Start Now | I Advance Senior Care Skip to content Skip to navigation

Start Now

October 1, 2009
by Leah Klusch
| Reprints
Preparation critical for Recovery Audit Contractor Program

Editor's note: This is part one of a two-part series. This month's discussion focuses on how to keep good records to avoid a RAC audit. If you are notified of a RAC audit, next month's article will focus on how to get through it.

The discussion about the Recovery Audit Contractor Program (RAC) is very active in the post-acute care world. The program was designed to control the loss of millions of dollars in improper payments to providers with a focus on coding errors and documentation quality. Most operational professionals have seen the figures from the demonstration project report and the maps showing the rollout strategy by state, by date, and by the contractors. Curbing improper payments under the Medicare program is appropriate. The second part of the RAC process involves the return of funds for overpaid claims.

Stated purpose

The Centers for Medicare & Medicaid Services (CMS) has stated that the purpose of the program is to help providers avoid submitting claims that do not comply with Medicare rules and to lower claims' error rates. We need to make certain that we are aware of the “rules” for admitting the proper beneficiary, providing appropriate services (appropriate defined by the Medicare program for the skilled nursing facility [SNF]), and documenting our clinical, service delivery, and billing records properly.


There are four RACs. For more information about the program and the contractor for your state, go to The responsibilities of the RAC are threefold:

  1. To conduct data analysis from the Medicare Common Working File

  2. To review medical records to further analyze claims

  3. To identify and correct improper payments from providers

The RAC contractors have very interactive and sophisticated software to analyze Universal Billing and MDS clinical assessment documents submitted for payment. Both documents are influenced by considerable policy and procedure guidance from CMS and are part of the facility's responsibility to request federal funds for services provided to Medicare beneficiaries. The RAC will conduct two types of data review: The automated review (just claims data-no medical record requested) and the complex review (request for medical records required). It is estimated that 80% of the audit process will be from automated review activity. Ninety-five percent of the recovered funds to date are the result of the billing file and the Minimum Data Set (MDS) file not matching or errors in the submission process.

When a RAC performs an automated review (offsite with no provider notification), no review of medical records is needed before the demand for repayment is issued. Complex reviews will be done on those claims where the facility billing data indicates that the treatment plan may not be compliant with the rules of the Medicare Benefit Policy Manual for coverage and medical records will need to be reviewed to decide if the care and treatment was within the stated benefit guidelines. The RACs are required to use a targeted approach in selecting which claims to review; this will not be a random selection or a selection on the basis of the amount of payment. CMS will require that they justify their audit activity and all complex reviews will need “good cause” before the review is requested. These are important protections for the facility, however the quality of your submitted data and request for payment are being reviewed in this process. The facility must be aware of its data and be careful that the data is accurate and the documents match.

Let's take a look at the reasons for collection of funds from providers by the RAC in the demonstration project:

  • Services were found to be delivered and documented but not medically necessary.

  • Services were incorrectly coded on the MDS or the Universal Bill.

  • Services had insufficient documentation in the record to support the treatment or the services billed.

  • Services identified in the assessment and billing documents contained inconsistencies in the record or the care process that suggested overpayment.

First steps

So what can the SNF do to decrease its risk of audit and have the necessary records to appeal the decision if needed? First, you must be aware of the federal policy documents that guide your MDS and billing process as well as the internal decisions you make about Medicare benefits for the residents in your facility. Remember, a high percentage of the reviews will be statistical and compliance based.

The first step is to make certain that the MDS documents that are transmitted by the facility are accurate and the dates and coding on the forms are compliant with all the structure and definitions in the most updated Resident Assessment Instrument manual. The data created for the resident by the MDS documents during the Medicare Part A stay is a very important part of the audit analysis. This includes the primary diagnosis and the accurate activities of daily living (ADL) score value for the resident's functional performance during the assessment reference period. Where is the copy of that manual in your facility and is it being used as the basis for documentation time lines, definitions, and decisions related to coding of the MDS document? Where is the admission diagnosis documented and communicated? Make sure it relates to the treatment in the skilled facility and the reason for care in the hospital. Make sure it is on the Universal Bill. Frequently, I see that the interdepartmental communication is not adequate to make sure all documents read the same.