Healthcare: Sixty Four Percent of RAC Claims are Overturned on Appeal In Favor of the Provider


The Centers for Medicare and Medicaid Service (CMS) recently released the results of a three year evaluation of the Recovery Audit Contractor (RAC) program. The mission of the RAC auditors is to identify and recoup improper payments which may arise from many causes, including coding mistakes, non-covered services, services that do not appear reasonable and necessary, insufficient documentation, and duplicate claims. Facilities generally targeted in RAC audits include: inpatient hospitals, inpatient rehabilitation providers, outpatient hospitals, physicians, skilled nursing facilities, and durable medical equipment suppliers. CMS has announced that it intends to expand its focus to include home health agencies. The RACs review claims submitted by healthcare providers to determine whether any overpayments have occurred. If the RAC discovers an overpayment exists, the CMS intermediary issues an overpayment demand. RACs are motivated to find overpayment claims because they are compensated based on the percentage of overpayments they detect and recover.

The CMS evaluation revealed that while only 12.7 percent of RAC overpayment claims were appealed, 64.4 percent of those appealed were overturned in favor of the provider. The study shows that in most cases it is beneficial to the provider to appeal significant overpayment claims.

To avoid Medicare or Medicaid RAC claims, providers should develop and enforce an effective corporate compliance plan. In addition, providers must plan ahead to ensure timely response to requests from the RAC contractor. During a RAC audit, a provider may receive multiple record requests at once and failure to properly respond may result in automatic claim denial with very limited appeal rights. Additionally, if a provider receives an overpayment demand letter, timely response is necessary to avoid recoupment and preserve appeal rights. Although a provider has up to 120 days to appeal an initial determination in a demand letter, CMS may begin recouping alleged overpayments, by stopping payment for Medicare services, 40 days after issuing the demand letter.

As timing is essential to protecting appeal rights, healthcare providers should seek legal counsel immediately upon receiving any request or demand letter from a RAC auditor.

The author, Hilary L. Velandia, may be contacted at

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Rebecca D. Bullard

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Rebecca represents clients primarily in labor and employment litigation and counsels clients regarding everyday employment matters. 

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