Your Practice's Missing Piece

A How to Guide for Navigating RAC Audits for Medical Practices

What Your Practice Needs to Know about the Recovery Audit Process

Infographic of New Hampshire RAC Audit Questions

Table of Contents:


Today’s highly-regulated medical industry requires that healthcare providers must keep up with and conform to hundreds of federal and state regulations and policies.

The Recovery Audit Program is just one of several government audit programs that Medicare Fee for Service providers are exposed to on a regular basis.

Although an audit by a Recovery Audit Contractor (RAC) is often unavoidable, proactive measures such as full knowledge of Medicare policies, diligent documentation and correct coding can result in a favorable outcome.

As a medical billing and coding consultant, I support medical practice owners, administrators, and billing professionals in New Hampshire and across the U.S., to help ensure their compliance and enhance their profitability.

Since RAC audits continue to be a hot topic among new clients, I’ve compiled this article to serve as an overview of the RAC audit process, and provide key strategies for audit preparation. I’ve also outlined what medical practice leaders should expect from their internal billing and coding team, or from any firm who aspires to perform these vital services for them.

Purpose and Goal of the Recovery Audit Program

The Centers for Medicare & Medicaid Services (CMS) is the U.S. Agency that governs comprehensive efforts to identify improper Medicare payments and fight fraud, waste and abuse in the Medicare program. The Agency seeks to guard the Medicare Trust Fund by awarding contracts to permanent Recovery Audit Contractors (RACs).

The goal of the Recovery Audit Program is to identify and correct improper payments made on claims of health care services provided to Medicare and Medicaid beneficiaries. Improper payments may be overpayments or underpayments. Overpayments can occur when health care providers submit claims that do not meet Medicare’s coding or medical necessity policies. Underpayments can occur when health care providers submit claims for a simple procedure, but the medical record reveals that a more complicated procedure was actually performed.

History and Evolution of the National Recovery Audit Contractor (RAC) Program

In the Tax Relief and Health Care Act of 2006, Congress called for a permanent and national Recovery Audit Contractor (RAC) program to be in place by January 1, 2010. The national RAC program is the outgrowth of a successful pilot program that used RACs to identify Medicare overpayments and underpayments to health care providers and suppliers, initially in six states (California, Florida, New York, Massachusetts, South Carolina and Arizona). Early results of the program returned more than $900 million in overpayments to the Medicare Trust Fund between 2005 and 2008, and nearly $38 million in underpayments to health care providers. (1) The national Recovery Audit Program was established in early 2009. Initially, four RAC auditing contracts were awarded for four distinct Medicare regions.

In 2016, the U.S. Government Accountability Office (GAO) reported that agencies exceeded $144 billion in improper payments in fiscal 2016, and the Medicare Fee for Service (FFS) program accounted for the largest amount of improper payments — representing $41 billion or 28 percent of the government-wide total. (2)

About the Medicare Fee-For-Service (FFS) program

Medicare Fee-for-Service (FFS) is a program that provides hospital insurance (Part A) and supplementary medical insurance (Part B) to eligible citizens. Part A is provided to persons 65 and over who qualify for Social Security benefits and pays for hospital, skilled nursing facility, home health, and hospice care. Part B is optional coverage that pays for physician, outpatient hospital, home health, laboratory tests, durable medical equipment, designated therapy, outpatient prescription drugs, and other services not covered by Part A. (3)

The program has a network of contractors that process more than one billion claims each year. (4) These contractors, called Medicare Administrative Contractors (MACs), process claims, make payments to providers in accordance with Medicare regulations, and review claims and educate providers on how to submit accurately coded claims that meet Medicare guidelines. The Centers for Medicare & Medicaid Services (CMS) uses several types of contractors to verify that paid claims are paid based on Medicare guidelines. One type of contractor used is a Recovery Auditor, also known as a Recovery Audit Contractor (RAC).

The Role & Responsibility of a Recovery Audit Contractor

The primary role of a Recovery Audit Contractor (RAC) is to review Medicare claims data and determine if a claim was appropriately paid. Each RAC is responsible for identifying overpayments and underpayments in a geographically defined area (Medicare Region) that is roughly one-quarter of the country. In addition, RACs are responsible for identifying common billing errors, trends, and other Medicare payment issues for CMS.

Types of Medicare Fee for Service Providers that Can be Audited

Fee-for-Service (FFS) healthcare providers that may be reviewed include hospitals, physician practices, nursing homes, home health agencies, suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS), or any other provider or supplier that bills Medicare Parts A and B.

Potential Causes of Improper Payments Identified by a RAC Audit

A 2017 report by the Government Accountability Office (GAO) identified two major causes of improper payments:

  • Insufficient Documentation – The GAO report states, “Approximately $44 billion of the government-wide improper payments in fiscal 2016 are caused by insufficient documentation. A lack of supporting documentation could be a situation where there is a lack of supporting documentation necessary to verify the accuracy of a payment identified in the improper payment testing sample, such as a program not having the documentation to support a beneficiary’s eligibility for a benefit.”
  • Inability to Authenticate Eligibility – The GAO report also states that approximately $34 billion of the government-wide improper payments in fiscal 2016 were caused by the inability to authenticate eligibility. (2)

A 2015 report by the Centers for Medicare & Medicaid Services (CMS) echoed these issues, citing three common reasons for improper payments:

  • Submitted documentation does not support the ordered service
  • Services do not meet Medicare’s coverage and medical necessity criteria
  • Services are incorrectly coded

It’s important to note that payments made as a result of fraud are considered “improper payments,” but not all improper payments constitute fraud.

