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What Are Recovery Audit Contractor (RAC) Audits?

Also known as a Medicare audit or a MAC audit, the Recovery Audits Contract (RAC) program is an aggressive campaign seeking reimbursement from healthcare service providers. These audits have become increasingly frequent over the past few years, and they will continue to for the foreseeable future.

Whenever a healthcare facility gets hit with a Recovery Audit Contractor program, they could be under significant threat. The Medicare RAC audit examines pretty much everything about your practice—including your finances. If the audit finds any discrepancy, your practice and reputation could very well be on the line.

A Quick History

The Medicare Recovery Audit Contractor program started in 2005 and was created as part of the Medicare Integrity Program from the Centers for Medicare and Medicaid Services (CMS). The objective of this program is to discover any improper payments that are charged for uncovered services. These include services that are deemed “not reasonably necessary.”

The RAC audits also focus on discrepancies such as fraud, duplicative services, wrong coding, and so on. In just a few years, the RAC audits have uncovered a significant number of incorrect payments and have become a major program for all states in the country.

Types of RAC Audits

Man auditing and looking at paperwork

Generally, there are two types of Medicare RAC audits – the automated audits and complex audits.

Automated Audits

These audits, also known as automated reviews, aim to search for and identify any suspicious claims from healthcare providers. They use proprietary algorithms to ensure compliance and that healthcare providers aren’t charging or claiming funds incorrectly.

Complex Audits

On the other hand, complex audits use medical records to determine whether specific claims are wrong. They also answer the question of whether or not a rendered service can be covered and is medically necessary.

To identify any improper payments, the CMS uses contractors. The agency pays these contractors on a contingency fee basis, based on a percentage of what they can collect from the healthcare provider. The business model essentially incentivizes Medicare RAC audit contractors to be more aggressive in their approach. Some have complained that these contractors’ tactics might be too aggressive.

While rates vary between states, RAC auditors get between 9 and 12 cents on every dollar that the CMS recovers. When an auditor determines that a claim has been paid incorrectly, it immediately notifies the provider of the due amount.

Of course, providers can appeal the verdict. There are several stages available for them to do that.

Remediation and Protection Procedures

These days, healthcare service providers have become increasingly concerned about Medicare RAC audits. It’s easy to see why. Some hospitals have millions of dollars’ worth of claims, and all of these could suddenly go under appeal at any second. Hospitals already face having to reduce profit margins due to low reimbursement rates and higher costs. An RAC audit could have devastating financial implications for them in the long run.

As explained earlier, all signs point to a possible increase in the frequency of RAC audits. As this happens, there has also been a rise in the number of vendors looking to help healthcare providers protect themselves from the audits’ possible financial implications.

You should note that the most effective solution to defend against an RAC audit is a proactive, real-time compliance structure. Several technologies can help to shield you against automated RAC audits, and most of them work by ensuring precise charging and coding is in place. Essentially, these solutions aim to ensure that all claims that you file to the CMS are accurate and contain no possible risk of wrong coding.

Some services also provide retrospective solutions that work to optimize your workflow and reduce errors in submission going forward. Other services use proprietary technology to examine healthcare service providers’ claims and determine the claims that are at risk. From there, they find possible improvements that will reduce mistakes in the future.

To combat complex reviews, some companies also deliver medical necessity compliance functions. These include retrospective appeals support and secondary, real-time physician reviews for inpatient support.

All in all, the CMS is expected to continue enforcing standards for payments and Medicare RAC audits. Healthcare service providers will also be looking to minimize the risk that the Medicare recovery audit contractor program can have on them, both from a financial and reputational perspective. It goes without saying that both sides of this “battle” will want to apply innovative technologies in order to get the upper hand.

Healthcare service providers will need to monitor and validate all parts of their workflow to ensure that they stay compliant with all of the CMS’s standards and can easily avoid any RAC audits.


Medicare already has specific guidance in place for every healthcare provider and physician. Outside of that, it won’t provide any more guidance.

To keep yourself in the best position possible, your practice needs to have a system that monitors coding and documentation for compliance. You will also need to have an effective framework for keeping track of all RAC requests.

Of course, healthcare providers already know about these requirements. Your contract and application have explicit provisions and make it abundantly clear that you are solely responsible for following all of the rules and regulations in respect to documentation, billing, and coding at all times.

If your practice sets up compliance guidelines, you will also need to have a dedicated official who will monitor all compliance regulations.

RAC Fees

Various dollar bills

The fees for RAC audits are generally based on contingency, as explained earlier. This provides an additional incentive for auditors to find errors. Note that while these fees are contingency-based, they will depend on contract negotiations directly with the CMS.

The fee structure generally follows:

Region A: 12.45%

States: Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont

Region B: 12.50%

States: Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio, and Wisconsin

Region C: 9.00%

States: Alabama, Arkansas, Colorado, Florida, Georgia, Louisiana, Mississippi, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia

Region D: 9.49%

States: Alaska, Arizona, California, Hawaii, Idaho, Iowa, Kansas, Missouri, Montana, Nebraska, Nevada, North Dakota, Oregon, South Dakota, Utah, Washington, and Wyoming


If you are subject to a RAC audit, make sure to make an informed decision selecting an attorney. You’ll need an experienced team well versed in this subject to effectively refute fraud claims, especially in complex RAC audits.