RAC Activity Increasing, But Hospitals Are Winning Claims, AHA Reports

The number of audits of Medicare claims conducted by recovery audit contractors (RACs) increased in the third quarter of 2012, according to a report by the American Hospital Association (AHA). RACs requested 21 percent more medical records from hospitals in the third quarter of 2012 than in the previous quarter, according to the AHA. Denials were up 23 percent and the dollar value of denials increased 26 percent. While audit activity increased, the AHA reported that 74 percent of appeals were decided in the hospital’s favor. The AHA prepared this report based on information submitted by 1,299 hospitals during the third quarter of 2012.

RACs use computer software to analyze Medicare payments to detect improper payments. RACs can also conduct complex reviews of payments. Complex reviews go over medical records and other medical documentation to identify improper payments. Improper payments include incorrect payment amounts, incorrectly coded services, and services that were provided that were not covered by Medicare. RACs retain a small percentage of the amount of money they recover from overpayments.

RAC Activity

Nearly 9 out of 10 hospitals reported involvement with a RAC in the second and third quarters of 2012, according to the AHA. Since the inception of the RAC program, the AHA reports that RACs have issued 64,577 automated denials to hospital; 200,941 complex denials; and have made 662,710 requests for medical records. This represents a RAC review of $6.1 billion in Medicare claims made by hospitals since the program began. Through the third quarter of 2012, RACs denied $1.1 billion in Medicare claims; an increase of 26 percent from the second quarter of 2012. The great majority of this amount, 96 percent, was denied following an examination of medical records and other documents.

The most commonly cited reason for a complex denial was a short stay that was determined to be medically unnecessary. Inpatient coding was the second most common reason for a complex denial, according to the AHA. More than 60 percent of the denials for medically unnecessary short stays were because the care was provided in the wrong setting, not because the care was not medically necessary. Outpatient billing errors were the largest source of RAC automated denials. Outpatient coding errors were the second largest source of automated denials.


Hospitals reported that they appealed 40 percent of all RAC denials. Of the claims that completed the appeals process 74 percent were overturned in favor of the hospital, and one-third of participating hospitals reported that a denial was reversed during a discussion period. Hospitals in the Northeast reported an 82 percent success rate in appealing a claim denied by a RAC. AHA reports that 60 percent of all medical records reviewed by RACs did not contain an improper payment and 58 percent of RAC denials that were overturned were found to be medically necessary.

Not receiving a demand letter informing the hospital of a RAC denial is the most common performance issue reported by hospitals with 51 percent saying that this has occurred. Other problems include difficulties in reconciling pending and actual recoupments due to insufficient or confusing information on a remittance statement; demand letters that lacked a detailed explanation of the reason for the claim denial; and delays between the time of the review results and the receipt of the demand letter. In addition, hospitals reported that nearly three-fourths of all appealed claims were still in the appeal process. Finally, hospitals reported that they were not receiving education from RACs on how to avoid payment errors. Fifty-nine percent reported not receiving any education on how to avoid claims errors.