Moving the HME Industry Forward


They’re Here – CMS Issues Next Round of Recovery Audit Contracts

December 19, 2016

AMARILLO, TX – The Recovery Audit Program began as a required demonstration program in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. It was a three-year demonstration program that began in March 2005 and ended in March 2008. It was conducted in the six states of New York, Massachusetts, Florida, South Carolina, Arizona, and California.

The program used Recovery Audit Contractors (RACs). The purpose of the RAC program was to detect and correct improper overpayments. The thing about the RAC program that was different and still distinguishes it from other Medicare audit contractors today is that RACs are paid a contingency fee. The contingency fee is paid for both identified overpayments and underpayments. For the first round of the permanent RAC program implemented in early 2009, the contingency fees ranged from 9.0 to 12.5 percent for all types of claims except durable medical equipment (DME). For DME, the contingency fee was increased and ranged from 14.0 to 17.5 percent. If an appeal is successful at any level, the RAC is not entitled to the contingency fee.

When the permanent RAC program was implemented, the country was divided into four quarters and four contracts were awarded. The RAC for each area could review all fee-for-service claims in that region. According to the “CMS FY 2014 Report to Congress on the Recovery Auditing in Medicare,” the RACs identified and corrected 1,117,057 claims for improper payments that resulted in $2.57 billion in improper payments being corrected.

The total corrections identified included $2.39 billion in overpayments collected and $173.1 million in underpayments that were repaid to providers. Per the Report, after taking into consideration program costs, contingency fees, administrative costs, and amounts overturned on appeal, the RACs returned $1.6 billion to the Medicare Trust Funds.

It is important to note that the Report does not take into account program costs associated with appeals at the Administrative Law Judge (ALJ) appeal level and above. This means that the $1.6 billion figure is not reduced by claims that are overturned at these levels. In addition, the large increase in the number of appeals and, therefore, the huge backlog of claims that are awaiting ALJ appeals have been created as a result of the RAC program.

The backlog has a significant, detrimental effect on all health care providers but particularly on DME suppliers. As a result of the backlog, many suppliers have been forced out of business because they have been unable to meet their financial obligations. Instead of the statutorily mandated 90 days for an ALJ decision, the backlog has resulted in decisions taking as long as four years. In the meantime, suppliers have been forced to repay overpayments that are often reversed at the ALJ appeal level.

Beginning in February 2013, CMS began the process of procurement and contract modification for the next round of RAC contracts, which includes an additional national contract that will cover DME and home health and hospice claims. The process included several protests and a holdover of the original contracts, but on October 31, 2016, the next round of RAC contracts were issued to the following:

Region 1 – Performant Recovery, Inc.;
Region 2 – Cotiviti, LLC;
Region 3 – Cotiviti, LLC;
Region 4 – HMS Federal Solutions; and
Region 5 – Performant Recovery, Inc.

The Region 5 RAC, Performant Recovery, will be dedicated to the review of DME and home health and hospice claims.

In addition to new RAC contractors, CMS has been working to enhance the RAC program. A number of enhancements have already been put in place, and a number of new enhancements are expected to be implemented in the coming months. Many of these improvements are the result of industry feedback. The purpose of these enhancements is to make the program more effective and efficient and to reduce provider burden while increasing program transparency.

Effective June 2, 2014, CMS established a Provider Relations Coordinator. The role of the Provider Relations Coordinator is to help increase program transparency and offer more efficient resolutions to providers affected by the medical review process. The Provider Relations Coordinator can be contacted via email at

RACs are required to maintain an overturn rate of less than ten percent at the first level of appeal. This does not include claims that were denied due to insufficient documentation or claims that were corrected during the appeals process. If the RAC’s overturn rate is higher than ten percent, the RAC could be subjected to a corrective action plan or have other limitations placed on its review abilities, such as decreased additional documentation request (ADR) limits. The thought is that this will ensure that the RACs are making valid determinations, since there will be consequences for improper decisions. This requirement became effective May 15, 2015.

