What Is the RAC Program?

What Are Recovery Audit Contractors (RACs)?

Recovery Audit Contractors (“RACs”) contract with the Centers for Medicare and Medicaid Services (“CMS” or “Medicare”) to identify overpayments and underpayments for services billed to the Medicare program. RACs review claims submitted by various healthcare providers, such as, for example, hospitals and health systems, physicians, durable medical equipment providers, hospice and home health agencies, skilled nursing facilities with the goal of identifying improper payments. Because they are paid on a contingency-fee basis, RACs are highly motivated to find that claims were billed improperly. The RAC’s contingency fee is based upon the amount collected from and/or returned to Medicare providers or suppliers resulting from improper payments. Although they are supposed to look for both overpayments and underpayments, our experience has shown that they focus on the identification of overpayments rather than underpayments.

The RAC program began as a three year demonstration program in 2005 in California, Florida and New York. These three states were chosen because they had the highest Medicare expenditures. In 2007, the program expanded to include the following states: Massachusetts, South Carolina and Arizona.

Upon reviewing the results of the RAC demonstration program, CMS deemed the RAC program to be very “cost effective”. According to CMS estimates, the RAC demonstration program cost approximately 20 cents for each dollar returned to the Medicare Trust Funds.

The RAC program is now permanent and is active in all states. The types of payments that RACs deem to be “improper” include those for incorrectly coded services, non-covered services, duplicate services and other incorrect payments.

As with claim denials received from other CMS contractors, RAC denials can be appealed through the Medicare appeals process. Our firm has successfully defended thousands of Medicare, Medicaid, and third party payor audits and has developed strategies for substantially reducing overpayment demands. We have fully developed legal analyses and have applied the defenses of waiver of liability, provider without fault, and the treating physician rule. In the RAC demonstration program, our firm represented numerous hospitals and health systems with their appeals of claim denials and overpayment determinations, with successful results.

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