The Trouble with RACs

  • Jul 22 2014

It seems the United States House of Representatives has taken aim at Medicare Recovery Audit Contractors (“RACs”). The RACs are private, non-governmental entities that are authorized by the Medicare program to conduct audits of Medicare providers and suppliers.

In December, 2013, the Office of Medicaid Hearings and Appeals (“OMHA”) sent a letter to providers with “a significant number of Medicare appeals currently pending” informing them that OMHA had temporarily suspended all Medicare claim and entitlement appeals “due to the rapid and overwhelming increase in claim appeals.” At the end of 2013, the number of appeal requests had grown to approximately 15,000 per week. The goal of the suspension was to “allow OMHA to adjudicate appeals involving almost 357,000 claims for Medicare services and entitlements already assigned to its 65 Administrative Law Judges.” The current wait time for a hearing to review the results of a RAC audit with an Administrative Law Judge is over two years.

On February 10, 2014, members of Congress sent a letter to United States Health and Human Services (“HHS”) Secretary Kathleen Sebelius requesting that the HHS Centers for Medicare and Medicaid Services (“CMS”) consider dedicating additional resources to help resolve OMHA’s backlog issues in order for the claims appeal process to resume as usual. The letter also suggested CMS consider an alternative RAC payment arrangement to ensure RACs are not improperly incentivized to deny claims for profit and to ensure they focus on prevention of errors. RACs are paid only if they identify disallowances (improper payments).

A week later, CMS “paused” RAC operations. CMS is currently in the procurement process for the next round of contracts. The pause will allow RACs to complete all outstanding claim reviews and other processes by the end date of the current contracts, as well as provide support in the appeal process. The pause will also allow CMS to refine and improve the RAC Program.

It appears, though, that RACs remain firmly in Congress’ crosshairs. Just last month, the House Committee on Energy and Commerce, Subcommittee on Oversight and Investigation (“Subcommittee”) held a hearing aimed at guarding against errors, fraud, and abuse in the Medicare program. Subcommittee members heard testimony from witnesses from CMS, the Department of Health and Human Services Office of Inspector General (“OIG”), and the United States Government Accountability Office (“GAO”) about the efforts each agency is making to protect the integrity of the Medicareprogram.

During the hearing, which covered a broad range of issues, Representative Billy Long (R-MO) questioned the efficiency of RACs in weeding out providers attempting to receive improper Medicare payments from those who are simply trying to run a business. At particular issue was the question of RACs receiving payment for all alleged improper payments the RAC identifies, regardless of whether or not that payment is later found to be appropriate and overturned on appeal. Representative Long voiced his concern that consistent payment, with no threat of penalty, “incentivizes quantity over quality” and potentially encourages RACs to deny claims even when the claims may be proper. This increase in claim denials has led to, as Long described it, the “administrative quagmire” that OMHA and providers are now facing.

In response to the Subcommittee’s concerns, GAO will be reviewing its recommendations to improve the consistency of the requirements that RACs are subject to, as well as the RAC audit review process. Those recommendations are expected to be released later this summer.

More information about the Recovery Audit Program can be found here.

Transcripts of the Subcommittee Hearing are available online.

This article was written by Kathleen Evers. For more information, please contact David R. Ross, who served as Acting New York State Medicaid Inspector General under governors Pataki and Spitzer, as well as General Counsel, Deputy Medicaid Inspector General, and Director of Audits and Investigations for the Office of the Medicaid Inspector General (OMIG). He can be reached at (518) 462-5601 or via e-mail at

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