RAC Program Revisions Necessitate Appeals Process Review

Commentary, Medicare, Medicare Set-Aside Blog on April 21, 2015
Posted by Gwendolyn Hauck

In 2013, almost $4 billion in improper Medicare payments were identified and returned.[1] This staggering number can be attributed to the work of the Recovery Audit Program. The Recovery Audit Program was initially authorized by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 in an effort to facilitate cost-effective enforcement of the myriad Medicare billing and coding regulations.[2] Following the successful use of pilot and demonstration programs after the passage of that Act, the Recovery Audit Program was permanently implemented.[3] The program is designed to award contracts to auditing companies regionally on a competitive basis. The contractors, known as RACs, are charged with reviewing Medicare billing claims submitted by Medicare providers to the Centers for Medicare and Medicaid Services (CMS) in search of incorrect billings that demonstrate regulatory non-compliance. In order to prove compliance in the face of accusations of improper billing, Medicare providers must understand the appeals process. This article will discuss the inner workings of this unique appeals process.

When a RAC detects an overpayment that has been made to a Medicare provider, it sends a demand or overpayment letter to the provider detailing the results of its audit. The letter demonstrates how the provider’s billing was incorrect and demands remittance of the amount of overpayment. It also may request additional medical documentation to verify billing accuracy. This allows enforcement of payment regulations without straining government resources such as staff, technology, and time. The cost to the government of using these contractors is payment of a contingency fee. This payment structure incentivizes RACs to send a large number of overpayment letters so that repayment to CMS will be made and the RAC can collect its fee, as overpayments are recouped when the letter is received unless an appeal is filed.[4] It is possible some of these letters will be sent in error. A RAC may base its decision on incorrect or insufficient information, or it might make a simple mistake. In order to avoid costly, and potentially unnecessary, outlays, Medicare providers and their attorneys must be aware of the appeals process and how to navigate it.

Upcoming Changes to the Recovery Audit Program

In 2014, CMS awarded five contracts to (RACs) and went on to announce further changes to the program itself at the end of the year.[5] These changes were based on feedback from Medicare providers solicited by CMS.[6] The most noteworthy of these changes are the agency’s commitments to expanding the types of claims and providers audited and decreasing the emphasis on low appeal overturn rates. RACs have traditionally focused on inpatient hospital billing but are now charged with ensuring that various types of providers and claims are checked for compliance. In the past, CMS has not been concerned with the rates at which RAC decisions were appealed and overturned. Now RACs will be held to a 10% decision overturn rate at the first of the five levels of appeal. Appeals begin within the RAC itself; then progress to a Qualified Independent Contractor. Appeals beyond this point are heard by an Administrative Law Judge, and then by a board known as the Medicare Appeals Counsel. Appeals at the final level are heard by federal district courts. The target of 10% at the first level of review is designed to incentivize RACs to send only demands that will survive on appeal, but there have been no requirements set with regard to RAC success on subsequent levels of appeal beyond the first.

With these changes being implemented alongside the new RAC contracts, the way RACs operate is changing with major implications for attorneys representing Medicare providers, such as General Counsels of hospitals. Medicare providers that have no prior experience with RACs may expect to see an increase in audits due to an initiative to expand oversight to a wider variety of claim and provider types. Additionally, RACs will not be penalized for decision reversals on higher levels of appeal. With no targets for RACS regarding success on appeal beyond the first level, it is possible that appellants will prevail more often than before. These changes combine to create a situation where understanding the appeals process is vitally important to a broadened base of providers.

Levels of Appeal

Because the RAC program represents an outsourcing of regulatory enforcement to the private sector, this public-private partnership creates a more complex appeals process than those associated with many government-only enforcement actions. The appeals structure is laid out in 42 C.F.R. 405.902 42 et seq. and includes five separate tiers or levels of appeal. The first level of appeal is the only tier available to all appellants. Beyond this level, there are restrictions.[7] Receiving an adverse decision at the lower level is a prerequisite for advancing to a subsequent level of appeal. Additionally, there are amount in controversy requirements applicable at some levels as discussed below. The first two levels of appeal are largely private and internal in nature, and can best be analogized to appeals of an insurance company determination. At these levels, an appellant will not have any contact with a government agency at all. Levels three through five more closely replicate the traditional administrative law appeals process. Because these appeals are made to a federal agency, the decisions may be classified as orders and therefore subject to the procedural requirements and protections included in the Administrative Procedure Act.

