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Recovery Audit Contractor (RAC) audits can be very expensive and may have a serious financial impact on healthcare providers. Since physicians have seen an increase in the frequency and severity of these audits, some medical professional liability insurance companies have extended their legal expense coverage to include RAC audits. Some medical liability insurance carriers even offer additional coverage specifically for RAC audits. The Centers for Medicare and Medicaid Services (CMS) enacted the RAC program to recoup improper payments to healthcare providers. The goal of the recovery audit program is to identify improper payments made on claims of services provided to Medicare beneficiaries. The recouped funds are put back into the Medicare Trust Fund. Since inception, RAC auditors have recovered nearly $1 billion.

Section 302 of the Tax Relief and Health Care Act of 2006 makes the RAC program permanent and requires expansion into all 50 states by 2010. Auditors will review all claims submitted on or after October 1, 2007, to identify inappropriate payments. RAC auditors have systems in place to flag any claim in which an overpayment is likely to have occurred based on the billing data provided. There is clear incentive for RAC auditors to find inappropriate payments. The RAC contractors are allowed to keep 9 percent to 12.5 percent of overpayments. Providers susceptible to RAC audits include hospitals, physician practices, nursing homes, home health agencies, durable medical equipment (DME) providers, and any other provider or supplier that submits claims to Medicare.

In the initial phase, RAC auditors focused on high dollar, low volume claims generated mostly from hospitals. With a broader rollout of the RAC program, physician practice audits are more likely to occur. For the health of their practice, it is important for physicians to see if RAC audits are covered on their medical liability insurance policy.

Once the auditor confirms any overpayment, Medicare reimbursement is immediately garnished. RAC auditors find overpayments when there is a lack of proof of medical necessity. Without proper documentation there is no proof to prevent overpayment determinations. Improper payments on claims can include, but are not limited to:

Payments made for services that were not medically necessary or did not meet CMS medical necessity criteria for the service rendered.
Payments made for services that are incorrectly coded.
Failure to submit sufficient documentation to support the claim.
Duplicate payment.

Knowing what to expect is key. Providers must be ready to respond to audit requests, demand for repayment, review and analyze determinations by the RAC auditors and file appeals if necessary. These reviews require considerable resources and time to fulfill the RAC requests that could prove costly for small offices.

Auditors for the CMS RAC program have identified the 10 most common problems being uncovered in the audit process:

Debridement Coding
Duplicate Billing
Stark Violations
Pharmaceutical Coding in Physician Offices
Social Work Services in Facilities
Psychiatric Services
Medical Necessity
E/M Billed During Global Periods
Place of Service Errors
Incident to Errors

It is more critical than ever to review your current billing and compliance policies and procedures to ensure you comply with the regulations required by CMS so you can identify inconsistencies and take corrective action. Your office should review the list of common issues for RAC as identified in the pilot program.

Proactive strategies include:

Perform a pre-audit to identify potential areas of risk.
Review historical claims history to identify any inconsistencies, incorrect coding or duplicate claims.
Conduct chart reviews to validate coding accuracy and documentation to determine if medical necessity criteria is present.

Providers, compliance officers and billing staff must continue to educate themselves on coding and documentation as part of the expanding compliance focus of CMS. There are a multitude of RAC resources and management solutions available online to help providers prepare for and manage a RAC audit. Involvement of legal counsel in the RAC process should also be considered.

Does your medical liability insurance policy cover RAC?

As part of American Physicians Insurance Company's medical liability insurance policy, a $100,000 for legal expense reimbursement (including fines and penalties) for state and federal disciplinary actions, EMTALA and HIPAA violations, and Medicare/Medicaid fraud and abuse claims is offered. This coverage extends to RAC audits. Additional coverage, up to $1,000,000 total, may also be purchased. If you have any questions, please contact API at 800.252.3628.