare overpayment determination, Medicare will refund both principal and interest collected, and pay interest on any recouped funds that Medicare took from ongoing Medicare payments. The ALJ will generally issue his or her decision within 90 days of receipt of the hearing request.
  • 4th level appeal: 60 days to appeal to the 4th level. At the fourth level of appeal, an HHS Department Appeals Board (Medicare Appeals Council) will review your case. The MAC will generally issue its decision within 90 days from receipt of your request for review.
  • 5th level appeal: Again, 60 days to appeal to the 5th level. At the fifth level of appeal, a Federal District Court will review your case. At least $1,220 must be in controversy following the MAC review, and this amount will be increased annually.

To summarize

Outsourcing Medical billing is complex, and your staff must be knowledgeable about many areas pertaining to billing and reimbursement. You have to establish compliance and practice standards and need to conduct internal monitoring and auditing to evaluate adherence. Your staff must stay current on coding requirements, need to keep up with industry changes, understand the denial and appeal processes, and be able to identify resources for support. 

If you are audited, most importantly, do not ignore a letter from the RAC auditor. If you are worried about your billing compliances with Medicare, you can take assistance from us. MedicalBillersandCoders (MBC) is a leading medical billing company providing complete revenue cycle management services. We can assist you in medical billing and coding for Medicare, Medicaid, and for all private insurance carriers. To know more about our services, contact us at 888-357-3226


Medical Billers and Coders

Catering to more than 40 specialties, Medical Billers and Coders (MBC) is proficient in handling services that range from revenue cycle management to ICD-10 testing solutions. The main goal of our organization is to assist physicians looking for billers and coders, at the same time help billing specialists looking for jobs, reach the right place.

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