 First Level:

            The first level of appeal is available to any provider that has received an overpayment demand letter from a RAC. At this level, the appeal is made directly to the RAC that sent the letter. The appeal must be made within 120 days of receiving the demand letter, without exception. In order to file an appeal, the provider must submit a form provided by CMS that includes basic identifying information, a copy of the demand letter received, and the provider’s reasons for disagreement with the RAC’s determination. Once the appeal is filed, the RAC has 60 days to make a decision. This time period may be extended if the decision requires additional evidence from the provider regarding medical necessity of the service.

 Second Level:

If a provider receives an adverse determination at the first tier, it can appeal the decision to the second tier. In this tier, interest begins to accrue on the amount due. Here the appeal is made to a Qualified Independent Contractor (QIC) appointed by CMS. There is no hearing, but the QIC makes its decision on the record. This means that all evidence and documentation relevant to the decision must be submitted to the QIC by the provider. Providers must appeal the RAC’s decision from level one within 180 days of its issuance, and the QIC must issue the second tier decision within 60 days of receipt of the appeal. No additional time is granted to the QIC at this level for the presentation of more evidence, so the provider must ensure that it has developed its entire evidentiary record prior to filing this appeal.

 Third Level:

If the QIC finds in favor of the RAC, the provider may appeal yet again to the third tier. Here, interest continues to accrue on the amount in controversy, which must exceed $120 in the aggregate in order to appeal to this level. Within 60 days of the QIC’s decision, a provider must appeal to an Administrative Law Judge (ALJ), who is an expert in administrative procedure and presides over administrative adjudications, deciding issues of fact. Parties are entitled to a hearing at this level, and this hearing can take any of a number of permissible forms. It may be conducted in person, on the telephone, via videoconference, or even off the record at the request of the provider. After the hearing is held, the ALJ has 60 days to issue a decision. If the provider is unsuccessful on level of appeal, the recoupment process will begin.

 Fourth Level:

Despite the fact that recoupment has begun, a provider that has been decided against by an ALJ may appeal to the fourth tier. Interest does not accrue during this level of appeal. Within 60 days of an adverse ALJ decision, the provider must appeal to the Medicare Appeals Council. The Appeals Council is a component of the Department of Health and Human Services Departmental Appeals Board. The Appeals Council must issue its decision within 90 days of receipt of the appeal. The Appeals Council has begun the practice of publishing noteworthy decisions from this level of appeal. These decisions carry precedential weight within the agency and may be reviewed on the agency website.[8]

 Fifth Level:

If the Appeals Council rules in favor of the RAC, an appealing provider has one final source of recourse. This level of appeal is only accessible to parties with aggregate claims amounting to greater than $1300. Within 60 days of the Appeals Council decision, an appeal to a U.S. federal district court may be made. During appeals in this tier interest does not accrue. The reviewing court conducts a civil trial pursuant to the Federal Rules of Evidence. There is no time limit for the issuance of a decision at this level, and if the provider fails, there is no further appeal available.

It is important to remember that the RAC may also appeal adverse determinations after the first level. If a provider wins at the second level, for example, the process may not be over. The RAC may seek to continue to the next tier. It is also vital, at each of the five levels, that an appealing party be cognizant of the time limitations applicable. Timeliness is a consistent requirement across tiers. Although the reviewing body at each level differs, the underlying preparation and relevant considerations to be made by providers are the same.

 The Decision to Appeal

            While the decision to appeal ultimately rests on the provider, attorneys counseling a provider facing an overpayment demand should urge their client to consider various factors. There are costs and benefits associated with both the decision to appeal and the decision to forego the appeals process and remit. These considerations may need to be recalculated at each level of appeal as well. If an appeal is foregone, the provider must remit the entire amount demanded within a specified period of time. In some circumstances, interest may also be applied. However, savings in both time and expense may be experienced by avoiding an appeal. These resources can be redirected to training to avoid future billing issues. If a provider elects to pursue an appeal, it can be extremely time consuming because claims have to be appealed individually. There is also expense associated with paying professionals to see the appeals through. However, a showing of medical necessity upon appeal can help providers avoid a substantial portion of remittance, or remittance altogether. The weighing of these costs and benefits should depend on the amount in controversy, the potential for success on appeal given available documentation and evidence, and the resources available to the provider.

