What Should Anesthesiologists Know About the RACs?


March 21, 2011

In the 1990s, anesthesiologists feared the Department of Health and Human Services Office of the Inspector General (OIG) and at the same time were hard pressed to identify fellow physicians who had undergone an OIG audit. Something of the same phenomenon is occurring now with the Medicare Recovery Audit Contractor (RAC) program. We are more educated about compliance with the Medicare rules and about government audits. The RACs have not pursued many anesthesia practices, and their scope is more limited by law than that of CMS and the OIG. We know that as a matter of law the RACs have the power – and the financial incentive – to ruin a medical practice, but we haven’t heard that they are frequently going after overpayments to anesthesiologists. A review and an update, more than a year since the permanent RAC program was implemented, are in order.

RAC Basics

The RAC contractors are private companies retained by CMS to identify and correct improper Medicare payments made to physicians and other healthcare providers. They are often, and rightfully, characterized as “bounty hunters” since they are compensated on a contingency basis, receiving a percentage of the overpayments they recover and return to CMS.

CMS describes the goal of the RACs as “the efficient detection and recovery of overpayments, the identification and reimbursement of underpayments and the implementation of actions that will prevent future improper payments.”

Major features of the RACs’ review and collections processes are as follows:

  • RACs review claims on a post-payment basis
  • Only “issues” pre-approved by CMS and posted to a RAC website can be the focus of a RAC review
  • RACs use the same Medicare policies as Carriers/Medicare Administrative Contractors (MACs)
    • Local Coverage Determinations (LCDs), National Coverage Determinations (NCDs), CMS Manuals
  • RACs identify potential overpayments through proprietary automated software algorithms. By statute they can only perform “targeted reviews,” not random claim selection or selection based on high dollar value of claim alone
  • Two types of review:
    • Automated (no medical record needed)
    • Complex (medical record required)
  • RACs can look back a maximum of three years from the date the claim was paid
  • Like MACs, Carriers and MACs issue Remittance Advice notices
    • Remark Code N432: “Adjustment Based on Recovery Audit”
  • The RAC issues a demand letter, unlike a MAC, and will offer an opportunity for the provider to discuss the improper payment determination with the RAC (this is outside the normal appeal process)
  • Carrier/MAC recoups by offset unless provider has submitted a check or a valid appeal.

Program Timeline

  1. 2003: Medicare Modernization Act of 2003 established the RAC program as a three-year demonstration project, beginning in the three states with the largest volume of Medicare claims: California, Florida and New York.
  2. March 2005-March 2008: CMS ran the demonstration program, expanding it to Massachusetts and South Carolina. The RACs found and corrected more than $1.03 billion in incorrect Medicare payments, only two percent of overpayments coming from physicians and 85 percent of overpayments being collected from hospitals. (To no one’s surprise, 97 percent of the $1.03 billion consisted of overpayments and three percent of underpayments.)
  3. 2006: Tax Relief and Health Care Act of 2006 made the RAC program permanent and nationwide.
  4. 2010: The permanent RAC program began on January 1, 2010.
  5. 2010: The federal District Court for the Southern District of California ruled that HHS had acted lawfully in reopening a claim based on a RAC overpayment determination more than a year after it had been paid in Palomar Medical Center v. Sebelius. The American Medical Association filed an amicus brief in support of Palomar’s appeal to the Court of Appeals for the Ninth Circuit on January 26, 2011.
  6. April 1, 2011: States must implement their individual Medicaid RAC programs. For information on the Medicaid RACs, see the November 8, 2010 entry “CMS takes first step toward Medicaid RAC implementation” on the HCPRO-Revenue Cycle Institute blog.

Physician-Friendly Changes Since the Demo Days

The AMA has opposed the RAC program all along, objecting to the contingency-payment basis of contractor compensation. The Association has played a major role in persuading CMS to make a number of changes that reduce, to varying degrees, the burden on physicians, including:

  • RACs are now required to employ a staff consisting of certified coders, nurses or therapists and a physician medical director
  • “Look-back” period shortened from four to three years
  • RACs are required to maintain websites where they list “vulnerabilities” and where physicians can check the status of their “complex” audits
  • Contingency fees are public (they range between 9-13 percent)
  • An independent external validation process to evaluate the appropriateness of the “issues” that the RACs plan to focus on is mandatory
  • CMS modified the additional documentation request limits on February 14, 2011 so that:

ADR limits will be based on the number of individual rendering physicians/non-physician practitioners reported under each TIN/ZIP combination in the previous calendar year.

