Getting your ducks in a row for the RAC
Bookmark and Share

Preparation, balanced approach key for passing unscathed through process

Since its 2006 creation by Congress and attention-grabbing demonstration period shortly thereafter, the Recovery Audit Contractors (RAC) program has been a source of stress for physicians of all stripes. In an era of increasing government oversight over the health care field, the thought of getting caught up in a system charged with recovering billions of health care dollars is enough to unsettle any practitioner. But, according to those with expertise in the RAC audit process, putting the right processes and safeguards in place can ensure that any brush with a RAC audit is at worst a minor one.

Understanding the process

The RAC program was created to help the Centers for Medicare and Medicaid Services (CMS) tamp down the rising costs of improper payments made through Medicare. After early demonstrations that CMS considered successful, Congress made the system permanent effective January 2010. Under the program, independent contractors scour payments to identify and recoup improper payments made to providers of services to Medicare beneficiaries. They may pursue recoupment of funds in instances of incorrect payment amounts, non-covered services, incorrect coding, and duplicate services.

Physicians are subject to two different types of audits — automated reviews and complex, non-automated reviews. The former is triggered automatically through data processing, and is almost always tripped by clearly incorrect coding or misapplication of coding regulations (see "Hair triggers" sidebar). The latter utilizes a reviewer, and takes place when there is a high probability of non-covered services or when there is not a clear CMS policy. Both audits review all aspects of supporting records, including E/M codes. Records can be pulled from as far back as October 2007. Physicians who are targeted for audits will receive written notice from a RAC auditor, detailing the incorrectly paid codes and recoupment sought. In the case of automated reviews, the amounts are often small, the result of minor coding or system errors. Complex reviews, on the other hand, are triggered by larger or repeated errors in coding, and can have more serious financial consequences for the physician.

The demonstration period alone resulted in more than $900 million in overpayments being repaid to CMS, paving the way for the current permanent system. Each of the four regional RACs are paid on a contingency fee basis, which costs the government approximately 20 cents for each dollar recovered. While the vast majority of funds recovered come from inpatient facilities, RAC audits can and do happen to private practice physicians with regularity. With a flat-lined economy and shrinking state and federal budgets, RAC audits offer the government a cheap source of revenue, and are likely to continue to increase in regularity for the foreseeable future, according to practice consultant group Fi-Med Management. The low cost to CMS and high profitability for RAC auditors has made it an attractive proposition for both of those entities. In addition, the Academy recently received notification that automated RAC audits in different regions have requested monetary recoupment within 30 days for Mohs surgical cases if the pathology was reported by another physician. There have also been reports of requests for recoupment for new patient services when reported with another procedure. (The Academy created resources to help members respond to such audits; see "AAD RAC resources" sidebar)

The key to weathering the storm, according to former dermatology practice manager Joseph Faber, MBA, who now runs Clean Bill of Health LLC and Faber Healthcare Solutions, is to have a grasp of what the RAC audits are looking for and whether the practice is prepared for them.

“If one is unprepared, one is almost guaranteed to lose money when the process takes ahold of their practice. Not everybody is going to be receiving a full-blown RAC audit, but pretty much everyone will receive a recoupment request or inquiry,” Faber said. “If you don’t respond properly and in a timely fashion, you’ve lost. You’ve accepted their judgment. Accepting the process and knowing how to deal with it is vital to protecting your revenue — or in extreme cases your ability to stay open.”

Further, Faber said, it’s important to recognize and deal with the feelings of one’s practice or credibility being under siege.

“At the very least, there’s an emotional toll taken. Any of the staff that deals with the billing, but especially the physicians that own it, feel like they’re under assault,” he said. “The RAC process was not set up to get anybody, but rather to ensure that Medicare spending is controlled. But it doesn’t mean that physicians don’t feel that way. They often, and understandably, feel that they’re under the gun from insurance carriers in general.”

For physician practitioners feeling outgunned and intimidated by an audit notice, American Academy of Dermatology vice-president Suzanne Connolly, MD, recommends using the organization’s RAC audit toolkit as a guidebook toward successfully handling the process (see sidebar below). Even beforehand, she said, it’s vital to come to terms with the possibility of an audit and prepare a plan for that eventuality.

