Just a bit of background: according to CMS, all RAC-identified overpayments are supposed to be identified specifically by the FI or MAC on the Medicare remittance advice with a remark code of N432. This remark code is supposed to appear as a note on the RA prior to the actual payment retraction, and is intended to be initiated at the same time the demand letter is generated. Identifying and recording these remark codes, preferably automatically, is essential to a hospital’s ability to track and report the impact of RAC audits on its cash flow.


CMS created N432 for claim processing contractors to identify RAC adjusted claims, however, CMS believes the code is being superseded in some systems by code N469, the Section 935 limitation-on-recoupment code. CMS is working with contractors to fix this now. N469 is used to identify any account in which a provider filed the first level of appeal within 30 days to stop the automatic recoupment on the 41st day from the demand letter. Providers will always receive demand letters for all RAC adjusted claims, which will allow providers to keep track of RAC adjustments versus all other claims processing adjustments.


Update from AHA


In its RAC Report/Recovery Audit Contractor Program Update, the American Hospital Association (AHA) on Oct. 5, 2009 published this in the Remittance Advice Update:

According to CMS, listings of RAC-related claims activity on the Medicare remittance advice will be marked with code N432. CMS further notes that the RAC code will be used in conjunction with other codes to provide additional detail on a claim – for instance, code N469 may also be used to indicate that recoupment should be delayed under the Section 935 appeals process described above.

CMS is aware of several problems with the current process that prevent claim-level reconciliation by hospitals. Specifically, while the remittance advice uses codes to notify hospitals that a RAC or other CMS contractor identified a particular claim for future recoupment, the remittance advice fails to provide claim-specific data when the recoupment is processed. Instead of claims-level detail, the remittance advice combines information on all recoupments occurring on a particular day into a single batched amount. The lack of claim-level data on the remittance advice at the point of recoupment prevents hospitals from reconciling anticipated recoupments with actual recoupments.

CMS is developing a solution to this problem, with implementation targeted for summer 2010; this would be announced to its contractors in a transmittal and to providers in a MedLearn Matters Article. AHA is working with CMS and several state hospital associations on this problem.


There will be no differences on the remark codes on the remittance advices for automated and complex reviews. This process is just the method used by the RACs to identify claims to adjust. Once it is determined that an adjustment is necessary, the adjustment will flow and appear on the remittance advice as it has in the past. The only difference is that the new remark code will identify the adjustment that was initiated by the RAC, and the adjustment will not immediately offset since it is subject to 935 limitation of recoupment.


System Corrections


CMS’s billing systems in some circumstances have not been able to properly use the N432 code designated for RAC claims, and as a result the code is not appearing on the RAs. CMS initially indicated that the necessary system corrections would be implemented through a two-stage process in April and July 2010, and we have more insight into the Change Requests now.


In the meantime, CMS and the RACs are developing an interim solution to allow the RAC remark code to function properly. Also, CMS is working on a Medicare-wide edit to provide claim-level detail on the remittance advice, both when a denial is reported and when the actual recoupment occurs; this should be completed by summer 2010. Talk to your MACs about this to keep up on the progress of rectifying this problem. This is obviously a huge issue for you providers when it comes to being able to track your cash flow and recoupments, and now there are a few recent developments on the fixing of this issue pertinent to those April and July dates.


CMS recently updated its response to this question on its FAQ Web site as well (http://tiny.cc/xreo1):


Q: Will Code N432 appear on the remittance advice for Recovery Audit Contractor (RAC) adjusted claims?  (Last updated 03/15/10)

A: CMS created code N432 to identify RAC adjusted claims, however CMS believes the code is being superseded in some of the systems by code N469, which is the Section 935 Limitation on Recoupment code. We are working to correct this problem in the system. Providers will receive demand letters for all RAC adjusted claims. These letters will allow providers to keep track of RAC adjustments versus all other claims processing adjustments.

Last week, a CMS representative at the AHIMA Coding Quality and RAC: Partnering for Long Term Success conference informed the audience that CMS would be issuing a new series of change requests in April and July to address this problem.  The change requests mentioned below will fix the superseding issue and N432 will be readily available for use by all contractors:


  • CR 6554 – Will implement automatic N432 assignments; to be issued in April
  • CR 6555 – For institutional claims; will reissue CR 6928 in July
  • CR 6549 – For DME claims; will reissue CR 6943 in July


Providers also are reporting that several unexpected developments are happening on their remittance advices after the audits, including:


  • Receiving payments for revised DRGs with no corresponding recoupment of the original payment, which creates a claim credit balance;
  • Receiving revised DRG payments that are different than what the RAC indicated on the review results letter; and
  • Receiving no demand letters prior to the remark codes hitting the remittance advice.


We experienced a good deal of this kind of miscommunication between the RACs and the FIs during the demonstration project, and it sounds like this perhaps is still an issue between the RACs and the MACs in some situations.


They each have their own distinctive roles in the process: the RACs perform the audits and the FIs/MACs perform the recoupment or reissuance of corrected payments. All of the parties also are working out the kinks in the system, so you may be instrumental in bringing issues to light during these early stages.


If you experience these kinds of issues, contact your FI or MAC immediately and try to resolve things with them directly. If that doesn’t get results, inform your CMS RAC project officer of the problem.




CMS RAC Project Officer

Phone Number



Ebony Brandon




Scott Wakefield



RAC C — Connolly

Amy Reese




Brian Elza


(Part A)



(Part B)


Obviously, remittance activity should be monitored very closely by the PFS team to assure that demand letter and review results letter responses are being reported accurately in the RA by the FI/MAC.  We also are hopeful that the fixes put in place by CMS in a few months will assist providers in being able to reconcile cash flow through the RAs.


About the Author

Carla Engle, MBA, is a product manger for MediRegs, a Wolters Kluwer company. Her background includes more than 20 years in hospital and physician practice operations, particularly in reimbursement and billing functions. Prior to joining Wolters Kluwer recently, she was the vice president of compliance for a national revenue cycle solutions company, and prior to that was in the Reimbursement Training Department with HCA. For several years she headed up the Part A Fraud Investigation Unit for a CMS Program Safeguard Contractor (PSC) where she was successful in the prosecution of several national cases. In her revenue cycle compliance capacity, she worked with a number of clients in California and Florida with Recovery Audit Contractors (RACs) in setting up processes and appeals.


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