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Medicare Recovery Audit Contractor (RAC) Insurance

October 17, 2012

The Recovery Audit Contractor (or RAC) program is an aggressive tool used by the federal government to seek out potential fraud and abuse in Medicare billing. Federally hired contractors, paid on a contingency, collected a total of $797.4 million from healthcare providers in Fiscal Year 2011, according to a CMS report (pdf). The vast majority of these recoveries accounted for improper billings that did not meet Medicare’s coding or medical necessity requirements.

Note that while RACs detect and correct improper payments, improper payments may also result in a determination there was an underpayment.  Additionally, when a RAC audit is contested, findings are often found to be erroneous with approximately 50% overturned through appeal. 

In other words, Medicare requirements can be complex, and not just for hospitals. Physicians, nursing facilities, home health agencies, or any other service provider billing Medicare Parts A, B, and C, can expect to be audited eventually. A typical appeal against a RAC audit costs a minimum of $50,000. 

So how do you ensure your business is protected against the consequences of an unfavorable audit? One reliable solution is purchasing a Medicare RAC Audit insurance policy.  This type of policy helps protect you from the costs associated with defending against or appealing an audit determination and helps to cover fines or penalties triggered by an adverse audit. Here’s a brief list of included and excluded coverages:

 Included (Covered)

  •  Costs associated with defending against/appealing an audit, including:

          –  Legal Fees

          –  Consulting Fees

          –  Reproduction Costs

          –  Independent or “Shadow” Audit Work

  •  Audit fines and penalties

 Excluded (Not Covered)

  •  (Usually) The amount of overpayment sought by the auditing body

  •  Costs associated with implementation of Corporate Integrity Agreements

We at Avanti are committed to keeping you informed and to providing you with options to manage risk and control costs. If you’re interested in hearing more on insurance issues affecting allied health and other professional service providers, we encourage you to follow the Avanti Reader via RSS or connect with us on Twitter (@AvantiInsurance) or Facebook to receive more information and automatic notification of future posts. As always, thanks for reading.


1. See Centers for Medicare and Medicaid Services, Research Statistics Data and Systems

2. See Whatley Kallas, LLC, RAC Audit Appeals: What Physicians Need to Know

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