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What Is a RAC Audit?

Categories: Health Care Law

RAC Audit
Oberheiden & McMurrey, LLP
Former Medicare Prosecutors & Defense Counsel

Recovery Audit Contractors, or RACs, perform audits on invoices submitted to Medicare and Medicaid.  The Centers for Medicare and Medicaid Services (CMS) implemented the RAC Audit program in 2010 as part of an effort to detect and address previous incorrect payments and curb improper payments in the future.  Anyone who submits invoices to CMS on a pay-for-services basis may be reviewed pursuant to a RAC audit, including doctors, healthcare service providers, medical equipment suppliers, hospitals and medical facilities.  However, RAC audits are limited in scope.  They only analyze data for claims that have already been paid and they only look back three years from the date of payment.

How Does a RAC Audit Work?

Every RAC team includes certified coders, nurses, therapists and at least one certified medical director (CMD) physician.  RAC review is divided up regionally, with different RACs covering specific regions of the country.  While all RACs rely on the same coding and billing policies, medical standards, and Medicare regulations, each RAC is responsible for designing its own auditing software and database.  CMS supplies the RACs with claim files from their respective regions, and the RACs then scan the billing data for both overpayments (usually caused by improper billing codes or medically unnecessary charges) and underpayments.

RAC audits may be either “automated” or “complex.”  An automated review simply runs billing data through the RAC’s software program and essentially amounts to data mining.  Automated reviews search for facially evident errors in the claims, such as non-covered services or clearly incorrect coding.  A complex review involves human review of patient medical files and are used to address situation where coverage of services is unclear or where the Medicare policy is ambiguous.

During the audit process, the business or practitioner undergoing the audit will have a chance to converse with the auditors about the apparent improper payments.   If an RAC audit determines that there exists evidence of overpayment, the RAC will issue a demand letter detailing their findings and the amount of overpayment.

Once you have received the RAC’s demand letter, you may either agree to repay any discrepancies or you may appeal the findings.  If you accept the RAC’s determination, you have several options for repayment.  You may pay the amount in one lump sum, you may agree to withholdings from future CMS payments, or you may apply for a long-term repayment plan.

What Can I Do If I Receive an Unfavorable RAC Determination?

The RAC program has a five-tiered appellate process for business or practitioners that wish to challenge a determination.  An appeal may advance legal defenses to the adverse determination, may seek to justify medical necessity for claims that were deemed unnecessary, or may attack the RAC’s procedures or extrapolation.

Redetermination.  A provider who wishes to dispute the RAC’s initial determination may file an appeal for a redetermination within 120 days.  The redetermination will be assessed by the Medicare Fiscal Intermediary (FI) who processed the original disbursement.  The FI then has 60 days to consider the appeal and issue a redetermination decision.

Reconsideration.  Adverse redeterminations may be contested through a second level of appeal called a reconsideration.  Reconsiderations are submitted to Qualified Independent Contractors (QICs), who are neutral arbiters that did not participate in the redetermination decision.  A request for reconsideration must be filed within 180 days from receipt of the redetermination decision, and the QIC has 60 days to return a decision.

Administrative Law Judge Hearing.  Unlike a redetermination or a reconsideration, the third level of RAC audit appeal involves a hearing and has a minimum amount in controversy requirement.  The amount in controversy threshold is adjusted annually; in 2016 it was $150.  The hearing is in front of an administrative law judge (ALJ) and may be conducted in person or via video-conference or telephone.  An ALJ hearing must be requested within 60 days of receipt of the reconsideration and the ALJ has 90 days to issue a decision on the appeal.

Medicare Appeals Counsel Review.  An adverse ALJ decision may be appealed to the Medicare Appeals Counsel (MAC) within 60 days of issuance.  The MAC must issue its determination within 90s of the request for review; if the MAC misses this deadline, the provider may seek to have the appeal forwarded directly to the fifth and last stage of appeal, judicial review.

Judicial Review.  The final stage of the RAC audit appeals process is judicial review by a federal district court.  As a prerequisite for review, the appeal must be filed within 60 days of the MAC decision and there is an amount in controversy threshold.  The amount in controversy requirement is adjusted every year; in 2016 the minimum amount was $1,500.

If you have received an adverse RAC audit determination, you should contact an experienced health care defense attorney today to discuss your options.

We Can Help You

  • Nick Oberheiden has successfully represented healthcare executives, business owners, public officials, physicians, and lawyers in healthcare prosecutions across the United States. Dr. Oberheiden is the managing principal of Oberheiden & McMurrey, LLP and he assists clients in Dallas, Garland, Mesquite, Richardson, McKinney and surrounding communities in federal healthcare investigations.
  • Attorney Lynette S. Byrd focuses her practice on civil and criminal litigation, Medicare and insurance audits, and general advice and counseling in health care law. She is a former Assistant United States Attorney with years of substantial trial experience under her belt who merges excellent litigation skills with profound understanding of the law.

Call us today and speak to one of our experienced attorneys directly. We are available to discuss your situation in a free and confidential call, including on weekends.

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Oberheiden & McMurrey, LLP
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