AMA Wants RACs Penalized When Audits Are Deemed Wrong After Provider Appeal

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By Mindy Yochelson

Dec. 4 — The American Medical Association is urging the Centers for Medicare & Medicaid Services to subject its Recovery Audit Contractors (RACs) to financial penalties for inaccurate audit findings and to allow providers to receive interest when they win an appeal, among other changes to the RAC program.

In a Dec. 3 letter to CMS Administrator Marilyn Tavenner, the AMA said the RAC program, in which private contractors identify and correct improper Medicare payments, has caused a two-year appeals backlog and that more than 60 percent of appeals are being upheld.

“Without action by Congress and CMS to relieve the burden on physicians, RACs will continue to operate under their current financial incentives and resist changes that would improve audit accuracy, reduce the number of appeals, and mitigate the burden on physicians,” AMA Executive Vice President and Chief Executive Officer James L. Madara wrote.

Not OMHA's Problem

The letter said that a two-year backlog of Medicare and Medicaid appeals isn't a problem of the Office of Medicare Hearings and Appeals (OMHA) but with the RAC program itself.

“RAC auditors are often wrong and their bounty hunter-like tactics have caused physician practices undue hardship and expense.”

—James Madara, AMA EVP

RAC auditors are paid a commission for denied claims and must return the fee if a claim is overturned on appeal, the AMA said. However, because there are no repercussions for inaccuracies, there is little incentive for RACs to limit their audits. As a result, the number of inaccurate audits, inappropriate claims denials and appeals continues to grow, causing the backlog, the AMA said.

“RAC auditors are often wrong and their bounty hunter-like tactics have caused physician practices undue hardship and expense,” Madara wrote.

With the agency about to award new RAC contracts, changes to the program should be considered, the letter said.

The RAC contingency fee structure encourages RACs to find overpayments with little regard for the accuracy of their findings, the letter said.

Changes Urged

The AMA said changes should include penalizing RACs for inaccurate audit findings and allowing physicians to receive interest when they win on appeal of a RAC audit.

That would ensure that RACs target audits, make accurate decisions and comply with program requirements, including appropriately informing and notifying physicians. In turn, physicians who are successful in appeals should be compensated, at a minimum, for the time spent going through the time-consuming appeals process.

In addition, the AMA said, because the delays exceed statutory deadlines, physicians are failing to receive due process.

“Without clear safeguards, such as enlisting physician medical reviewers, repealing the contingency fee basis and enacting financial penalties for incorrect RAC determinations, these inaccuracies and the growing appeal delays will continue to persist,” the letter said.

Further, it said, “appeals are not cheap and require significant resources, time, and expense.”

Other Recommendations

In addition to financial penalties for RACs, the AMA recommended that:

• physicians be permitted to rebill for recouped claims for a year following recoupment;

• the CMS should provide an optional appeals settlement to physicians similar to that provided to hospitals for appeals related to short-term care;

• the CMS should retain medical record request limits and allow medical record reimbursement for physicians; and

• RAC audits of physicians should be performed by a physician of the same specialty or subspecialty licensed in the same jurisdiction.


“Filing an appeal takes time away from patient care and often costs physicians more money than they recoup when a denial is overturned,” AMA President Robert M. Wah said in a statement. “It also causes uncertainty that can affect a physician’s ability to improve the quality of care and implement innovative new delivery models.”

To contact the reporter on this story: Mindy Yochelson in Washington at

To contact the editor responsible for this story: Ward Pimley at


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