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Just the RAC Facts: Controversial Program Roots Out Fraud, Waste in Medicare

Wednesday, September 18, 2013
Amanda A. Keating

By Amanda A. Keating, American Coalition for Healthcare Claims Integrity

Here are the facts: Medicare is one of the largest insurance programs in the United States, and every year it helps insure more than 49 million seniors and other beneficiaries.1 And, for a variety of reasons, its prognosis is anything but certain; estimates indicate that Medicare will be bankrupt by 2026.2

Contributing factors include an aging baby-boomer population, technological advances in treatment that increase costs, as well as new legislation designed to reduce entitlement expenditures while increasing physician fees.

Further compounding the program's grim diagnosis is the amount of waste, fraud, and abuse both on the individual and organizational provider levels. Recent overhauls in health care legislation have put in place significant reform programs that aim to curb every aspect of abuse or improper payments in the program, but these programs have only scraped the tip of the iceberg.

At the same time, in a move that is either perplexing or not at all surprising—depending on your perspective—political pressure from providers and hospitals is mounting against programs with proven success in cracking down on waste, fraud, abuse, and improper payments, all while Medicare limps through its yearly checkups.

Plagued by Problems, Medicare Limps On

Waste, fraud, abuse, and improper payments in the Medicare system have been challenges since the program's inception, but the problem has grown exponentially in recent years due to longer life expectancy and the increasing complexity of the health care system.

A study by PricewaterhouseCoopers estimates the health care system loses $1.2 trillion each year to waste, fraud, and abuse.3

In 2011, the Centers for Medicare & Medicaid Services reported a loss of more than $64.8 billion to improper payments alone.4 Hemorrhaging billions of dollars each year amid looming financial uncertainty is neither logical nor sustainable.

As the cost and sophistication of care increases, Medicare fraud is becoming more widespread. In July, the Department of Justice settled a multi-million dollar fraud case with 55 hospitals across 21 states. The providers agreed to pay $34 million in fines after it was discovered they performed costly inpatient spinal surgeries—instead of outpatient procedures—on patients with osteoporosis in order to pad Medicare reimbursements (17 HFRA 621, 7/10/13).5 This settlement followed a 2012 case, in which 14 hospitals agreed to pay more than $12 million after they also performed inpatient procedures in order to bilk Medicare (16 HFRA 143, 2/22/12).6

Since 1991, health care fraud prosecutions have increased by a staggering 822 percent.7 To combat growing fraud concerns, the federal government has implemented a number of successful anti-fraud programs, including the Health Care Fraud Prevention and Enforcement Action Team (HEAT) Strike Force, the CMS Fraud Prevention System (FPS), and the Recovery Audit Contractor (RAC) Program.

It is estimated that for every dollar spent on health care-related fraud and abuse investigations since 2010, the government has recovered $7.90.8 In the first half of 2013 alone, the HEAT Strike Force filed charges against 148 individuals or entities, logged 139 convictions and recovered $193.7 million in receivables.9

Who Are the RACs?

The RAC Program was legislated to address the estimated $30 billion of CMS improper payments each year to providers. Launched in 2009, following a successful four-year pilot program that yielded nearly $900 million in returns to the Medicare Trust Fund, the RAC program is now effective in all 50 states.10

There are four RAC regions that work with hospitals and providers to identify Medicare overpayments and underpayments. To date, recovery auditors have identified more than $4.8 billion in improper payments and returned those funds to the Medicare system.11

Annual deposits of this magnitude not only point to ongoing abuse in the system but also to the need for continued auditing.

Further making the case for recovery auditors is a review of acute care hospitals conducted by the Department of Health and Human Services Office of Inspector General. In their investigation of 79 acute care hospitals, the OIG recovered nearly $34 million.12

When asked if the OIG would review all hospitals, OIG audit manager Kim Rapoza replied, “No. With nearly 3,600 acute-care hospitals, we don't have the resources to visit them all or review all of their claims. OIG chooses hospitals based on data analysis, discussions with Medicare contractors, or based on other OIG work.”13 Again, the $34 million is clearly just the tip of the iceberg.

The RAC Difference

Unlike other federal anti-fraud programs, recovery auditors only receive payment when they correctly identify an overpayment or underpayment, and unlike the HEAT Strike Force, which often involves multiple federal agencies, these audits and recoveries do not require significant financial outlays and federal resources.

The auditors work directly with hospitals to obtain medical records for auditing purposes, then reimburse the hospitals for every record that they request at a rate of $0.12 per sheet of paper, up to $25 per record, for the cost of pulling and shipping files.

Although the hospital industry claims to shoulder undue financial and administrative burdens under the RAC program, it is important to remember that recovery auditors save billions of taxpayer dollars and help preserve Medicare health benefits for millions of American seniors.

