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A Brief Look Into RAC Audits & Defenses

By Aaron Claxton and Shur Erdenekhuu

Since 2003, the Centers for Medicare & Medicaid Services (“CMS”) has conducted the Recovery Audit Contractor (“RAC”) program. As the program has expanded, provider audits have increased significantly.

What is a RAC audit and who is subject to it?

RACs are private entities that CMS contracts with to identify underpayments and overpayments to providers. RACs have a primary objective to recoup overpayments by reviewing claims submitted by providers for “which payment may be made under the State Plan or a waiver of the State Plan to identify overpayments and underpayments.”

This means, if you are a healthcare provider, you may be subject to a RAC audit when you submit a claim to Medicare or Medicaid. Physicians, DME suppliers, hospitals and other facilities are all potentially subject to RAC audits,  Currently, these audits are performed by large contractors like Performant, Cotiviti, and HMS Federal Solutions, depending on which region you are located in

How is Performant compensated and how often are audits conducted?

Payment to RACs are  made on a contingent basis for collecting overpayments or underpayment from the amounts recovered. Historically, the contingency fee rate for individual contractors has been anywhere from 8 to 12 percent. Performant, specifically, has been awarded a renewed 5-year contract in 2022 and has increased its audit sector.. Public data from CMS indicates an upward trend in RAC audits.

Limitations on the number of records audits can request.

Providers under RAC audits need not be passive: contractors like Performant have a limited number of records they can request in a 45-day period. A RAC may only request records on 10 percent of all paid claims within a 12-month period, every 45 days.

Defenses to RACs

Providers under audit may also challenge certain  RAC findings by arguing:

  • Audit Scope: The auditor does not have authority to audit the claims at issue under either the Medicare reopening regulations or the RAC Statement of Work, both of which set timeframes for reopening paid claims.
  • Waiver of Liability: Even if payment for claims is deemed not reasonable or necessary, payment may be rendered if the provider did not know and could not have been reasonably expected to know that the payment would not be made.
  • Treating Physician Rule: The provider is in the best position to determine the applicable Medicare billing rule.
  • Provider Without Fault: A provider is “deemed to be without fault” with respect to an overpayment if the overpayment is made “subsequent to the fifth year following the year” of initial determination.
  • Errors in Process and Procedure for Estimating Overpayments: Complex audits require a rigorous degree of planning to determine precise results. Nonconformance to such guidelines can cast doubt on the accuracy of contractor estimates.

If you are experiencing an RAC audit by Performant, or another audit contractor, you should take care to consult an experienced healthcare attorney to help you identify defenses and strategies.