“We are a relatively small health system and we employ eight physicians. Our staff works very hard just to keep up with daily responsibilities, so managing the RAC preparation and audit process is something we were very concerned about. We have found the AuditGuard® people to be knowledgeable and professional. We are delighted to have their expertise by our side.”

— Timothy Browne, President and Chief Executive Officer, Loris Health System


The Recovery Audit Contractor (RAC)program is comprised of private companies hired by the federal government to audit providers and take back Medicare reimbursement. These audits are triggered by a number of factors and are accompanied by varying penalties—both financial and professional. The chart below illustrates some of the penalties you could face upon being audited by RAC, MIC, or private payer.

Description of Penalty Medicare (RAC) Medicaid (MIC) Private Payer
Recovery of Reimbursement Yes Yes Yes
Look-Back Period Authorization 3 Years 3 Years 1 Year (typical)
Interest Recovery / Percentage Yes / 11.25% Yes / 11.25% Yes / Varies
OIG Penalty Exposure / Percentage Yes / 200% Yes / 300% Yes
False Claims Act Exposure Yes Yes Yes
False Claims Act Penalty $/Claim $5,500-$11,000 $5,500-$11,000 N/A
DOJ Intervention Potential Yes Yes Yes
Personal Liability Yes Yes Yes
Office Inspector General (OIG), Department of Justice (DOJ)


Are physicians really at risk?

Governmental auditors have been comparatively unaggressive with physician audits, a dynamic that began changing in September 2012 when CMS mandated that a RAC, Connelly, aggressively audit physician evaluation and management encounters using extrapolation methodology to compute repayment amounts. Since that time, we have seen a marked increase in physician audits in the southeast. This mandate will eventually encompass the entire country. Globally, RACs have annually increased the amounts taken back from providers by 2,939% during the period of 12/31/10 through 12/31/12.  

Physicians were specifically included in the federal legislation that permanently created the RAC program. Thus, it is mandated by federal law that RACs pursue physicians. From a pragmatic perspective, 48% of all Medicare payments are made to physicians. Keeping in mind that RACs are “bounty hunters” that are paid a percentage of the money they take back from providers. Even if they were not statutorily required to audit physicians, they would never turn their backs on 48% of their potential commission base.

The MIC and MAC programs are already on record for intending to focus on the coding and billing practices of physicians. MICs are particularly interested in auditing for documented medical necessity and the accuracy of evaluation and management coding. MACs have the unique ability to not just audit physicians, but as the administrators for both Part A and Part B, have the unique ability to cross reference hospital and physician coding and billing for each patient and each date of service. So, are physicians at risk? Emphatically yes—and the risk is multi-tiered.

How can I best minimize my risk?

Start now—time is quickly running out and the pace of the auditors has quickened substantially in 2012. You must act immediately to identify your areas of vulnerability—the anomalies in your practice that will cause you to be targeted and closely examined by RAC/MIC/MAC/CERT auditors. You must change and improve the behaviors, coding and billing patterns, and skill sets of staff and providers; you must become a precise, fully compliant documenting, coding and billing team. If you can accomplish this you will have taken the most important step possible in minimizing your risk. You will no longer be an attractive target and they will likely move on to more lucrative opportunities. Remember, Recovery Audit Contractors are “bounty hunters”—they get paid 9-12% of what they take back from your practice. No recovery from you equals no fee to them. So, if they see that you have limited vulnerability they will likely move on to a more remunerative target.

However, the vast majority of physician practices, whether hospital operated or physician owned, do not have the internal resources to successfully achieve the aforementioned elimination of vulnerabilities. Your best option to dramatically reduce your risk is to become part of AuditGuard®. Your professional AuditGuard® team will work closely with your providers and staff to eliminate all areas of audit vulnerability, thus minimizing the risk of RAC/MIC/MAC/CERT audits occurring. But if the worse happens, your AuditGuard® team will provide the defense of your practice each time a RAC/MIC/MAC audit occurs. Your AuditGuard® team will manage the entire audit process for you, from initial audit response through the appellate process. And how is this for risk reduction; when we have appealed demand letters we have won in almost forty-four percent of the cases.

How far back can a Recovery Audit Contractor look back into my practice?

Generally three years with some exceptions. RAC/MIC/MACs work from just a sampling of claims and then, for most services, are allowed to extrapolate the error rates they discover over the three year look-back period.

Let’s hypothesize that you have twelve family practitioners and each averages eighteen encounters per day. Allowing for vacation and CME time, that workload conservatively equates to approximately 155,000 encounters over the past three years. If you have an industry average 58% coding error rate, if half of the coding errors are over-coded, and each over-coding error represents a $38 issue, you have approximately $1.708 million in audit exposure—plus penalties and interest, of course.

Can I get audited more than once?

Yes. RAC/MIC/MAC/CERT audits are emphatically not onetime events. Sophisticated data mining protocols allow them to audit providers on an ongoing basis, keying in on the data mining “issue du jour.” You will hear from these auditors regularly in the coming years.

How does my AuditGuard® team help me through the process?

Whether it’s a focused review (request for specific medical records) or a demand letter resulting from a data mining protocol, your AuditGuard® team manages the entire audit process for you. We will handle the initial response, manage the document preparation and submission effort, perform the shadow audits and formulate the pay or appeal recommendation. If a repayment is assessed and you elect to appeal, we will manage the appellate process for you. Your dedicated AuditGuard® team will fight to protect your revenues and your reputation every time an audit occurs.

If I disagree with their audit conclusion, can we appeal?

Absolutely. There is an adjudicated appeal process in which AuditGuard® is extremely well versed—and we often win on appeal. If a RAC/MIC/MAC/CERT demands repayment from you we will perform a shadow audit to confirm or challenge their position. After completing the shadow audit we will present our recommendation as to whether you should pay or appeal the auditor’s decision. If you elect to appeal we will manage the appellate process for you.

What is the Fair Claims Act and how does it impact my practice?

The False Claims Act provides for substantial penalties against any provider that files a claim to Medicare that contains a coding or billing error. The penalties are quite significant, ranging from $5,500 to $11,000 per claim. For many years the False Claims Act was only invoked in cases of egregious fraud. In recent years, however, federal auditors have shown ever lessening restraint in invoking these draconian penalties, a trend that is expected to increase given the current federal budgetary crisis.