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Medicare RAC Audits and RAC Appeals - Question & Answer Forum - RAC FAQ
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Medicare RAC Audits & RAC Appeals - Frequently Asked Questions

In order to identify and recoup perceived overpayments to healthcare providers nationwide, the Medicare Modernization Act of 2003 initially established the Medicare Recovery Audit Contractor (RAC) three-year demonstration program in Florida, New York and California.  Over the 3 year time frame from 2005 - 2007, CMS and RAC auditors recouped over $980M from providers in Florida, New York and California.

In the Tax Relief and Health Care Act of 2006, the RAC program was made permanent and the Centers for Medicare & Medicaid Services (CMS) was mandated to roll out the program to all 50 states by 2010.  A limited national budget and CMS' desire to center Medicare's reimbursement structure around evidence-based outcomes has brought the RAC audits program to the forefront for every provider of Medicare services.

Do you have a question about CMS efforts to stop Medicare fraud & abuse, CMS RAC audits, RAC appeals, CMS payment criteria, "medical necessity", medical record documentation, the charge master or Medicare cost report?  Send us a detailed note to questions@racaudits.com, we will send you a response within 1 business day and will post Frequently Asked Questions here as an additional resource for providers nationwide. (please note: also feel free to ask questions relating to PSC audits, ZPIC audits or MIC audits and we will route those questions to the appropriate CRMG staff for response)

Q:  What makes RAC audits different than any other Medicare audit?

A:  Several issues separate the new RAC audits from the traditional Medicare audit process.  We have highlighted 3 major differences below for your consideration:

1)  The objective of the RAC audit is not the same as a traditional Medicare audit.  The traditional process - for areas like Medicare Cost Reports and QIO medical review probes - were designed as minimal, targeted provider oversight roles with limited budgets for personnel and related technology.

The RAC audits are being completed outside the traditional CMS framework by a new age of medical collection agencies.  The CMS goal (when combining RACs with a wide range of p4p initiatives) is to insure that providers aggressively adopt Medicare's evidence-based healthcare approach, CMS payment criteria and required documentation elements.

2)  CMS seems to be getting a whole lot of "bang for their buck" and hiring the external RACs is simply a great investment alternative.  First, CMS is paying the permanent RACs approx. 10% of every dollar identified and recouped in perceived overpayments (about $137M in the demonstration project).  However, CMS has saved money by no longer paying the QIOs for similar services and is achieving immediate payment reductions to providers for the RAC focus areas.

3)  CMS is banking on financial incentives to motivate the independent RAC auditors (unlike their previous QIO counterparts) and these RAC medical collection agencies appear to be here for the long-term.  CRMG anticipates that RACs will be building an automated IT infrastructure that allows for ongoing, overpayment determinations and denials for individual healthcare providers on a perpetual basis.  Most importantly, RAC audits are not one time or intermittent reviews - they are a systematic and concurrent operating process for insuring compliance with Medicare's clinical payment criteria, documentation & billing requirements.

Q:  What is the status of the RAC Audits program?

UPDATE:  February 6, 2009 - Both PRG-Schultz and Viant dropped their bid protest and have settled with CMS on their RAC award disputes.  As part of the settlement, both PRG-Schultz and Viant will sub-contract to the permanent RACs.  This settlement clears the way for the nationwide rollout of the RAC audit program effective immediately.

A:  PRG Schultz (nasdaq: PRGX) was one of the RACs for the demonstration project and they were not selected for the permanent program.  PRGX's stock dropped almost 65% overnight when they weren't selected and they elected to challenge the RAC contract awards by the Government Accountability Office (GAO).  Based upon that challenge, the GAO was required to automatically extend a 100 day stay in the RAC program and review the contract selection process.  We anticipate continuation of the RAC audits rollout the first quarter of 2009.

The GAO stay in no way impacts the retroactive nature of RAC audits and providers are on the hook for Medicare paid claims back to October 1, 2007.

Q:  How does a hospital or IRF deal with medical staff concerns?

A:  Straightforward - focus on compliance with CMS payment criteria and implement tools to help both the nursing staff and physicians successfully implement changes.  For the most part, these tools consist of enhanced education relating to CMS clinical payment criteria, policy / procedure changes and templates to facilitate the completion of Medicare documentation requirements.  We have found that educating the medical staff and illustrating RAC audits as solely a means-to-an-end in advancing the CMS evidence-based healthcare agenda can go a long way.