“You need to have a very process-oriented response in place. It’s important to know what your next steps should be when you receive notice of an audit,” Dr. Connolly said. “There are some very time-sensitive deadlines you need to know how to meet. At the dermatology meetings I attend, there’s the sense that a growing number of physicians want to know more detail about what’s involved in the RAC process.” [pagebreak]

Audit planning

In planning for an audit, according to California dermatologist Allan Wirtzer, MD, who has spoken frequently on coding and practice management at the Academy’s Annual Meeting, it’s important to have a baseline grasp of the importance of thorough documentation to support one’s coding.

“The most important thing a dermatologist can do [to be prepared for an audit — or to avoid one] is just make sure that they’re comfortable with the requirements for the different CPT codes and modifiers. The biggest concern based on experience is the significant number of physicians who still aren’t entirely comfortable with documentation requirements,” Dr. Wirtzer said. “One thing they can do is look at the CPT book and read through the different portions that can guide them into the use of these, as well as avail themselves of the support of their professional societies.” (Dermatology World offers a monthly column on coding and documentation issues, “Cracking the Code.” All editions of the column are available online.)

Prior to an audit, Faber said, practices that use electronic practice management or electronic health record (EHR) systems can avail themselves of some of the software’s built-in safeguards.

“You can set up your billing system to make sure that it checks the diagnosis code against the sex of the patient, for example. You could set it to trigger a query in the office. Some of them can be set for intra-lesional injections, biopsies, or excisions. It will flag a file that shows procedures above a certain quantity and ask you to check your notes and make sure it’s correct,” Faber said. “Some of the EHR systems will assist you with the coding. They will only provide the code for the procedure after the service has been documented. Assuming the physician is documenting it correctly, there’s a degree of protection there.”

In addition to having the correct documentation and processes in place, Faber said, it’s important to determine the practice’s standard responses to RAC inquiries and determine who in the practice will be responsible for each of those responses. The rapid timeline of the RAC process, he said, makes this virtually a requirement.

“There should be a point person who handles those inquiries, is educated in the appeals process, and who can respond to those claims in a timely fashion. Believe it or not, you’ve got 45 days to respond to a RAC inquiry, and that clock starts the day they mail their letter,” Faber said. “Missing that deadline means losing money.”

To make sure one’s documentation and staff is prepared for an audit, one can run a mock audit, either in-house or through a coding and reimbursement consultant. This will serve to accurately test the vital procedures needed during an audit period and ascertain the RAC team’s functionality. [pagebreak]

Responding to an audit

Once a RAC audit is triggered, Faber said, the value of thorough documentation is revealed. This, he said, not only applies to the records and claims in question, but the practice’s replies to every step of the inquiry.

“Everything must be responded to in writing, copies of everything need to be kept, and your responses all need to be sent via certified mail with a return receipt,” he said. “You want to prove what you sent and when you sent it. That team manager, the RAC coordinator, needs to have an audit log that keeps track of every step of this process.”

At the outset of the RAC audit process, according to Dr. Wirtzer, it’s important for the physician to take the time to review all charts before the staff sends them to the RAC.

“The staff should never send the charts out before the physician has a chance to look at them. There is an opportunity, if there’s something the doctor is aware was left out, to make an addendum, as long as that addendum is dated appropriately. It’s possible to add a note to a chart saying in review, I see that I did not include this bit of information,’ as long as they use the proper date,” Dr. Wirtzer said. “Make clarifications prior to sending it out, but never alter the record in such a way that it’s not properly dated. It will be assumed that the physician is trying to cover up errors and possibly make fraudulent notations.”

Further, Dr. Wirtzer said, during a RAC audit is an unfortunate time to realize that one’s records are illegible or incomplete.

“Make sure that your records are legible. In many cases, especially when doctors aren’t using any kind of transcription or computerized system, the handwritten notes tend to be really limited and hard to discern,” he said. “I’ve had a chance to do some records reviews in the past, and illegible medical records may actually give the impression to an auditor that material isn’t there that very well may be, but they can’t read it.”

Another important consideration of the process is that every practice makes the occasional mistake in coding, and may receive an overpayment — or even underpayment — of a virtually insignificant amount. In this case, it’s important to weigh staff time or physician time versus the amount of the RAC claim. According to Dr. Wirtzer, claims are occasionally made over dozens of payments that total no more than $10, making the decision clear. Ultimately, he said, each practice has to decide the level at which they will choose to mount an appeal. The important part, he said, is not to be intimidated by the process or feel bullied into accepting the RAC’s decision.[pagebreak]

“I frankly feel that any claims that are not clearly the result of incorrect coding should be appealed. It’s my feeling that many of the companies rely on the intimidating aspect of the process to keep physicians from appealing,” he said. “Of the RAC audits that have been challenged by those colleagues I know, the majority of them has resulted in significant reduction of any repayments. Utilize available resources from the AAD and, if so disposed, from attorneys to aggressively challenge any demands for repayments. You’ll likely win the majority of contested claims if your documentation is there and there aren’t flagrant errors in coding.”

