What You Need to Know About Recovery Audit Contractors (RACs)

Posted on 21 Jun, 2018 |comments_icon 0|By Elizabeth

In 2003, Medicare established their Fee for Service (FFS) Recovery Audit Program as part of the Medicare Prescription Drug, Improvement, and Modernization Act. Recovery Auditors held a three-year-long demonstration project across six states, between 2005 and 2008, to determine the potential for identifying improper reimbursement under Medicare Part A and B and then the Tax Relief and Healthcare Act of 2006, Section 302 required the implementation of a nationwide permanent RAC program by 2010.

How RACs work

The program works through CMS, who hires contractors and pays them on a contingency fee basis. This means that they are paid a percentage of the amount of money that they recover, which gives them an added incentive to rectify overpayments.

RACs are required to employ a variety of professionals to review claims, including nurses, therapists, certified medical coders, and physicians. Their main goal is to identify improper reimbursement.

Claims processing contractors have the responsibility of adjusting claims, managing offsets and refunds, and reporting the debt on financial statements. Audit contractors can go back three years to review claims.

Tip: RACs get a percentage of the money they recover so they have an added incentive to go after a practice!

RACs now review claims from all 50 states

The RACs operating in Regions 1-4 review post-payment claims to identify errors that result in incorrect reimbursement. These can be either overpayments or underpayments made to Part A or B. Region 5 RACs review post payment Durable Medical Equipment (DME)and home health and hospice claims. (See Table 2-1 for a breakdown of the contractor regions and locales.)

As of fiscal year 2015, RACs have identified over $9.5 billion in overpayments that have been collected by CMS, and over $0.6 billion in underpayments that were returned to providers.

Recovery Audit Contractors

Region 1 & 5 Contractor: Performant Recovery, Inc.

  • Vermont
  • New Hampshire
  • Rhode Island
  • Massachusetts
  • Maine
  • New York
  • Connecticut
  • Washington, DC
  • Michigan
  • Indiana
  • Kentucky
  • Ohio
  • DMEs
  • Home Health Hospice

Region 2 and 3 Contractor: Cotiviti, LLC 

·         Mississippi

·         Texas

·         Kansas

·         Minnesota

·         Wisconsin

·         Iowa

·         Nebraska

·         Illinois

·         Colorado

·         Oklahoma

·         Arkansas

·         Louisiana

·         New Mexico

·         Virginia

·         West Virginia

·         North Carolina

·         South Carolina

·         Tennessee

·         Alabama

·         Georgia

·         Puerto Rico

·         American Virgin Islands

·         Florida

Region 4 Contractor: HMS Federal Solutions

  • Oregon
  • Idaho
  • Montana
  • Washington
  • North Dakota
  • South Dakota
  • Utah
  • Wyoming
  • Nevada
  • California
  • Arizona
  • Pennsylvania
  • Hawaii
  • New Jersey
  • Maryland
  • Delaware
  • Alaska

CMS must approve all work plans for RACs and the type of review required for each issue the RACs are targeting. RACs are expected to follow all National Coverage Determinations (NCDs), Local Coverage Determinations (LCDs), and Internet Only Manuals (IOMs). In addition, RACs need to document their rationale clearly, since it pertains to the review determination. If an improper payment is discovered, this should also be indicated.

There are three review processes that RACs follow to identify improper payments: automated, semi-automated, and complex:

  1. Automated: Uses analysis of claims data to identify improper payments
  2. Semi-Automated: Initiated with analysis of claims data, but providers can submit supporting documentation to validate the claim
  3. Complex: Requires a review of medical records to determine if there was an improper payment

The RAC reviewer can be a coder or a clinician, depending on the information being reviewed.

Discovering discrepancies

Once a discrepancy has been identified, the provider will receive a demand letter from their local Medicare Administrative Contractor (MAC). The notice will vary from MAC to MAC, but they should all provide specific information indicating the amount of any adjustments, the details of how the adjustment came about, when and how the adjustment will occur, and how to file an appeal.

Providers have options when a demand letter is received, including appealing the decision. The appeals process will be outlined in the demand letter with specific timelines for each step.

Tip: Remember, interest accrues during the audit process, so you will not want to waste time!

Strategy: It is important for auditors to know the CMS-approved audit issues, since these are the most common issues currently under review. It is just as important for auditors to know what has been targeted in the past, and the resulting overpayments associated with those issues. Auditors can use this information to know what issues they should target in their own practice.

Tip: Audit contractors target specific concepts not specific providers, so be sure to know the CMS-approved audit issues!

These issues can be found on the individual RAC websites. See Cotiviti’s list of approved issues at www.cotiviti.com.

Learn More

Master self-audits, what to do with your findings, and how to get buy-in for remedial actions with TCI’s Master Auditing Basics 2018.



Elizabeth works on an array of projects at TCI, researching and writing about modern reimbursement challenges. Since joining TCI in 2017, she has also covered the nuts and bolts of cybersecurity, compliance with federal laws, and how to tap into the advantages of telehealth services.

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