Medicare Recovery Audit Contractor (RAC) Update – Winter 2008

December 11, 2008

There continue to be a number of developments surrounding the Centers for Medicare and Medicaid Services (CMS) claims and activity Recovery Audit Contractors (RACs). Provided below is a discussion of some of the more significant recent updates on the RAC program. Future updates will be provided on this listserve as they become available. For a more comprehensive discussion of RACs, please see the white paper Medicare Recovery Audit Contractors (RACs): What Providers Need to Know and How to Prepare.

Background on RACs

RACs are auditors contracted by CMS responsible for reviewing claims and medical records to identify overpayments and underpayments for Medicare claims. Claims reviewed by RACs may include Part A, Part B, physician, hospital, skilled nursing facility, inpatient rehabilitation, hospice, home health, clinical laboratory, and durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) claims. RACs are paid on a contingency basis, retaining a percentage of the amount recovered for overpayments and underpayments identified.

RACs started as a CMS Demonstration Project in the states of California, Florida, and New York, but as a result of Section 302 of the Tax Relief and Health Care Act of 2006, RACs will become permanent and operations are to expand to all states by no later than January 1, 2010. The current expansion strategy could result in RACs operating in all 50 states and the District of Columbia as early as August 1, 2009.

CMS Establishes Medical Record Request Limits

CMS has established limits on the number of medical records that can be requested by RACs per 45-day period. For example, RACs may not request from hospitals medical records for more than 10% of average monthly Medicare claims, up to a maximum of 200. This limitation is intended to reduce some of the hardship that has been placed upon providers in responding to medical record requests in the Demonstration Project. Information on medical record request limits is available on the CMS website.

Protest of RAC Awards and Automatic Stay

Two unsuccessful bidders to become the RAC for one of four CMS-designated regions –Viant and PRG-Schultz – have filed protests with the Government Accountability Office (GAO) pursuant to the Competition and Contracting Act of 1984. As a result of this protest, CMS is required to impose an automatic stay in the contract work of the RACs. This means that the RAC program is permanently on hold and RACs cannot conduct any activity under the RAC program. A decision by the GAO is expected in early February 2009, at which point it is anticipated that the selection process should be finalized and CMS’ expansion strategy will continue. CMS officials have stated that due to the delay, the RAC implementation schedule will likely be compressed.

The bidders for the RAC program selected by CMS are as follows: Diversified Collection Services, Inc., Livermore, California – Region A; CGI Technologies and Solutions, Inc. of Fairfax, Virginia – Region B; Connolly Consulting Associates, Inc., Wilton, Connecticut – Region C; and HealthDataInsights, Inc., Las Vegas, Nevada – Region D.

Although Temporarily Delayed, Expansion Will Continue

CMS’ current expansion strategy for the permanent RAC program has RACs operating in twenty-three states by March 1, 2009 and the remaining twenty-seven states and the District of Columbia beginning August 1, 2009 or later.

By October 1, 2008, the following states were expected to have operating RACs: Arizona, Colorado, Florida, Indiana, Maine, Massachusetts, Michigan, Minnesota, Montana, New Hampshire, New York, New Mexico, North Dakota, Rhode Island, South Carolina, South Dakota, Utah, Vermont, and Wyoming. As discussed previously, implementation of RACs in these states is expected to continue once the bid protest is resolved.

By March 1, 2009, the following states are expected to have operating RACs: California, Nevada, Oklahoma, and Texas.

Beginning August 1, 2009 or later, the remaining states and the District of Columbia are expected to have operating RACs: Alabama, Alaska, Arkansas, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Nebraska, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Virginia, Washington, West Virginia, and Wisconsin.