Should a practice decide to appeal, Faber said, it’s important to know the audience for the appeal and respond properly.

“What’s interesting is when you file an appeal, it’s not reviewed by the RAC, it’s reviewed by an administrative law judge, who can be far more sympathetic to your cause than the RAC will be,” Faber said. “If you’ve already got a system in place to show that you’ve identified particular weaknesses and are taking steps to prevent them from reoccurring, you’ve got an improved chance of winning an appeal because you’re demonstrating that your practice is proactive.”

The appeals process, according to Dr. Wirtzer and Faber, can take over a year’s time to work through the system. Even then, they said, there is no guarantee of success. But, they said, one should measure the success of one’s preparation not only on the outcome, but by the practice’s ability to respond to the process with copious and accurate documentation in an efficient and clearly defined process.

“Bear in mind that the appeals process may be expensive. There’s staff time, there are records to search, there’s copies and postage, legal counsel that may be needed in higher-end cases. Depending on how extensive the audit is, it can take a year or two,” Faber said. “And even after everything involved, it may be lost anyway, so a decision has to be made whether to fight or pay on a case-by-case basis. But you need to know exactly how you’re going to handle the process when — not if — an inquiry comes in.”

Insuring against audits

Aside from overpayment recoupments alone, the cost to mount an audit defense can quickly add up when considering record assembly, staff time, and legal fees. For an increasing number of physicians, audit insurance can help alleviate the sting from a lengthy audit process.

While policies vary, most cover audits by both government and private entities, and given the recent scrutiny providers have been under from both private insurers and Medicare, the coverage has become far more popular than in recent decades. Policies that used to cost tens of thousands of dollars per year can now be purchased for a couple thousand.

Even so, physicians in the market for audit insurance need to understand what is and isn’t covered under individual policies, which can vary greatly between carriers. Some, for instance, will cover the cost of regulatory actions, while others will not. And among carriers, provisions for exclusions and attorneys’ costs are far from uniform.

AAD RAC resources

In response to member needs, the American Academy of Dermatology has created the RAC Audit Survival Toolkit, which offers expert advice from the Coding and Reimbursement Task Force and practice management staff. It features information on the most frequently asked questions from dermatologists in an easily navigable Q and A format, a thorough background on the RAC audit process, and contact information for the Academy’s expert practice management staff.

“The RAC Audit Survival Toolkit gives very specific information on how to go about handling every step of a RAC audit,” said Academy Vice President Suzanne Connolly, MD. “This was developed in response to the stress upon members who were receiving notices of audits. Surviving a RAC audit is a matter of following certain steps in order to deal with the situation. The toolkit gives you exactly what you need to know.”

The toolkit is available at

Hair triggers

Joseph Faber, MBA, president of Clean Bill of Health, LLC, advises his clients on a number of measures to make sure that easily corrected coding mistakes don’t trigger RAC audits. The following, he said, are the most common.

  • Obvious coding errors: “Genital warts have separate codes based on the type of destruction and whether the patient is male or female. If you code a female destruction on a 38-year-old male, that can trigger an audit. It should be caught by the office, the clearinghouse, and the insurance carrier, but sometimes those things slip through.”
  • Unnecessary or non-covered treatments.
  • An office visit within the global period of a procedure.
  • Incorrect settings: “Providing a hospital visit in an office or vice-versa can provide a trigger.”
  • Rendering a CLIA service in a non-CLIA-authorized setting: “For instance, being paid for a potassium hydroxide fungal slide in an office that doesn’t have a CLIA cert. Or doing a pregnancy test on a non-isotretinoin patient without a CLIA certification.”
  • Excessive units: “Sometimes it’s a normative case, and the chart notes would prove it was a necessary series of treatments, but it’s unusual at the levels that trigger an audit. If somebody comes into the office and has seven biopsies, that’s going to stand out. It may be that there are seven different sites that got biopsied, they could be completely covered in suspicious nevi, but the documentation is going to need to support that. Most people don’t have that number of biopsies done in a visit.”



Insuring against audits
AAD RAC resources
Hair triggers