Medicare RAC Program

The Medicare Modernization Act of 2003 required the Centers for Medicare & Medicaid Services to implement a Medicare Recovery Audit Contractor demonstration to identify and correct improper payments caused by coding errors and lack of medical necessity. The Tax Relief Act and Healthcare Act of 2006 required nationwide implementation of the RAC program by 2010. Texas implementation began in summer 2009, with Connolly Consulting the contractor for Texas.

The intent of recovery audit contractors (RAC) is to protect Medicare by identifying improper payments and referring potential fraud to the Centers for Medicare & Medicaid Services (CMS). However, hospitals are becoming increasingly concerned with RAC audits’ aggressive reach and frequently inaccurate findings:

Nearly 60 percent of the hospital medical records reviewed by RACs are found to have no overpayment error.
47 percent of hospital denials are appealed and almost 70 percent of these appeals are overturned in hospitals’ favor.
There is also concern over RACs’ ability to audit claims from the prior three years. Hospitals, however, can rebill services only from the prior year. Because of the date of service, therefore, many inpatient claims denied by RACs are disqualified from full payment through the rebilling process. 

Hospitals must pursue a Medicare appeal to seek full payment for a denial of a service older than one year. However, as of July 15, 2013, the Office of Medicare Hearings and Appeals at the U.S. Department of Health and Human Services has suspended the assignment of most new requests for an Administrative Law Judge hearing. OMHA is now predicting that it will be unable to resume general assignments for at least 24 months, although it is continuing to assign and process requests filed by Medicare beneficiaries directly.

In early 2013, an American Hospital Association-supported bill was introduced in the U.S. House and Senate to reform the RAC audit process.

None at this time.


Richard Schirmer,

Just the Facts

Download THA Takeaways, a handy tool for understanding the basic concerns around RAC audits.