Q.  Who are QIOs and what do they do?

A.  "QIO" is the acronym for Quality Improvement Organization.  This is a type of CMS contractor that supports a wide range of evidence-based medicine evaluations and historically performed both random and targeted case reviews for Medicare documentation and medical necessity issues.

Prior to July 2008, QIOs were contracted by CMS to support the setting of rules and guidance around what is and is not considered clinical payment criteria under provider Conditions of Participation agreements with Medicare.  Prior to July 2008, QIOs were contracted to review Medicare Part A issues and administer Medicare Hospital Payment Monitoring Program initiatives.  Although CMS chose to not renew the HPMP portion of the new QIO contracts (it appears CMS is moving this activity to the RACs), clinical payment criteria established by the QIOs set the foundation and basis for RAC audits.

Q.  What are the target areas for the RACs?

A.  RAC audits are centered around a wide range of perceived provider errors initially uncovered by both Medicare fiscal intermediaries and the Office of Inspector General - as well as through contracted medical review relationships such as Comprehensive Error Rate Testing (CERT) organizations and the QIO Hospital Payment Monitoring Program (HPMP).

RAC audit primary focus areas in the demonstration states included a diverse and wide ranging list of issues - Inpatient Rehabilitation Facility admissions, chest pain related one day stays, respiratory with ventilator coding, excisional debridement documentation, etc..  Based upon recent intermediary activity and OIG reports, CRMG believes ER visits and the use of modifier 25 to be the next major focus on the RAC radar.

Q.  Are providers winning RAC appeals?

A.  Based upon the latest publicly available data, providers are winning approx. 35% of RAC appeals.  Initially, demonstration state providers did prevail in a substantive portion of cases brought before the ALJ (level 3 of the appeals process).  However, CMS has continued to force-the-issue around payment criteria and they have prevailed in 66% of all appeal cases.

It is crucial to note that providers have challenged approx. than 22.5% of all RAC audit overpayment determinations (approx. 118,000 appeals out of 525,000 RAC claim denials).  Out of the 118,000 RAC appeals to date, providers have prevailed in approx. 40,000 cases.  As a result, CMS is prevailing in 93% of total claim denial cases.

The bottom line - it is critical that providers consider the application of CMS payment criteria for all RAC focus areas and diligently work toward the adoption of an evidence-based outcome clinical & reimbursement structure.  The old days of arguing "my doc versus your doc" and leading with legal arguments such as "the treating physician rule" are in the past - winning RAC appeals is founded on sound and comprehensive adoption of CMS payment criteria.

Through November 2009, Castle Rock Medical Group (CRMG) has worked closely with outstanding Medicare lawyers to win 91% of RAC appeals cases.

Q.  How do you fight RAC audit denials?  How do you know what and how to appeal?

A.  A lot of attorneys have jumped on the RAC bandwagon claiming to be RAC audit and RAC appeals experts and have all of the answers.  We have reviewed hundreds of health law firms nationwide and are only willing to recommend a handful for RAC appeals support.

The most important thing...  Before you hire a Medicare lawyer and pay money for RAC appeals that simply have very little opportunity to succeed, perform an in-depth review of the case versus CMS payment criteria.  This will potentially save you enormous legal fees and provide an opportunity to identify & resolve ongoing CMS compliance issues.

Q.  How are the RACs winning medical necessity challenges?

A.  Legally, the RACs can't break new ground with their medical necessity arguments in order to uphold denials.  However, there is a broad and well-established foundation of CMS clinical payment criteria (based primarily around evidence-based outcomes) and regulatory / legislative documentation to support the vast majority of RAC audit medical necessity positions (i.e. NCDs, LCDs, QIO guidance, etc.).

The following was extracted from a CMS Quality Improvement Organization medical review audit tool:

Criteria Application vs. Medical Judgment – The care setting decision and treatment plan should be based on the patient’s clinical condition and the services required to address that condition. Physicians should use their own best medical judgment in determining the appropriate care setting and services required based upon the applicable, evidence-based standard of care for the patient’s clinical condition.

