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For the past three years, the Center of Medicare and Medicaid Services (CMS) has been piloting a program to review claims paid under the Medicare program. Unlike other billing review programs, CMS outsources the review process to third party contractors. The program is called the “Recovery Audit Contractor (RAC) Program”. Under the RAC program, contractors are paid a percentage, ranging from 9 – 12.50%, of the improper coding payments they recover. Beginning in 2010, the RAC program will be permanent and all healthcare providers that submit claims to the Medicare program will be subject to the reviews.

Based on claims data, the RAC uses proprietary software to determine normal limits or thresholds for certain billing codes. If a healthcare provider is outside the range, it raises a “red flag” to the RAC, which, in turn, determines the focus of the review. The RAC is limited to a three year “look back” period and cannot go back any earlier than October 1, 2007. The two types of reviews that could be performed are the “Automated” and “Complex” reviews. An automated review is where the RAC makes the determination that the provider billed a service which was a clear violation of the Medicare payment policy and no medicals records are required to be reviewed to substantiate the billing errors. Under the complex review process, if the RAC, based on the data analysis, determines there is high probability (i.e. outside normal limits) that an improper billing has occurred, the RAC will review a sample of the medicals records. In terms of the number of records that would be reviewed, CMS guidelines restrict the number of records that can be requested in a forty-five day period.

At the end of the review process, in the case of an automated review, the RAC will issue a demand letter. The provider has 41 days to submit medical records to clarify the assessment or appeal the demand letter. In the case of a complex review, the RAC will issue a determination letter based on the review of the medical records. If it is determined that the provider was overpaid, a demand letter will be issued and the provider has 41 days to appeal. In both cases, on the forty-first day, if no action was taken by the provider, the amount of the overpayment calculated by the RAC will be recouped through future payment offsets.

To get ready for a potential RAC review, healthcare providers should conduct internal assessments to ensure compliance with the Medicare billing rules. Conducting internal reviews will identify weaknesses in billing processes, which allows a provider to proactively initiate corrective action and promote a strong internal compliance program. In addition, given the limited response time providers have to comply with the RAC notices, procedures should be in place to ensure that appropriate documentation is provided once medical records are requested and that records are submitted in a timely manner.