If a provider should choose to appeal, the process begins with gathering evidence and calling the RAC to advise them of the intent to appeal. The next step is to draft the appeal letter.[9] This letter should include a clear statement of denial. Using concise and specific statements that include citation to billing and medical records is highly beneficial. This letter is then filed along with the other components of a timely appeal as described above. After the appeal itself is navigated, the provider will need to remit if required to do so. Providers do have the option to request a payment plan from the RAC if payment in full would impose significant financial hardship. Throughout this process, appellants and their attorneys should bear in mind that the process is not directly analogous to other administrative or judicial appeals and should abide by the nuances of each level. In the future, providers should pay special attention to billing regulations and train staff to avoid errors, using tools available on the CMS website.[10] The RAC decision does not have to be the final word, and a party well versed in the appeals process is more likely to avoid unnecessary repayment.


Gwendolyn Hauck received her J.D. from Vanderbilt Law School in Nashville, Tennessee. She is a graduate of Lehigh University with degrees in Political Science and Spanish, and a minor in Economics. A native of Hershey, Pennsylvania, she has interned with the Pennsylvania Office of Attorney General in the Medicaid Fraud Control Section and with the Pennsylvania Office of General Counsel. She has focused the majority of her academic research on regulatory compliance issues.

[1] Centers for Medicare & Medicaid Services, Recovery Auditing in Medicare for Fiscal Year 2013, http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Recovery-Audit-Program/Downloads/FY-2013-Report-To-Congress.pdf

[2] 42 U.S.C. § 1305.

[3] Centers for Medicare & Medicaid Services, Recovery Audit Program, http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Recovery-Audit-Program/ (last visited March 30, 2015).

[4] For an excellent overview of the role of Recovery Audit Contractors and description of the appeals process, see McGuireWoods, A Primer on RAC Appeals, http://www.mcguirewoods.com/news-resources/publications/health_care/Primer%20on%20RAC%20Appeals.pdf (last visited March 30, 2015).

[5] Chuck Buck, CMS Restructures RAC Program: Five RACs, Not Four, RACmonitor (Apr. 18, 2013, 4:55 PM), http://www.racmonitor.com/rac-enews/1392-cms-restructures-rac-program-five-racs-not-four.

[6] Centers for Medicare & Medicaid Services, Recovery Audit Program Improvements, http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Recovery-Audit-Program/Downloads/RAC-Program-Improvements.pdf%20 (last visited March 30, 2015); McDermott Will & Emery, CMS Initiates Changes to Recovery Audit Program as New Contracts Are Rolled Out, The National Law Journal (Jan. 14, 2015) http://www.natlawreview.com/article/cms-initiates-changes-to-recovery-audit-program-new-contracts-are-rolled-out.

[7] The substance of the following discussion has been presented visually in the form of a flowchart. See Rycan, Recovery Audit Contractors Claims Review Process and Medicare Appeals Process, http://www.rycan.com/Documents/RACFlowChart.pdf (last visited March 30, 2015).

[8] U.S. Department of Health and Human Services, Medicare Appeals Council Decisions, http://www.hhs.gov/dab/divisions/medicareoperations/macdecisions/mac_decisions.html#recovery_audit (last visited March 30, 2015).

[9] For an instructive article on the topic of drafting an effective appeal letter, see Karen Bowden, How to Write a RAC Appeal Letter, Healthcare Financial Management Association (March 2011), http://www.craneware.com/resources/rac-audits/how-to-write-a-rac-audit-appeal.pdf.

[10] See Office of Inspector General, U.S. Department of Health & Human Services, Health Care Fraud Prevention and Enforcement Action Team Provider Compliance Training, http://oig.hhs.gov/compliance/provider-compliance-training/index.asp#materials (last visited March 30, 2015).