The bottom line - Medicare isn't using evidence-based outcomes and clinical payment criteria to dictate how providers practice medicine, they are trying to make it clear as to what they will or won't pay for in the future (much like contractual requirements to pre-authorize a commercial or managed care patient in order to be paid for services).

One more quick note relating to this issue.  We have heard a handful of Medicare consultants claiming that medical necessity issues being addressed in the RAC audit process are subjective in nature.  This couldn't be farther from the truth and these individuals have little or no understanding of evidence-based medicine and the evolving Medicare reimbursement structure.

Q.  CMS and the RAC auditors took back a lot of money in California relating to Inpatient Rehabilitation Facility claims during the RAC demonstration project.  If our IRF is strictly adhering to the 75% rule - will we be OK?

A.  The 75% Rule is solely a convention for certification of Inpatient Rehabilitation Facilities (IRF) and does not impact RAC audit claim denials for medical necessity.

CMS used RAC audits to recoup $59.7M from California providers for IRF admissions and we anticipate challenges to virtually every IRF nationwide during 2009 / 2010.  While IRF payment criteria are not widely publicized, they are well-defined and were aggressively challenged by California rehab providers during the demonstration project.  We are offering continuing education programs addressing both the RAC audits and RAC appeals issues related to this focus area.  We have extensive experience with IRF medical review assessments and welcome your additional questions.

Q.  Why is there a RAC focus on ICD-9 procedure code 86.22 - Excisional Debridement?

A.  2 main reasons.  First, the CMS required documentation elements and AHA Coding Clinic guidelines are very clear for excisional debridement.  Second, using 86.22 versus another alternative procedure code can and does make a significant difference in payment levels for a wide range of MS-DRGs.  We expect this area to be heavily scrutinized during the initial year of the permanent RAC audits program and it is a very difficult area to counter RAC overpayment determinations during the RAC appeals process.

Q.  Why is there a RAC focus on One Day Stays?

A.  There are a handful of reasons for the RAC audits focus on cardiac related One Day Stays.  First, CMS has spent a lot of time & money on establishing evidence-based outcomes for chest pain and chest pain related cardiac diagnoses.  Second, every prior CMS study has shown a disproportionate share of medically unnecessary (or those not meeting clinical payment criteria) admissions for cardiac patients - the latest CERT reports show $300M in overpayments for One Day Stay cardiac-related cases.  Third, the estimated Medicare payment difference between handling a chest pain case as an inpatient versus an outpatient is $2,740 / case.

Q.  Are RAC Auditors really "Bounty Hunters"?

A.  No.  RAC auditors are medical collection companies or "recovery" firms hired by CMS to do a job.  They are specifically contracted to enforce CMS evidence-based coverage policies and CMS payment criteria for billing and claims submission.  RAC audits do differ from PSC audits, ZPIC audits and Medicaid Integrity audits (they don't necessarily have a CMS fraud component), but they are clearly designed as an additional enforcement mechanism to support the codification of CMS rules & regulations for coverage.

Q.  Can I win RAC appeals using legal or procedural arguments?

A.  Rarely.  Legal or procedural arguments sound good, but rarely are effective when challenging CMS payment criteria.  The U.S. courts have held on multiple occasions that CMS defines the scope of coverage for beneficiaries.  Contact one of our experienced Medicare consultants or Medicare lawyers for more detailed information.

Q.  Can CRMG also help me with Program Safeguard Contractor (PSC) or ZPIC appeals?

A.  Absolutely.  PSC and ZPIC audits can have perceived Medicare fraud implications and should be handled with a great deal of care and consideration.  CMS and law enforcement agencies are aggressively pursuing outcomes of these audits in an effort to stop medicare fraud.  Physicians facing these types of CMS audits should contact CRMG or their respective legal counsel immediately for additional insight and guidance.

Q.  Are RAC audits really designed to uncover and stop Medicare fraud?

A.  Not really.  The RAC audit program is more designed to address overpayments and curb perceived provider "abuse" of the program - not necessarily address enforcement issues around Medicare fraud.

However, the RAC Statement of Work does require reporting of potential fraudulent activities to CMS / OIG for follow-up.  In addition, it is important to note that there have been several whistleblower cases recently investigated and settled by the Department of Justice in conjunction with major RAC audit focus areas (inpatient v. observation, inpatient-only list, etc.).