Navigating Changes in the Recovery Audit Contractor Landscape

December 30, 2012

Attorney Rachel Rose provides some details and frequent issues for physicians regarding Recovery Audit Contractor audits.

I recently interviewed Rachel Rose, a lawyer in Houston. Rachel has worked both on Capitol Hill and in private practice and kindly shared her knowledge about the problems physicians face from Recovery Audit Contractor (RAC) audits.

MM: What is the history of the Recovery Audit Contractor Program?    

RR: Adopted as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) in an effort to protect the fiscal integrity of the Medicare program, the RAC Program began a three-year demonstration period.

Congress subsequently made the RAC program permanent and mandated nationwide adoption by 2010.  

MM: How does Medicare define medical necessity and what impact does it have on a provider’s reimbursement and audit exposure?

RR: The Medicare definition of medical necessity under Title XVIII of the Social Security Act, section 1862 (a)(1)(a) states: Notwithstanding any other provisions of this title, no payment
may be made under Part A or Part B for any expenses incurred for items or services, which are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.

Given the broad definition, this gives a great deal of latitude for RAC contractors denying
claims, which can be both costly and time consuming to appeal. Moreover, and significantly for physicians, Connolly, Inc., who had previously been tasked with "reviewing past claims for physician and hospital services in 15 states will start scrutinizing the billing of office visits, claims that had previously been off-limits to Recovery Audit Contractors." (Charles Fiegl, Medicare Auditor Targets E&M Services for Review, Oct. 1, 2012; available at Limiting reviews to the southeast and mid-Atlantic and utilizing statistical sampling, Connolly will determine how many incorrect payments occurred under the evaluation and management (E&M) code 99215. Ibid. Therefore, increasing a physician’s audit exposure and highlighting the need for substantiating the medical record.

MM: Who conducts the audits? (two types of audits - automated and complex; medical director is required by law).

RR: There are many types of contractors that conduct audits including: RACs, Medicare Audit Contractors (MACs) and Zone Program Integrity Contractors (ZPICs). RACs are required to post the areas they are reviewing on each contractor’s website, so providers have a semblance of what to focus on. Not surprisingly, medical necessity was at the top of the list.

MM: What is the maximum number of charts that can be requested for review?

RR: On March 15, 2012, additional guidance on documentation request limits was provided. Suppliers and physicians were not included. (CMS, Medicare Fee-for-Service Recovery Audit Program – Additional Documentation Limits for Medicare Providers; available at
Key takeaways include:

• Maximum request amount is per campus - meaning “one or more facilities under the same Tax Identification Number (TIN) located in the same area (the first three digits in a ZIP code). For example, Provider A has two physical locations in ZIP codes 12345 and 12356. These two locations count as a single campus unit because the first three digits of the ZIP code are the same. Provider B has two physical locations in ZIP codes 12345 and 21345. Because the first three digits are different, this counts as two campus units and the formula for the number of records which can be requested applies to both locations.

• A provider’s prior calendar year Medicare claims volume provides the basis for the number of records, which can be requested.

• The request limits may be exceeded in one of two ways: by CMS on its own initiative or by a recovery auditor (RA) requesting permission. Either way, a provider is notified in writing by either CMS or the RA.

MM: What is “pre-review” versus “post-review”?

RR: The RAC Program is typically classified as a “post-review.” That is, either the automated or the complex review occurs after the claim has been processed. In August 2012, the Prepayment Review Demonstration website was established. The purpose of the pre-review program, which runs from January 2012 through December 2014, is to lower the error rate and prevent improper payments on certain conditions. These are listed on the website. Initially, the program will apply to states HEAT [with high populations of fraud and errors] (CA, FL, IL, LA, MI, NY, and TX) plus MI, OH, NC, and PA.

Physicians should check this website and the respective RAC website frequently to mitigate the risk of an audit and appreciate highlighted areas of vulnerability.