The Return of the RACs

Published in Complex Rehab on February 28, 2022

Wayne van HalemBy Wayne H. van Halem, AHFI, CFE, President, The van Halem Group

The Recovery Audit Contractor (RAC) Program wreaked havoc in the DMEPOS industry from 2011 until about 2015 when they were essentially given free rein to audit DMEPOS claims.  While there were limits as to how many claims they could audit from a unique provider, there was no limit on how many providers could get audited. And for a while, it seemed no one was immune.

The RACs get paid a contingency on any overpayments and underpayments they find. Of course, underpayments account for a very small percentage of the incorrect payments that they identify. This program made the RACs quite a bit money, which obviously allowed CMS to recoup a lot of money as well. From the eyes of the government, the program was a huge success. 

Ballooning Backlogs

What they did not plan for was the impact it would have on the administrative appeal process. As the RAC increased its audit activity, the appeal system became strained. Despite federal regulations that required hearing decisions within 90 days, a significant backlog began to grow. 

Not staffed or funded to handle the number of appeals they were receiving, the Office of Medicare Hearings and Appeals (OMHA) allowed the backlog to reach over 700,000 appeals at one point. With that volume, it was taking providers up to five years in some instances to get a hearing.

For some reason, it took a while for CMS to recognize that the RAC program was having a direct impact on the appeal backlog. During the height of the backlog, DMEPOS claims accounted for about 54% of the total appeal backlog, and the RACs were really focused on DME claims.

Correcting Course

Eventually, CMS made some changes to the RAC program and significantly limited the number of claims the RAC could review. Previously, once an issue was approved by CMS, the RAC was free to audit as many claims as they could handle. CMS changed the program and once an issue was approved, the RAC was limited to only looking at between 500 and 2,000 claims.

Once that preliminary review was done, CMS then analyzed the impact it had on the appeal process. For example, were the denials being appealed and were they getting overturned? Essentially, CMS wanted to limit the number of new appeals entering an already overburdened backlogged system. If it resulted in appeals being filed, then CMS would not authorize the RAC to continue reviewing those types of claims. As a result, the volume of RAC audits dropped significantly.

It wasn’t until a 2018 federal court ruling in favor of the American Hospital Association and its member hospital plaintiffs, which established annual deadline-based targets for reducing the backlog of Medicare appeals at the Administrative Law Judge (ALJ) level, that Health and Human Services (HHS) was forced to act on the backlog. With a significantly increased budget, OMHA opened seven new offices throughout the country and hired about 70 new judges to assist in meeting the court-ordered deadline to hearing cases within the 90-day timeframe required by the Code of Federal Regulations.  

In its most recent status report to the court, HHS stated, “By the end of the fourth quarter of 2021, a total of 60,062 appeals remain pending at OMHA, which is a reduction of over 85% from the starting number of appeals identified in the court’s order (426,594).”

Audits Ahead

That brings us to today. The court ordered the backlog resolved by the end of 2022; however, discussions I have had with ALJs and the numbers reflect that they are ahead of schedule and the backlog will likely be resolved by the spring of 2022. We are now seeing hearings getting scheduled within three or four months of submission.  

With the new offices and judges, the most recent OMHA data shows they have decided well over 115,000 appeals each year for the last three years.  It is likely they can handle even more once the backlog of old large “big-box” cases has been resolved. However, with the reduction of audit activity during the pandemic and the restrictions on the RAC, they are receiving nowhere near that volume. I asked if their intent was to reduce their staffing once caught up and it was clear that they had no intention of doing that.

In the recent report to the court, OMHA reported that they only received 31,400 appeals in fiscal year 2021, with only 1,287 of those being RAC-related receipts.  It doesn’t take a genius to figure out that they will need to start receiving a lot more appeals in order to maintain the increased budget and staffing that they currently have, and there is one very easy way to accomplish that.

CMS recently increased the number of claims the RAC could review during the preliminary stage. I’m afraid it is a sign of what is to come. Once the backlog is resolved, I believe the limitations put forth on the RACs will become less restrictive and allow for more audits to occur. 

I am hopeful it will not be at the level that we saw back when the program began, but I do anticipate a significant increase in RAC audit activity in 2022 compared to what we have been used to for the last several years.

Preparing as a Provider

I understand that this news doesn’t sit well with providers, but awareness of what the audit landscape may look like is important. It’s a good opportunity to take a look at the RAC’s list of approved issues for Region 5 (DME, home health and hospice) and if you see products and services that you provide, then conduct a review of a sample of claims to make sure documentation is accurate and supportive of the claims you submit.

Being proactive and prepared is the key to assuring that RAC auditors can’t come in and recoup money from your business. If they audit you and don’t find anything, they will likely move on and audit elsewhere, as they only make money when they find incorrect payments. If you want an independent review, contact The van Halem Group for more information.


Forecasting 2022This article was originally featured in the VGM Playbook: Forecasting 2022. To read more articles like this, download your copy of the playbook today! 


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