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March 27, 2018

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RAC Demo Saves Medicare Nearly $700 Million

July 22, 2008:
The results are in: The Recovery Audit Contractors (RACs) Demonstration Program was a whopping success with $693.6 million in improper Medicare payments returned to the Medicare trust funds between 2005 and March 2008.

The Centers for Medicare and Medicaid Services (CMS) states that the RACs corrected more than $1 billion in Medicare improper payments from 2005 through March 27, 2008. Of those claims, roughly 96 percent were overpayments ($992.7 million), and the remaining 4 percent ($37.8 million) were underpayments repaid to providers. A total of 85 percent of the overpayments were collected from inpatient hospital providers, 6 percent from inpatient rehabilitation facilities, and 4 percent from hospital outpatient departments.

The three-year RAC demonstration program was mandated by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), to find and correct improper Medicare payments to health care providers. The program started in California, Florida, and New York in 2005; these states have the largest number of Medicare claims. In 2007 the demonstration program expanded to include Massachusetts, South Carolina, and Arizona. The Tax Relief and Healthcare Act of 2006 made the RAC program permanent and required a nationwide RAC program by 2010. CMS has responded by initiating a competition for four permanent RACs.

Under the demonstration program, the RACs were paid based on the amount of the payments they collect. There is some concern that paying RACs a contingency fee may have influenced their judgment; however, CMS believes that the contingency-fee based payment system correctly aligns incentives between providers, CMS, and the RACs. Although information on the contingency fees is proprietary and is therefore not disclosed, CMS reports paying more than $71 million in RAC contingency fees for 2007. According to the agency the RAC program has cost only 20 cents for each dollar collected.

RACs may not develop or apply their own coverage, coding, or billing policies but rather they must follow official Medicare policies. The organizations, like Medicare claims processing contractors (MACs), use medical personnel such as nurses, to review claims and each RAC has a physician medical director to oversee medical record review. Although not required in the demonstration program, each RAC in the permanent program must have certified coders.

Deborah C. Hall
Clinical/Technical Editor


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