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RACs are here to stay…

While ambiguity remains about the future path of healthcare in America, it seems certain that CMS will intensify the effort to collect improper Medicare/Medicaid payments from healthcare providers. The “Tax Relief and Health Care Act of 2006” created the Medicare RAC (Recovery Audit Contractor) program. Four recovery audit contractors administer the program in their respective region of the country. These contractors operate as private entities and are paid on a contingency fee basis – receiving a percentage of the improper overpayments they collect from providers (between 9-12 percent of any overpayments). CMS reports collecting over $1.27 billion in overpayments since October 2009.

The recouping of over one billion dollars to an already financially strained Medicare/Medicaid program has not gone unnoticed by CMS. PPACA (Patient Protection and Affordable Care Act of 2010) ushered in a new wave of RACs, most notably by creating the Medicaid RAC program and authorizing the review of Medicare Part C and D payments. CMS is not the only regulator taking a close look at Medicare/Medicaid overpayments. The Office of Inspector General (OIG) has already begun urging CMS to report healthcare providers with significant RAC collections to the Department of Justice, which has a much longer look-back period than RACs. (RACs have a three-year look-back period from the date the improper claim was paid.)

Larger health systems/organizations have most likely felt the impact of the RAC program, as these were the “low hanging fruit” for RACs at the program’s inception. However, as these organizations have implemented improved internal processes to prevent overpayments, RACs are expanding their focus. Now all healthcare providers, regardless of organizational size or structure, must be aware of their potential RAC exposure.

The first step in evaluating/mitigating the RAC exposure is designating one person (or team) within the organization to oversee compliance with RACs. Once a RAC demand letter is received, the timeframe to determine a proper course of action is limited. An unprepared organization may find itself rushing to retain legal counsel with previous RAC experience or struggling to fund the cost of appeal(s).

While an organization may choose to process, oversee, and fund all aspects of a RAC audit/appeal internally, many are turning to their designated risk management/insurance professional for assistance. Insurance policies are now available to fund costs associated with a RAC audit and/or appeal. Many of these policies also provide additional RAC services to assist in navigating the audit and appeal process (i.e. experienced RAC consultants, legal counsel, and forensic audit specialists).

Each insurance carrier/company currently offering this coverage has a unique policy form. Special attention should be paid to retention/deductible levels and policy sub-limits. Most policies will not pay any  over billed amount alleged by CMS, with only one current exception. (IronShore currently offers a product which, in addition to covering legal/defense costs, provides coverage for repayment of an over billed amount.)

Healthcare providers can also look to their medical malpractice insurer to offer some protection against RAC expenses. Some malpractice carriers will now offer sub-limited coverage for RAC expenses by endorsement to the malpractice insurance policy. While this protection is better than nothing at all, providers should pay careful attention to the limit of insurance provided, the associated retention/deductible, and how this may dilute the overall limit of insurance to pay other claims.

With the seemingly constant evolution and escalation of the RAC program, healthcare providers should partner with an experienced risk management/insurance professional(s) to evaluate their specific RAC exposure. A qualified insurance professional should not only assist in selecting and procuring the most appropriate insurance coverage available, but should also assist in incorporating that insurance as part of a larger risk management strategy for the organization.

The RAC program has undoubtedly created yet another regulatory burden to healthcare organizations and providers. But with hundreds of millions of dollars being recouped annually, one can rest assured that RACs are here to stay.


William Gallagher Associates is a leading provider of insurance brokerage, risk management and employee benefits services to firms with complex risks and dynamic needs, within industries that include technology, life sciences, financial risks, health care, renewable energy & clean technology, and environmental services. WGA has offices in Boston, MA; New York, NY; Hartford, CT; Princeton, NJ; Columbia, MD; and Atlanta, GA.

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