Medicare’s permanent Recovery Audit Contractor (“RAC”) program is proceeding. The RACs will begin sending record requests to hospitals and other providers in the coming months. Originally, the RACs planned to begin their audits in three phases across the country. However, according to the most recently published RAC expansion schedule, the RACs will begin auditing in two phases. Some hospitals and providers, such as those located in Minnesota, should expect to receive RAC record requests in June 2009. Other hospitals and providers, such as those located in Iowa, should expect to receive RAC record requests in August 2009.


If you are a health care provider and are not yet prepared for the RAC audit process, your organization will likely be strained by: (1) the amount of work required to manage the RAC process; and (2) the amount of reimbursement you will lose through the RAC process.

Here are 10 important pieces of RAC preparation.

  • Designate Contact Persons for Record Requests
  • Designate a RAC Coordinator
  • Create a System to Track all RAC Requests, Responses and Deadlines
  • Scan all Documents Provided to the RAC; Send Everything Certified With a Return Receipt
  • Prepare PR Information for Patients
  • Pre-RAC Internal Auditing
  • Implement Compliance Efforts Now
  • Manage Time Frames to Ensure Critical Deadlines Are Not Missed
  • Become Familiar with the Appeals Process; Establish an Appeals Matrix
  • Identify Physicians to Assist


1. Designate Contact Persons for Record Requests

RACs are required to allow providers to customize their address for corresponding with the RACs. Providers should ensure that their RAC has accurate contact information on file, and that an individual is designated to receive, and trained to identify, mail from the RACs. Providers have 45 days to respond to the initial RAC letter. The time begins to run on the date that the RAC mails the letter. If the provider does not supply the RAC with the requested medical records within the 45 day timeframe, the RAC is permitted to find that the claims requested are all “overpayments” and initiate recoupment proceedings. Therefore, it is crucial that the correspondence from the RAC is sent to the correct address and that providers have trained individuals receiving the mail so that they immediately identify audit requests from the RACs. Providers may also consider establishing a separate mailing address for RAC audits, and assigning a specific individual to monitor the mail at that address, in order to ensure that the provider receives and responds to the requests in a timely fashion.

2. Designate a RAC Coordinator

Managing the RAC audit process will be labor intensive. One person at the provider’s organization should be well-trained and prepared for “quarterbacking” responses to RAC record requests and managing the appeals process.

3. Create a System to Track all RAC Requests, Responses and Deadlines

Providers must either purchase or create a system to track many RAC-related data elements regarding records requests, responses, and appeals. Missing deadlines in the RAC process means losing reimbursement. The system can also track the reimbursement that is at risk so that the provider is able to continuously monitor its financial exposure in a pending RAC audit(s).

4. Scan all Documents Provided to the RAC; Send Everything Certified With a Return Receipt

Providers should scan all documentation furnished to the RAC. Not only will scanning provide a record of what was provided in case it is lost, or in case of a later disagreement about what was sent to the RAC, but it will also help providers manage documentation during assessment and appeals. Providers will need to send the same information repeatedly to various internal personnel, outside attorneys and consultants, and appeal bodies. If the information is originally scanned onto a CD, providers can more easily reproduce the information for the many people who will need access.

5. Prepare PR Information for Patients

When a claim has been targeted for recoupment, even if the provider plans to appeal the recoupment, providers should consider notifying the patient whose claim is in issue to notify the patient that their claim is under review, to explain the process, and to explain that the claim may have to be repaid. Informing the patient in advance of the possible impact the review could have on the patient (e.g., refunds of deductibles), may be an important PR tool.

6. Pre-RAC Internal Auditing

Providers should conduct internal auditing on the main types of claims and issues that the RACs identified in the RAC demonstration program, and which providers expect will be the main targets during the permanent RAC program. Providers can extrapolate the results from the data mined during their pre-RAC internal audit in order to determine what to expect for financial exposure once the RAC audits begin. The internal auditing can also prepare providers for appeals as providers can determine proactively the criteria that they will look for in determining which claims to appeal. Additionally, internal auditing will help providers identify areas for improvement.

7. Implement Compliance Efforts Now

The RAC will identify improper payments resulting from non-covered services (including services that are not medically necessary/services rendered in a medically unnecessary setting); incorrectly coded services (including DRG miscoding); and duplicate services. The RACs are required to conduct “targeted reviews” of claims that are likely to contain overpayments, as opposed to conducting a random review of claims.

Providers can and should take steps immediately to reduce their risk of recoupment by identifying high risk and high volume services for proactive correction.

Based on the lessons learned from providers in the RAC demonstration project, there are specific services that will be the focus of the RACs in the permanent program. Examples are: (1) Inpatient Rehabilitation (e.g., for services following a joint replacement, medically unnecessary service or setting/ the therapy would have been more appropriate in a less intensive setting such as a SNF); and (2) Excisional Debridement (incorrectly coded; medical record must state “excisional debridement” (cutting away of tissue), not just debridement - the removal of loose fragments with scissors). Providers should identify these high-risk services that are likely to be targeted by the RACs, and implement immediate corrective action in order to prevent recoupment actions of current claims.

Providers should focus compliance education and training on documentation and coding issues that caused claims to be targeted during the RAC demonstration project.

Providers should conduct internal reviews to ensure that they are in compliance with the Medicare standards, guidelines and criteria for these claims that are the likely target of the RAC audits. While the RACs are permitted to look back to paid records from October 1, 2007, it is possible that the RACs will request records from a more recent time period. If a provider has taken steps to correct any problems during more recent time periods, the provider will have minimized its risk of recoupment.

8. Manage Time Frames to Ensure Critical Deadlines Are Not Missed

The RACs are not permitted to recoup funds for identified claims during the first two stages of appeal if the provider appeals within the correct timeframes. The appeals time frames will be difficult to manage unless providers carefully track deadlines. We recommend that providers put in place their appeal-tracking processes now, so that they are prepared to immediately track their deadlines as soon as they receive the initial audit letter from the RAC.

9. Become Familiar with the Appeals Process; Establish an Appeals Matrix

RAC appeals are quite complex. There are five levels of appeal. Many providers in the demonstration program had great success on appeal. Legal counsel can help to establish a RAC audit appeals matrix to manage the appeals process. Appeals can take 2 to 3 years, with different deadlines and processes for each of the five levels of appeals. Without proper appeals oversight mechanisms, providers could lose the opportunity to reverse improper RAC recoupment actions.

10. Identify Physicians to Assist

In certain appeals, such as appeals based on medical necessity, physician involvement will be key in helping the organization determine which claims to appeal, and in assisting with the appeals process. It is critical that health care providers identify physicians that will help review records, assess medical necessity of services rendered, and help develop arguments for appeal.

Starting soon in 2009, the permanent RAC program will quickly become one of the most significant regulatory and financial challenges hospitals and other health care providers face. Hospitals that currently have small operating margins may see those margins disappear due to the RAC program. It is imperative that preparation to protect your reimbursement begin now.