CMS Works to Ease RAC Audit Burden, Reduce Denial Backlog

January 22, 2020

Monica Lelevich
Director, Audit Services

Long a thorn in the side of hospitals nationwide, the Centers for Medicare and Medicaid Services’ (CMS) Recovery Audit Contractor (RAC) program recently underwent substantial changes which CMS say will make the audit process significantly less burdensome for providers.

The RAC program — one of several Medicare payment oversight initiatives — was launched in 2009 and relies on third-party contractors to uncover and correct improper Medicare fee-for-service payments through post-payment claims reviews.

RACs identified approximately $89 million in overpayments and recovered $73 million in FY 2018.[1] Since its inception, the RAC program has returned more than $10 billion in improper payments to the Medicare trust fund and more than $800 million in underpayments to providers.[2]

RAC audits typically involve automated claim reviews utilizing computers to detect improper payments, as well as complex reviews that incorporate human analysis of medical records and other documentation. The process has long been a target of ire for the American Hospital Association (AHA) and others in the industry due to the disruption, cost and uncertainty that can accompany a RAC audit for a target hospital.

Fewer audits, more transparency

In announcing changes to the RAC process earlier this year, CMS Administrator Seema Verma acknowledged the agency had received numerous complaints about the program in the past.[3]

“Providers found the audits time-consuming, necessitating high administrative expenses, and often requiring lengthy appeals,” Verma said. “Thanks to recent efforts by this Administration, complaints about RACs have decreased significantly. CMS listened to what providers were telling us and we made meaningful changes.”[4]

Modifications aimed at making the RAC process easier for providers include:[5]

  • RACs could previously select a certain type of claim to audit. They must now audit proportionately to the types of claims a provider submits.
  • Instead of treating all providers the same, RACs are conducting fewer audits of providers with low claims denial rates.
  • Providers have more time to submit additional documentation before being required to repay a claim. A 30-day discussion period, after an improper payment is identified, means that providers do not have to choose between initiating a discussion and filing an appeal.
  • CMS is now seeking public comment on newly proposed RAC areas for review before the reviews begin. According to the agency, this allows providers to voice concerns regarding potentially unclear policies that will be part of the review.

Among the CMS program changes designed to hold RACs more accountable:[6]

  • RAC provider portals are being enhanced to make it easier for providers to understand the status of claims.
  • RACs that fail to maintain a 95% accuracy score will receive a progressive reduction in the number of claims they’re allowed to review.
  • RACs that fail to maintain an overturn rate of less than 10% will also see a reduction in the number of claims they can review.
  • RACs will not receive a contingency fee until after the second level of appeals is exhausted. Previously, RACs were paid immediately upon denial and recoupment of the claim. This delay in payment helps assure providers that the RAC’s decision was correct before they’re paid, according to CMS.

Tracking RACs

The AHA closely monitored the RAC program between 2014 and 2016. According to the AHA’s final RAC report, 60% of claims reviewed by RACs in the third quarter of 2016 were found not to have an overpayment.[7] Hospitals appealed 45% of all denials, with 27% of hospitals reporting having a denial reversed in the discussion period.[8]

AHA also disclosed that 43% of hospitals spent over $10,000 to manage the RAC process during Q3 2016, while 24% spent more than $25,000 and 4% spent over $100,000.[9]

Driving down the denial backlog

In recent years, denials initiated due to RAC audits have contributed to a massive backlog of Medicare appeals, the number of which totaled 426,594 in November 2018.[10] In response to a lawsuit brought by AHA and others, the Department of Health and Human Services (HHS) was ordered last year to eliminate the backlog by the end of the 2022 fiscal year.[11]

As a result of the order, the backlog had been reduced by 25%, or 108,340 appeals, by the end of Q3 2019, according to AHA, bringing the total down to 318,254.[12] AHA and others sued HHS in 2012 for noncompliance with a statutory requirement that decisions on appeals at the administrative law judge level be made within 90 days.[13] According to CMS, the average processing time for appeals was 1,361 days in FY 2019, up from 1,193 days in 2018 and 94 days in 2009, the year the RACs program was launched.[14]

RAC tactics

In anticipation of an increase in RAC activity — and because CMS Administrator Verma noted that RACs will henceforth be guided by the volume of claims a provider submits — some experts are zeroing in on claims that may represent large-volume risk areas for hospitals.

Among these, according to the John Hall, MD, writing in RACmonitor publication, are observation claims. “There are two types of potential observation denials,” Hall wrote.[15] “The first is denials based on the failure to document the essential elements of observation services. The second is based on observation claims that should have been inpatient.”

Hall suggested asking a series of questions about each observation claim in preparation for a possible review:[16]

  • Does the documentation indicate what is being treated, assessed and reassessed?
  • Is there documentation of ongoing treatment, assessment and reassessment, or is the patient being seen once a day?
  • Does the documentation indicate what parameters might trigger admission “for further treatment,” or if the patient might be discharged from the hospital?

“Implicit in observation services, for the purposes of reimbursement, is a decision related to admission or discharge,” Hall wrote. “If the record does not delineate CMS’ criteria, then observation reimbursement might be jeopardized.”[17]

According to Hall, other potential risk areas, based on the new RAC guidance, include:[18]

  • Diagnostic or therapeutic services with documentation requirements
  • One-midnight inpatient surgical procedures
  • Observation services in the perioperative period
  • Inpatient care for traditionally outpatient services
  • NCD and LCD compliance

A comprehensive coding, claims and revenue cycle solution

Meeting the challenges of Medicare claims compliance and overall revenue cycle management requires systematic approaches grounded in empirical evidence and a capable staff delivering proven solutions.

ParaRev can help you significantly refine your coding, AR recovery and resolution, and denial management processes. We can also help you minimize the risk of a RAC audit, while ensuring you’re in a position to respond promptly and effectively if one occurs. Contact us today to learn more about how we can help your organization secure its financial foundation.

  1. Seema Verma, “Recovery Audits: Improvements to Protect Taxpayer Dollars and put Patients over Paperwork,”, May 2, 2019.
  2. A History of the RAC Program,”
  3. Seema Verma, “Recovery Audits: Improvements to Protect Taxpayer Dollars and put Patients over Paperwork,”, May 2, 2019.
  4. Ibid
  5. Ibid
  6. Ibid
  7. Exploring the Impact of the RAC Program on Hospitals Nationwide,” American Hospital Association, Dec. 5, 2016.
  8. Ibid
  9. Ibid
  10. Jacqueline LaPointe, “Court Orders HHS to Eliminate Medicare Appeals Backlog by 2022,” RevCycle Intelligence, Nov. 13, 2018.
  11. Ibid
  12. As a result of AHA lawsuit, HHS continues to reduce appeals backlog,” press release, American Hospital Association, Sept. 30, 2019.
  13. Jacqueline LaPointe, “Court Orders HHS to Eliminate Medicare Appeals Backlog by 2022,” RevCycle Intelligence, April 4, 2018.
  14. Average Processing Time By Fiscal Year,” Office of Medicare Hearings and Appeals, HHS.
  15. John K. Hall, “Level of Concern Rises as RACs are Back,” RACmonitor, July 24, 2019.
  16. Ibid
  17. Ibid
  18. John K. Hall, “Level of Concern Rises as RACs are Back: Part II,” RACmonitor, July 31, 2019.

Gaining control over denials to reduce chronic revenue loss and costly remediation requires accurate information about where, when, and why denials are occurring. ParaRev has identified the top three departments where denials are the most prevalent. Download our whitepaper to learn how to decrease denials and improve margins

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