Cherilyn G. Murer, JD, CRA, is CEO and founder of the Murer Group, a legal-based health care management consulting firm in Joliet, IIl, specializing in strategic analysis and business development. Murer may be reached at (815) 727-3355 or viewed on her Web site:

Recovery audit contractors (RACs) were created at the direction of Congress in 2003 as a demonstration project. CMS designed the RAC Program to detect and correct past improper payments in the Medicare fee for service program and to provide information to CMS and the Medicare claims processing contractors that can help protect the Medicare Trust Funds by preventing future improper payments. It initially focused on three high Medicare utilization states: California, Florida, and New York.

The RAC demonstration began on March 28, 2005, and ended on March 27, 2008. Section 302 of the Tax Relief and Health Care Act of 2006 directs the Secretary of Health and Human Services to make the RAC program permanent and nationwide no later than January 1, 2010.

CMS is currently in the process of expanding the RAC Program. By 2010, it plans to have four RACs in place. Each RAC will be responsible for identifying overpayments and underpayments in approximately 25% of the country.

CMS has a long history of calculating improper payment estimates and developing strategies to protect the Medicare program’s fiscal integrity, but remediation is the key part of CMS’ efforts to reduce improper payments. The cornerstone of the remediation efforts is CMS’ Error Rate Reduction Plan (ERRP). In the past, ERRPs have included plans to conduct special pilot studies and specific education-related initiatives.

CMS also directs the Medicare claims processing contractors to develop local efforts to lower the error rate by targeting provider education and claim review efforts to those services with the highest improper payments. Some improper payments are best prevented when the Medicare claims processing contractors review the medical records associated with the claims prior to payment to ensure that payment is made only for Medicare-covered and medically necessary items and services furnished in the appropriate setting. Other improper payments can best be prevented by CMS or Medicare claims processing contractors developing new or revised national or local coverage determinations, medical necessity criteria, or billing instructions; and educating the provider community about existing policies and reminding them of the billing mistakes most commonly seen.

Although providers are acutely familiar with the examination of claims by fiscal intermediaries and other governmental contractors, the examination of claims data by RACs has added yet another layer of review. RACs are not intended to replace other review efforts. They have been given great latitude in determining both who and what will be examined.

The RAC Program is implemented with a combination of an automated review software program, and medical record review of “claims that were likely to contain improper payments.” RACs identified and corrected $371 million of Medicare improper payments during FY 2007. More than 96% of these improper payments were overpayments collected from providers. Notably, approximately 85% of most overpayments were collected from inpatient hospitals.

All providers must become fully educated on the basic infrastructure for the provision of care as well as the RAC initiative itself so they are better prepared when the RACs begin reviewing their organizations. Both physicians and direct care staff must be fully educated and engaged in the provider’s compliance programs, specifically focusing on the coverage and care documentation requirements along with the coding, billing, and payment rules.

Providers should know that RAC reviews are limited to incorrect payment amounts as well as payments for noncovered, incorrectly coded, or duplicate services. RACs are required to use data analysis, not random sampling, to identify potentially erroneous payments. The RACs cannot randomly select claims or focus only on high payment claims.

When necessary, RACs are permitted to conduct on-site provider chart reviews. If medical records are requested by the RAC but not supplied within 45 days, the RAC may identify the claim as an overpayment by default. RAC requires strict adherence to time frames in order to observe appeal rights and prevent automatic denials.

Identified overpayments are eligible for repayment over a 12-month period, but the RAC has no power to negotiate settlements. Finally, providers have the right to appeal RAC findings, at which time collection efforts cease until a resolution is determined.

Another useful step in preparation is internal assessment of ongoing compliance programs. Policies and procedures must be reviewed annually to reflect the current processes in place and the most current Medicare regulations. Evaluation of a provider’s compliance program can be achieved through internal audits or reviews. However, many organizations have found that review by an external resource is extremely helpful in identifying issues that require attention.

To help prevent any repayment to Medicare for overpayments, services must be appropriately documented and correctly coded; sufficient documentation must be submitted to support Medicare claims; educational seminars are conducted for providers on proper documentation and coding techniques; and corrective action plans are implemented by providers based on findings from audit reviews.

As the RAC initiative moves to a nationwide effort, hospitals must ensure that documentation in all billable services completely and accurately reflects patient status and services provided. Providers should be ready to respond to RAC investigations and should proactively begin assessing all Medicare compliance issues related to medical necessity, documentation, and coding. Those providers committed to working closely with the medical and coding staff to ensure high levels of clinical documentation and appropriate coding will in turn help guarantee full payment from Medicare.

Cherilyn G. Murer, JD, CRA, is CEO and founder of the Murer Group, a legal-based health care management consulting firm in Joliet, Ill, specializing in strategic analysis and business development. Murer may be reached at (815) 727-3355 or viewed on her Web site at