Since I penned the “inaugural” RACMonitor article below, a few things have been clarified regarding the CMS’s RAC program. To name a few:


  • The four RAC players are well known, with new “issues” approved by CMS and posted on each entity’s Web site:
  • RAC provider outreach education has been conducted in all 50 states.
  • Hospital providers are very likely well prepared and informed.
  • Hospitals in each region have begun to see “automatic” recoupments, and a few have begun to receive demand letters, with the volume to date relatively small.
  • Complex medical record reviews focused on medical necessity will begin sometime in 2010 (no date was announced as of this publication), with reviews focused on coding and MS-DRG assignment to commence anytime.
  • Issues of potential “reach through” for denied hospital services connected to other providers, such as physicians, have been clarified.
  • The RAC program will continue to be refined and tweaked during the coming months, with anticipated extraordinary results that will benefit CMS and beneficiaries.
  • Physician providers will be impacted by the RAC program, and appear to be the least aware of implications for their practices and hospitals.

The expression “there is no going back” comes to mind as we approach this New Year. It is both possible and necessary for providers to be successful as this and other new CMS programs and initiatives take root (and flight); however, the key to this success is in the attitude providers bring to their efforts, the appreciation for the goal (“to reduce improper payments”) we all support, and the amount of information and education we provide to those who work closest to the issues. So with that, enjoy re-reading the article below, take heed……….On your mark, Get set, GO!!

On Your Mark… Get Set…GO!!


Not Widely Known Yet

Recently, I was in a large metropolitan hospital speaking to a room full of medical professionals, internists, cardiologists and surgeons. After speaking for a few minutes about the advent of the RACs, it was clear that I was facing a sea of blank stares. It turned out that not a single physician in the room had heard anything before about the CMS initiative and national RAC program. They had no idea what I was talking about, and were further shocked to learn that all hospitals and MD practices (along with other healthcare providers) would soon be at the center of the program focus and potentially at significant financial risk!


On Your MarkBrief Background


Let’s start with defining RACs, which stands for Recovery Audit Contractors. These are new CMS contractors whose sole focus is to review paid Medicare claims from October 1, 2007 forward, covering all healthcare services, which includes; Inpatient Hospital services, Physician services, Outpatient services, Inpatient Rehabilitation services, Skilled Nursing Facilities, DME, Hospice, et al.

RAC Pilot Program Success

Initially, there were three states in the RAC pilot demonstration -California, Florida and New York, with an additional three added in the summer of 2007, Massachusetts, South Carolina and Arizona.


A significant portion of RAC determinations related to identified ‘absent clinical medical necessity’ of prior services as determined to be ‘unnecessary’ or demonstrated by insufficient documentation found within the medical records. The old adage of “not documented not done” has rarely been proven truer!


Results of the 3 year demonstration were over whelming for CMS with greater than $1 billion in “improper” payments identified by the RACs, with 96% representing “over payments” and only 4% returned to providers as representing “under payments”!


As of June 30, 2008, providers had appealed only about 14 percent of the above findings, with only 6.8 percent of “RAC determinations” overturned on appeal; dramatic success for the pilot program.


“Get Set”……… Auditing For Profit

RAC contractors are new to the world of CMS contractors what with their contingency-based fees, which are dependent upon their findings. In other words, payment to the RACs will be made based upon a percentage (possibly 9-12%) of what is identified, either improper over or under payments. The goal is for the RACs to identify and correct “past improper payments” to providers, which is designed to accomplish the following:

  • 1. Assist CMS to avoid future improper payments;
  • 2. Help providers to avoid submission of claims that do not comply with CMS rules; and
  • 3. Ensure that taxpayers and future Medicare beneficiaries are protected.

Financial incentives to RAC contractors are clear and integral to their businesses!

Overpayments Collected by Error Type (Net of Appeals):

Cumulative Through 3/27/08, Claim RACs Only

  • 40% – Medically Unnecessary – $391.3 Million
  • 35% – Incorrectly Coded – $331.8 Million
  • 8% – No/Insufficient Documentation – $74.3 Million
  • 17% – Other – $160.2 Million

(Source: CMS June 2008 Self-reported by the Claim RACs).


