Recently, the number of government billing audits of health care providers has increased dramatically.  In particular, Medicare’s Recovery Audit Contractor (RAC) program has become a common source of conversation (and occasionally worry) as “demand letters” are received by more and more health care providers of all types.  You might be wondering, what exactly are RAC audits and how can I help my clients navigate the audit-review process?

RAC Audits
The RAC audit program was implemented under the Medicare Modernization Act and the Tax Relief and Healthcare Act of 2006.  The audits are performed by contracted third-party auditors in return for a contingency fee taken out of any recovered funds.

RAC audits are intended to identify and correct improper payments to healthcare providers from fee-for-service healthcare programs, e.g., Medicare and Medicaid, through post-payment review for improper payments.  Typically, this involves a determination of whether the billed service(s) were: (i) properly covered, (ii) reasonable and necessary and (iii) billed correctly.  Common improper payments include non-covered services, duplicative services, incorrectly coded services and incorrect payment amounts.

If an improper payment is discovered, the RAC auditor issues a “demand letter” to the provider, including: notice of the alleged overpayment, a brief description of overpayments and various payment options and appeal instructions.  The demand letter also includes notice of an informal opportunity for the provider to discuss the alleged improper payment determination directly with the RAC auditor.  This preliminary discussion falls outside the formal appeals process and can be an important opportunity to get information regarding the background and number and type of overpayments that have been alleged.

Repayment Options and Appeal Process
When a provider receives a demand letter from a RAC auditor, the provider may pay back the alleged overpayment, allow for recoupment from future claims, apply for an extended payment plan or appeal the adverse determination.  A provider may request a stay of the recoupment at this initial stage by submitting an appeal within 30 days of the receipt of the demand letter.  The Medicare appeal process is controlled by federal law, which provides for multiple “levels” of appeal before CMS claims reviewers, an Administrative Law Judge and the U.S. District Court. 

Practical Tips
Any provider billing Medicare and/or Medicaid must be aware of its internal billing practices and procedures.  Upon receiving a demand letter, a provider must act quickly to begin the review process and develop an appropriate response if an appeal is warranted.  This process requires a concerted effort by a provider’s practice manager, billing personnel, accountant and legal counsel to identify the claims relating to the specific charges set out in the demand letter, determine the appropriateness of such charges and implement a compliance plan to prevent additional mistakes (if any are identified) in the future.