Recovery Audit (RAC) Program Changes Announced

The Centers for Medicare & Medicaid Services (“CMS”) announced changes to the Medicare Fee-For-Service Recovery Audit Program in a posting on the website February 18, 2014. According to CMS, the changes will go into effect after the new Recovery Audit Program contracts are awarded.

The announcement includes changes to the contingency fees paid to Recovery Audit Contractors (“RACs”) and limits on additional documentation requests (“ADRs”) issued by RACs.

Under the program changes, Recovery Auditors will not receive a contingency payment until a reconsideration decision at the second level of appeal by a Qualified Independent Contractor (“QIC”). This change, however, is unlikely to satisfy providers, who must wait an average of 16 months after the QIC decision to have their case heard by an Administrative Law Judge. According to the American Hospital Association, in more than 70 percent of inpatient denials by RACs, ALJs rule in favor of providers. The vast majority of hospitals will thus continue to wait many months to recoup improperly denied Medicare payments even under the CMS revised rules.
In addition, CMS announced that it will revise ADR limits based on the type of claim at issue, and that ADR limits will be further adjusted based on a provider’s denial rates. According to CMS, providers that have lower denial rates will have lower ADR limits, while providers with high denial rates will have high ADR limits.

CMS is also revising its rules regarding the discussion period after a RAC payment denial. Currently, a RAC is required to stop discussion with a provider after the provider files an appeal. Under the new rules, a RAC must wait 30 days to allow discussion. RACs must also confirm receipt of a discussion request within 3 days under the program changes.

CMS is currently in the process of awarding auditor contracts. The transition from the current RACs to the new RACs will be proceeded by a cease of auditing activity. CMS states that the pause in activity is necessary so that it can refine and improve the Medicare Recovery Audit Program. After the new RAC contracts are awarded, CMS states that audits will resume and claims during the transition period will be reviewed.

The RAC Program Improvements announcement can be viewed here.

For more information on this topic, you can reach Abby Pendleton, Esq. at or Jessica Gustafson, Esq. at Pendleton and Gustafson lead the firm’s Medicare Audit and Appeals Department.

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