Where and When

As I mentioned at the outset, the program will be expanded to all 50 states. To give you an overview, the list below identifies the anticipated expansion with potential ‘start dates’:


USA divided into 4 RAC Jurisdictions

A – Northeast and East Coast:

Anticipated Start: December 1, 2008: (Currently on Hold)

Maine, Vermont, New Hampshire, Massachusetts, Rhode Island, Connecticut, New York, Pennsylvania, New Jersey, Maryland, Delaware and the District of Columbia


BGreat Lakes and Midwest:

Anticipated Start: March 1, 2009: (Currently on Hold)

Ohio, Kentucky, Illinois, Indiana, Wisconsin, Michigan and Minnesota

CSoutheast and Southwest:

Anticipated Start: August 1, 2009

West Virginia, Virginia, North Carolina, South Carolina, Tennessee, Alabama, Mississippi, Louisiana, Florida, Texas, Oklahoma, Arkansas, Colorado, New Mexico

DWest and West Coast:

Anticipated Start: August 1, 2009

California, Arizona, Montana, North Dakota, South Dakota, Wyoming, Utah, Washington, Idaho, Oregon, Nevada, Alaska, Hawaii


Don’t let yourself feel overly secure when you see “Currently On Hold. That’s only temporary, and is not because the program is being re-examined, as you might hope. RAC contractors not selected are challenging CMS, with the decision having little or no bearing on the ultimate national program or providers.

How RAC Determinations Are Made

During the pilot program, there were few restrictions on the RAC efforts. Fortunately, some new rules are in place for the permanent program, which delivers at least some good news for providers.


RACs will be required to use the same Medicare policies as; Fiscal Intermediaries (FIs), Medicare Administration Carriers (MACs), National Coverage Decisions (NCDs), Local Coverage Decisions (LCDs) and utilize CMS coverage manual direction.


Additionally, RACs are now required to have Physician Medical Directors, nurses, therapists, and certified coders as part of their review team. Best of all, the program will have external independent validation contract oversight to assure accuracy and will encourage “transparency” through posting issues and vulnerabilities on the CMS website.


“GO” ………………

During the pilot, RACs could and did look back through many years of claims and medical records. Can you imagine having to defend a claim from perhaps seven years ago? Fortunately, some limits have now been written into the permanent program. The RACs “look back period” has now been defined as for “paid claim dates not earlier than October 1, 2007,” which limits the program review period across all provider types.

On October 21, 2008, CMS published a “Summary of Medical Record Limits FY 09” in which the agency provided the following details regarding RAC medical record requests:

  • Inpatient Hospital / Inpatient Rehabilitation Facility / Skilled Nursing Home / Hospice:

10% of average monthly Medicare claims (max of 200 paid claims) per 45 days

  • Other PART A Billers (Outpatient Hospital, Home Health Agency):

1% of average monthly Medicare services (max of 200 paid claims) per 45 days

  • Physicians:
    • Solo Practitioner: 10 medical records per 45 days
    • Partnership (2-5 individuals): 20 medical records per 45 days
    • Group (6-15 individuals): 30 medical records per 45 days.
    • Large Group (16+ individuals): 50 medical records per 45 days.
  • Other PART B Billers (DME / LAB): 1% of average monthly Medicare services per 45 days.


Want Change?

Regardless of whom you voted for in the recent national election, both candidates promised “Change“. Given the recent changes already made, and also given the proclivity of CMS to make rapid and sweeping changes in their programs, there will no doubt be more change yet to come. No doubt, Federal payment policy will continue to challenge all healthcare providers in the delivery of patient care and subsequently in meeting the healthcare needs of our communities. You can continue to expect many changes and many challenges over the coming years, for, as we all know “Change is the only constant“!


Just as the preparation for a race or challenge is the basis for anticipated and eventual success, it is crucial for each of us as members of the U.S. healthcare provider network to participate through education, information gathering and sharing to get “on our mark, get set and GO” to see our providers safely into the new RAC world!


About the Author


Patricia Dear, RN, has more than 30 years of experience in the healthcare industry, working within corporate healthcare entities, for-profit and non-profit hospital systems, legal defense and plaintiff counsel. She is a recognized national speaker on reimbursement and compliance. She is the president and CEO of eduTrax®.


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