Recovery auditors work with auditing teams, led by a medical professional, to identify billing inconsistencies in the records. They also use a highly transparent online system that allows hospitals to track the status of each record undergoing an audit.

The RAC program is currently the only auditing initiative that offers a transparent online tracking system that provides hospitals insight into the auditing process. Once an auditor has identified an issue with a record, the hospital has the option to either accept the billing as improper or to dispute it in a multi-stage appeals process.

Understanding the RAC Appeals Process

Once a recovery auditor finds an improper payment, the hospital can appeal the finding. In its 2011 report to Congress, CMS stated only 2.9 percent of total RAC determinations were challenged and then overturned on appeal.14 Of the 60,717 claims appealed, only 26,469 were overturned (43.6 percent).15 In its RACTrac report, the hospital industry claims that more than 70 percent of appeals are overturned, but this statistic relies on self-reported, cumulative data.16 The official CMS numbers stand in stark contrast to what the hospital industry would like taxpayers to believe.

Further clouding the appeals data, CMS lumps all types of appeals into one statistic. For instance, in some appeals, the auditor identifies an improper payment and allows the hospital to go back and amend the charges during the appeals process.

This claim would still be lumped into the “overturned on appeal” category, even though the recovery auditor identified an improper payment. It is tantamount to a teacher checking a student's test and allowing the student to change the answers before turning it in. Simply stated, hospitals get a fair shake during the appeals process, even if they would like legislators and regulators to believe otherwise.

RAC Fact vs. the Hospital Industry's RACTrac

For the past few years, the hospital industry has been collecting data from its members to demonstrate the alleged burden placed on hospitals by the RAC program. This quarterly self-reported survey—called RACTrac—has several critical flaws undermining the accuracy of its data, in addition to conflicting dramatically with the official numbers reported by CMS.

The RACTrac collects cumulative, self-selected data from its members across the country about the number of audits they face and the number of appeals they win once a recovery auditor has flagged an improper payment. Unfortunately, this means that hospitals are not required to report every quarter. If a hospital chooses to report only once, their numbers add to the totals in the report in perpetuity, skewing the survey results thereafter.

Additionally, the RACTrac allows hospitals to self-select reported data. This means a hospital could choose to report only data about claims won on appeal, disregarding entirely claims that were not won on appeal or improper payments that were never appealed. The ability to self-select data leads to severe discrepancies between RACTrac numbers and those reported by CMS.

Hospitals and Congress Take on the RAC Program

Over the last few years, the hospitals have launched an aggressive, well-funded attempt to take the teeth out of the RAC program, alleging that it puts unnecessary administrative burdens on hospitals.

Anti-RAC legislation would reduce the number of records that recovery auditors could look at significantly, while also deeming a staggering billing error rate of 40 percent as acceptable before a procedure would be eligible for auditing.

With the federal budget facing countless challenges and shrinking resources, it's hard to understand why a program that returns billions to the Medicare Trust Fund would be on the chopping block. The answer all comes down to dollars.

Since the first anti-RAC bill was introduced in the 112th Congress, the hospital industry has given nearly $200,000 in campaign contributions to co-sponsors of the bill on both sides of the aisle.17 At least 20 members of Congress received a check from the American Hospital Association within one month of sponsoring the bill.18And, these contributions do not account for personal contributions from local hospital executives or administrators.

Meanwhile, in Congress, supporters of legislation that would effectively dismantle the RAC program continue to talk about the need for eliminating waste in the federal government and preserving benefits for seniors.

In a March 2013 press release, Sen. Roy Blunt (R-Mo.), sponsor of the Senate bill that would reduce the efficacy of the RAC program, said, “The federal debt has surpassed $16.7 trillion. Government spending has skyrocketed 19 percent in four years. It's clear that Washington has a spending problem. Republicans want to grow jobs—not the size of government. We don't need higher taxes to pay for more reckless spending in Washington—we need to cut waste and start spending taxpayers' dollars more wisely.”19

For a senator who seems to understand that combating waste is critical to long-term funding, whether in the federal budget or Medicare, it is difficult to understand why he would sponsor a bill to squander resources that are essential to keeping Medicare program afloat.

RAC Contractors Promote a Level Playing Field

Every day recovery auditors are working to help improve the outlook for Medicare and the millions of seniors that rely on the program. Curbing waste, fraud, abuse, and improper payments will be critical in preserving the long-term viability of the federal health care system.

Recovery auditors are committed to working on behalf of American seniors who rely on Medicare for benefits, and with hospitals to ensure that overpayments and underpayments are fairly and accurately corrected—creating a level playing field for everyone with something at stake in the program.

We urge members of Congress to take a closer look at the proven fiscal benefits of the RAC program before enacting reforms that will cause the program to flat-line.

Keating is director of communications for the American Coalition for Healthcare Claims Integrity. She can be reached at Information about the coalition is at

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