RACS (Recovery Audit Contractors)

Under the ACA (Affordable Care Act), regulations require audits for the Medicaid payment processes. They are conducted using data mining where paid claims are analyzed to find unusual claims comparing them to national standards. These are the RAC auditors. The government (CMA) contracts this service to companies who evaluate over and under payments made by Medicaid.

RAC auditors determine what records need examination and may request medical records to expand the review. Auditors may review up to 3 years of claims, though the underpayment time allowance is only 60 days. Medical providers under their various provider agreements accept the compliance which allows the audits.

In the last two years, RAC staff have recovered over $2.33 billion in overpayments and since they are paid on an incentive program, they are definitely determined to find violations. A software program adopted by a test hospital found that underpayments outnumbered overpayments by a count of 7 to 1. It will be interesting to see if the whole effort is really feasible with the underpayments possibly far exceeding the overpayments, plus adding another level of costs – contracted auditors who will get paid too. Not to mention the cost of locating, copying and sending thousands of medical records to the auditors.

Of the $2.33 billion in overpayments, more than $200 million went to the auditors (who charge 9.5 to 12% of the amount recovered). According to the American Hospital Association, two-thirds of the records reviewed contained no errors. When appeals were filed based on the RAC audits, 72% of the time hospitals prevailed. Certainly the statistics question the RAC standards for review, seemingly just looking for whatever will work to deny claims.

Last but not least, during the audit period, reimbursements can be withheld which can have a major impact on cash flow for a practice and is a major headache for hospitals.

This is an efficient way to recover money? Only the government could have created this headache.