The Medicare RAC Audit Process: Answers to Common Questions

Below you’ll find answers to some of the most common questions regarding the Recovery Audit process:

  1. Is my medical practice subject to RAC audits?
    If you are a fee-for-service provider, your medical billing claims are subject to RAC Auditing.
    Also, it is important to review your contracts with each insurance company, and know the specific rules of their policies. Insurance firms are all required to comply with Medicare regulations, so we typically suggest that medical practices adopt the Medicare policy as their standard company policy.
  2. How much time does the look-back period cover?
    Auditors are authorized to review, or look-back, at up to three (3) years of your records.
    For Patient Status Reviews, the look-back period is six (6) months.
  3. What items are covered by a RAC audit, by Medicare region?
    The approved items that may be reviewed by a recovery audit are listed in the links below, by Medicare Region of the U.S. Fee-for-Service providers should review these links on a regular basis, as approved items are constantly added or updated:
  4. How should my medical practice respond to a RAC Audit?
    First, review the letter you receive from Medicare that explains the information they request from you, such as medical records and documentation. Second, locate the records and label them in a clean and easy to review format, such as Exhibit A, Exhibit B, etc. Third, mail your files as directed, within the required time period (typically 45 days, unless you ask for a 14-day extension). Use a professional tracking method, and follow up to ensure that your files were received. Fourth, review the status of your audit online. Finally, depending on the status of your audit, there are typically five (5) levels of appeal.
  5. What has changed with the process in 2017?
    Key components of the Recovery Audit process that have changed for 2017 include:
    • Documentation Review
      • OLD: Previously, a Recovery Auditor had 60 days to review claims documentation
      • NEW: As of January 2016, the period is 30 days, and a RAC must wait 30 days for a discussion request before sending documentation to a Medicare Administrative Contractor for retraction.
    • Look-back Period, Required Response Time and Appeals
      A Complex audit is a comprehensive review of charts and claims, while an automated audit is more of a random spot check of files. For each type, the “look-back” period is up to three (3) years of claims records.
      • OLD: Previously, when a medical practice didn’t pass a recovery audit, they had 45 days to respond to a letter, or they had to return the money to Medicare immediately.
      • NEW: A medical practice has 45 days to respond, and may ask for an extension of up to 14 days. There are now also five (5) levels of appeal, and Medicare can only require payment after the second appeal.
    • Audit Status Reporting
      • NEW: Medical practices can review the status of an audit online.

Graphic of medicare rac audit regions.

How to Prevent or Prepare for a Recovery Audit

Preparation is the key to successful results of a Recovery Audit. Inquiries can be prevented or satisfied when your (in-house or outsourced) medical billing and coding specialists follow all Medicare rules, in these key categories:

  • Local Coverage Determination (LCD) – Local Medicare coverage policies
  • National Coverage Determination (NCD) – National Medicare coverage policies

Medical providers are obligated to know and stringently follow each type of coverage policy. Providers must maintain detailed records from a patient’s physical exam that documents specifically why a procedure or treatment was deemed necessary. For example, for Orthotics and Prosthetics providers, everything is susceptible to Medicare review, from diabetic footwear to knee orthotics to multi-component prosthetics, and more.

If you do not enlist the comprehensive support of an outsourced Medicare Consultant, it’s imperative that your medical practice maintains a full-time employee charged with these responsibilities:

  • Keep up with Medicare policy requirements and updates
  • Consistently determine your practice’s exposure to the recovery audit process
  • Perform random internal preventative audits
  • Review all claims before submitting them for payment
  • Develop a written policy, process, and checklist for addressing a RAC Audit letter
Why Choose a RAC Audit Consultant for Your New Hampshire Medical Practice

The vast complexity of policies and regulations that healthcare providers face often leads them to conclude that their best option is to outsource their medical coding and billing to a professional consulting firm.

Professional consulting firms such as CBS Medical Billing and Consulting maintain a team of dedicated specialists whose passion is to maintain compliance and enhance profitability for clients.

Audit preparation is an important component of the medical billing service that CBS provides to current clients. However, fee-for-service providers also hire the firm to handle their compliance process, and act in their best interest to review what Medicare requires and ensure that documentation is gathered before claims are billed.


About the Author:

Photo of Erin CammarataA successful educator, trainer, and author, Erin Cammarata is sought by industry professionals and individual clients for her medical practice expertise, consultation and training services. As Founder and Principal of New Hampshire-based CBS Medical Billing and Consulting, LLC, Erin leverages more than 20 years of comprehensive practice management experience to help medical practices throughout New Hampshire and the U.S. to overcome the challenges that inhibit their profitability.