RAC Audits: What Is It and How to Protect Your Practice?

If you’re not concerned about the possibility of your practice being RAC audited, you should be. And if you don’t currently carry Medical Billing Errors & Omissions Liability Insurance, now is the time to consider it. Below, you will see what RAC audits are and how to protect your practice with the right insurance.

What is an RAC Audit?

Established through the Medicare Modernization Act of 2003, the Recovery Audit Contractor (RAC) program, also known as RAC Audits, was designed to remove waste from the Medicare system by identifying and recovering improper payments made by the federal government to healthcare providers. Improper payments include incorrect payment amounts, non-covered services (including services considered not reasonable or necessary), incorrectly coded services, and duplicate services. 

Over the last decade, the RAC program has successfully reclaimed money through retrospective reviews of fee-for-service claims, a process known as “clawback.”

Imbued with new powers under the Patient Protection & Affordable Care Act (PPACA) of 2010, the Centers for Medicare & Medicaid Services has expanded the use of recovery audit contractors, adopting new tools to curb fraud and abuse in both the Medicare and Medicaid programs. The federal government expects to devote about $500 billion less to Medicare over the course of the next 10 years due to anticipated savings from these audits.

How RAC Audit Process Has Changed Over Time 

Medicare audits were initially intended as focused oversight where only “red flag” practices were investigated. The auditors were the Centers for Medicare & Medicaid Services employees, and the audit division had a limited budget to work within. 

Today, outside medical collection agencies and independent contractors conduct RAC Audits. These agencies and contractors are compensated contingently, keeping 9 to 12.5 percent of the overpayments identified and recouped. This infuses the process with a “bounty-hunter” mentality and a more aggressive approach from the auditors. 

Medicare audits are also no longer a one-and-done inconvenience. They are now intended to be an ongoing, year-round process. PPACA has created new risks and widened previous ones for false claims liability when auditors identify overpayments.

What Are the Risks of Non-Compliance During an RAC Audit Process?

When a physician or practice is determined to be non-compliant with clinical payment criteria and documentation and/or billing requirements, the penalties can be significant. The Centers for Medicare & Medicaid Services can dictate civil fines of up to $11,000 per error, impose treble damages, exclude your practice from Medicare/Medicaid, and even recommend criminal penalties that include fines and imprisonment. 

Healthcare providers found to be out-of-step with medical necessity reviews face a complex appeals process and the automatic recoupment of Medicare/Medicaid funds. The typical cost to appeal the findings of a RAC audit begins at around $50,000.

How to Protect Your Practice from RAC Audits

Because of the unique nature of medical billing errors and omission risks, forward-thinking practice managers will want to work with an insurance agent with experience in the healthcare sector. While different Medical Billing Errors & Omissions Liability insurance policies will carry different limits and vary slightly, they should all include the following:

• Coverage for defense costs, fines, and penalties arising out of HIPAA, EMTALA, and STARK violations, as well as extend to allegations made by governmental agencies, contractors working on behalf of the government, and commercial payors.
• Broad definition of loss, including punitive and exemplary damages, settlements, and statutory attorney fees.
•  Prior-acts coverage to ensure that previous incidents are also covered under the policy.
• A “Duty to Defend” provision, which ensures that the insurance company provides legal defense in the event of an audit or investigation.

Why You Need Medical Billing Errors & Omissions Liability Insurance

Medicare audits and the increasing complexity of billing and documentation requirements place your practice at risk for costly errors and omissions. This type of insurance can cover claims resulting from mistakes, omissions, or even unintentional billing, coding, and payment violations.

RAC Audits are often unpredictable, and without proper insurance, the financial consequences could be devastating. Medical Billing Errors and Omissions Liability insurance provides essential protection by covering the costs of defending against claims, paying fines, and even reimbursing overpaid amounts if necessary.

How Cunningham Group Insurance Can Help Your Practice Today

To protect your practice from the potential financial risks of a RAC audit, contact Cunningham Group Insurance to discuss Medical Billing Errors & Omissions Liability Insurance options tailored to your needs. Get a quote today to learn more about how we can support your professional liability needs.

*This article has been updated with new information