History and Purpose of RAC
The history of the Recovery Audit Contractor (RAC) program can be traced back to the year 2003, after Congress passed a bill that mandated the Medicare Trust Funds to reduce widespread wastage of funds. The funds’ wastages were primarily attributed to billing errors, improper payments, and false Medicare claims. The RAC empowered the Centers for Medicare and Medicaid Services (CMS) to detect both overpayments and underpayments of healthcare claims by identifying and rectifying improper payments. However, as a demonstration project, CMS began its duties in the 2005-2008 financial year. Overall, the project registered an incredible success during this period. The Medicare Trust Fund managed to recover over $900 million in overpayments. Additionally, according to Harrington (2019), approximately $38 million were taken back to healthcare providers in underpayments. This adds to the fact that the program was largely a success across the states.
RAC demonstration project was conducted in March 2005 in three states: Florida, New York, and California. A preliminary report produced a year later disclosed that the three states had returned the Medicare Trust Funds a total of $54.1 million (Abbey, 2017). It was then that the demonstration was expanded to two more states – South Carolina and Massachusetts. By the time the agency was concluding its pilot project in March 2008, a total of $693.6 million in overpayments had been returned to the Medicare Trust Funds by the RACs within three years (Harrington, 2019). The success of the RAC program in securing Medicare’s fiscal integrity was continuously highlighted throughout the demonstration
The RAC Process and Its Impact on Healthcare Organizations
The success of the CMS encouraged Congress to authorize the Department of Health and Human Services Secretary to institute a permanent RAC. The aim of the reinstituted RAC was to recoup overpayments related to Medicare part A or B services. It must be noted that Medicare comprises four parts – Parts A, B, C, and D. Part A is the Hospital Insurance that deals with home health, hospice services, and inpatient hospital services. Part B is the Supplementary Medical Insurance that covers outpatient hospital care, durable medical equipment, laboratory services, and physician visits. Therefore, RAC is a third-party auditing and/or insurance agency charged with the duty of identifying both overpayments and underpayments in almost a quarter of the country.
However, while discharging its responsibilities, RAC has had to confront various challenges. Some of these challenges include copying charts, staff updates on a new program, audit data gathering, and preparation of appeals. Moreover, the program is understaffed, and some of the available staff lack expertise when it comes to dealing with audit processes and appeals. These have had devastating impacts on health care organizations across the United States. The huge volumes of requests require a significant number of people to handle (Abbey, 2017). In most cases, these requests are complex, implying that only professionals can attend to them. This means that health care organizations have now been forced to hire technical expertise, a process that dents its financial reserves.
In the financial year 2012, the RAC audit program collected more than $986.2 million in the first six months. This was an increase from $797.4 million collected the previous year. However, in the process of such collections, the program encounters vast denials from hospital administrators. Some healthcare organizations do not cooperate when asked to provide relevant medical documents to support the claims that they have billed. This could be attributed to the fear of losing their profitability. Indeed, the collection of overpayments has resulted in many healthcare institutions experiencing a redline in their profitability.
Abbey, D. C. (2017). The Medicare Recovery Audit Contractor Program: A survival guide for healthcare providers. CRC Press.
Harrington, M. K. (2019). Health care finance and the mechanics of insurance and reimbursement. Jones & Bartlett Learning.