Hospitals Continue to Report Problems with Recovery Audit Contractor Processes

In its quarterly update on hospitals’ experiences with Recovery Audit Contractors (RACs), the American Hospital Association (AHA) found that RACs’ activity has continued to increase substantially. The number of requests for medical records has grown by 47 percent, and the number of denials after complex audits was up 58 percent compared to the fourth quarter of 2012 (Q4). Hospitals also reported that 60 percent of the RACs’ reviews of medical records did not lead to an overpayment finding. More than 90 percent (2,139) of the 2,429 that have participated in the AHA’s “RACTrac” survey reported some RAC activity.

Most Frequent Audits

The hospitals continued to report that the largest percentage of reviews were of short stays in the hospital, and they often resulted in medical necessity determinations of “wrong setting,” meaning that the services furnished were medically necessary but should have been outpatient rather than inpatient care. More than 75 percent of hospitals reported “short stay medically unnecessary” as one of the most frequent reasons for RAC denials. Inpatient coding errors were the next most often reported reasons for denial after complex review. Hospitals also reported that short stay medical necessity denials were the most costly complex denials.

Costs to Hospitals

The AHA survey addresses the amounts that hospitals spent on RAC issues. More than 80 percent of hospitals reported additional administrative burden and expenses of several kinds, such as staff training, purchase of software, and employment of additional staff. Among hospitals participating in RACTrac, including those that did not report any RAC activity, 63 percent reported spending more than $10,000, 45 percent spent more than $25,000, and 11 percent spent more than $100,000. Many reported spending for external resources, including utilization review consultants, other consultants, RAC-dedicated claims management or tracking tools, medical record copying services, and outside counsel.


Participants reported that they appealed about 40 percent of RAC denials. Of those that had been concluded, 70 percent were decided in the hospitals’ favor. However, about 75 percent of all RAC appeals ever filed were still pending, according to the reports.

Process Issues

Hospitals reported continuing problems with the RAC process. Although CMS has placed some limits on RAC activity, hospitals continued to report problems related to the timing of RACs’ demands. When asked about the types of problems they had experienced, 51 percent reported receiving a demand letter dated more than two weeks before they received it, 49 percent reported not receiving a demand letter at all after the RAC denied a claim. Denial or demand letters did not include a detailed explanation of the reasons for the denial, according to 42 percent of respondents. RACs sometimes sent demand letters after the denial had appeared on a remittance. Other problems included failure to respond timely to hospital communications and rescinding medical records requests after the hospital had submitted the records.