Also on May 15, 2015, the RACs were required to have a contracted medical director and were encouraged to have a panel of specialists available for consultation. In addition, on that date, CMS required the RACs to provide consistent and more detailed information concerning new issues on their websites. All RACs must post the issues they are reviewing on their websites. This is the crystal ball all suppliers are looking for these days. It tells a supplier exactly what the RACs are reviewing. Every supplier should assign an employee to review the RAC website on a regular basis. When a relevant issue is posted, the issue should be reviewed for compliance. If a concern is found, a corrective action should be implemented immediately.

While the ADR limits have not changed since 2013, CMS is establishing ADR limits that are based on a supplier’s compliance. In other words, if the supplier has a lower denial rate, the supplier’s ADR limit will be lower. However, if the supplier has a high denial rate, the supplier’s ADR limit will be higher. Currently, the ADR limit for a supplier is ten percent of all claims submitted under its tax identification number for all provider transaction access numbers (PTANs) for the previous calendar year, divided into eight 45 days periods. On a case-by-case basis, the RAC can request permission to exceed the cap.

There are a number of enhancements that are expected to be seen in the new contracts. For example, the RACs must confirm receipt of a supplier’s discussion request or other written correspondence within three business days. This is particularly valuable because many times a supplier has no idea whether or not correspondence has been received. This confirmation will alleviate much anxiety.

Another enhancement that is particularly helpful is the initiation of a 30-day discussion period prior to sending an overpayment request to the DME Medicare Administrative Contractor for adjustment. This will allow providers an opportunity to initiate a discussion with the RAC to clarify any misunderstanding without having to go through the appeals process.

A final enhancement that should be mentioned is that, in the new contracts, the RACs will not receive their contingency fee until after the second level of appeal (reconsideration level) has been exhausted. The thought is that this will ensure that the RAC is only compensated for accurate determinations and is not incentivized to make incorrect determinations.

RACs are but one of many audit tools the government has at its disposal. While they do not typically lead to criminal sanctions or payment suspensions, as can often be the case when the Zone Program Integrity Contractor is involved, a supplier can often be faced with a substantial overpayment and the results can be devastating. Therefore, suppliers need to be aware of the RAC program and understand how a RAC audit can affect their business. For additional information about the Recovery Audit Program, visit CMS’s webpage at:

Notice of Upcoming Industry Deadline – For those DME suppliers that are currently participating suppliers, the deadline for them to switch to being non-participating suppliers is December 31. A participating supplier agrees to accept assignment on all claims for Medicare products and agrees to be paid the Medicare-allowed amount as full payment, less any unmet deductible and copayment. On the other hand, a non-participating supplier may accept assignment on a claim-by-claim basis. By not accepting assignment, the non-participating supplier can (i) collect directly from the patient, (ii) charge more than the Medicare allowable, and (iii) within certain guidelines, charge less than the Medicare allowable. [Note that a competitive bid contract supplier, even if it is non-participating, must, nevertheless, accept assignment on products covered by the supplier’s competitive bid contract.] When the non-participating supplier provides an item non-assigned, then the supplier is required to file the claim with Medicare on behalf of the patient, and any Medicare reimbursement is sent directly to the patient. The supplier should examine its business model to determine if it is in its best interest to switch from being a participating supplier to a non-participating supplier.

This material is provided for informational purposes only and is not legal advice. Readers should contact their own counsel to obtain legal advice with respect to any specific issue.

Denise M. Leard, JD, is an attorney with the Health Care Group at Brown & Fortunato, P.C., a law firm based in Amarillo, Texas. She represents pharmacies, infusion companies, home medical equipment companies, and other health care providers throughout the United States and Puerto Rico. Mrs. Leard is Board Certified in Health Law by the Texas Board of Legal Specialization. She can be reached at (806) 345-6318 or