Group/Office Size Maximum Number of
Requests per 45 Days
50 or more 50 records
25 - 49 40 records
6 - 24 25 records
less than 5 10 records

Anesthesia Issues

CMS published the fourth in a series of articles on Recovery Audit Contractor (RAC) demonstration high dollar improper payment vulnerabilities in December 2010. ASA posted on its website a cautionary note to anesthesiologists, stating:

The finding of concern is: Services billed with excessive units. Units billed exceeded the number of units per day based on the CPT code descriptor, reporting instructions in the CPT book, and/or other CMS local or national policy. …

The ASA Relative Value Guide ® (RVG) includes a base unit value for some non-anesthesia codes. We hear of instances where that base unit value is listed on claims submitted for these services. For example, the RVG notes that CPT® code 62311 (single shot lumbar epidural) has 8 base units. If that base unit value is listed in the field for “days or units,” Medicare may interpret this as billing for 8 injections which could attract unwanted attention from a Recovery Audit Contractor.

As discussed in our January 31st Alert, one of the four regional RACS , Health Data Insights (HDI) (Region D), has repeatedly attempted to pursue billing for peri-operative evaluation and management (E/M) services on a global “anesthesia care package” theory. ASA involved CMS staff and succeeded in persuading HDI that there was no rule that categorically prevented anesthesiologists from reporting E/M services on pre-operative and post-operative days. Although the base units assigned to an anesthesia service include normal pre-anesthesia evaluations and post-op visits, sometimes anesthesiologists do perform a full, separately-reportable medical history and physical in order to clear the patient for surgery or to evaluate the patient’s post-op pain. Such E/M visits are not bundled with the anesthesia service.

In April 2010, HDI removed the issue from its website and notified ASA that it would continue to use automated review to identify improper payments for E/M services provided on the day of surgery, but that it would discontinue such review for visits on the pre-op and post-op days. Nevertheless, in August, HDI posted a revised and rather ambiguous version of its “anesthesia care package” issue on the website. See the January 31st Alert for details of the ambiguities and the April 10 news item on the ASA website for a discussion of the negotiations with HDI.

We had predicted that HDI’s interest in recouping payment for routine pre- and post-anesthesia E/M services would be contagious. Diversified Collection Services (DCS), the RAC for Region A, recently posted the following notice on its website:

Anesthesia care and packaged evaluation management services. Identification of overpayments associated with evaluation and management services billed the day prior to or day of anesthesia services by an anesthesiologist. 1) E/M services (as specifically defined in the IOM) billed the day prior to or day of anesthesia services without modifiers 24, 25, or 57. 2) E/M services billed the same day as 01996 without modifiers 24, 25 or 57.

ASA posted the following information regarding the DCS issue:

We remind our members that if an anesthesiologist performs an evaluation and management (E/M) on the day prior to an anesthesia service, and that E/M is NOT the work covered by the pre-anesthesia examination/evaluation included in the base unit valuation, please note that in order to avoid automatic review by a Recovery Audit Contractor (RAC), s/he must append the appropriate modifier (typically either 24, 25, or 57) to that service. While automatic RAC review does not include review of the record, your documentation should be quite clear how it is NOT the pre-anesthesia exam/eval to support any indicated appeal. This is not a circumstance that happens very frequently since the base unit values include the pre-anesthesia exam/eval. An example of when such a service might be reportable is when there is a request from the surgeon for the anesthesiologist to make recommendations on preparing or optimizing the patient in advance of a possible surgical procedure. This would have to be something completely separate and above/beyond the work covered by the base units assigned to the anesthesia service.

How should you keep up with the “issues” or areas of “vulnerability” that could embroil you in a RAC Audit? The RAC page on the CMS website is authoritative on national Medicare requirements and it will refer you to your own regional RAC site for information on the compliance areas to which you should pay particular attention. Do not ignore a RAC demand for records — a provider has just 30 days from the date of the demand letter in which to file an appeal request and avoid recoupment during the appeal process. Understand, though, that negotiations with the RAC can be considerably less formal than they would be with the carrier/MAC, and also that RAC staff tend to have less knowledge of anesthesia billing rules than do the CMS officials who wrote those rules. ASA has already shown its willingness to work for the removal of improper “issues.” We recommend seeking ASA’s help with any RAC policy matters. We will of course do our best to respond to any questions.

With best wishes,

Tony Mira
President and CEO