RAC

A RAC (Recovery Audit Contractor) is a CMS contractor under the Recovery Audit Program that conducts postpayment review of Medicare claims to identify and recover improper payments. RACs operate on a contingency-fee structure (typically 9 to 12.5 percent of the recovered amount), conduct only postpayment review (no prepayment authority), and have no fraud-referral authority. The current RACs are Performant Recovery (Region 5, home health, hospice, DME), Cotiviti (Regions 1, 2, 3), and HMS Federal Solutions.

How a RAC works

RACs identify potentially improper claims through automated review (claims that fail an objective rule such as duplicate billing or coding error) and complex review (claims that require human judgment about medical necessity or documentation sufficiency). The RAC issues a demand letter identifying the disputed claims and the recoupment amount. The provider has 30 days to discuss the findings informally and 120 days for the formal Level 1 redetermination by the Medicare Administrative Contractor. The full appeals track is the same 5-level Medicare framework that governs UPIC findings.

The contingency-fee structure produces a distinctive enforcement posture: RACs earn revenue only when they identify recoverable improper payments, which creates an incentive to challenge claims aggressively. RAC denials can be reversed at any appeal level, and the contingency fee is recouped from the RAC if the denial is overturned. RACs are limited by the Additional Documentation Request (ADR) limits CMS publishes, which cap the number of records a RAC can request from any single provider in a 45-day cycle.

When a RAC applies

RAC review applies to Medicare fee-for-service claims (Parts A, B, and D) that have already been paid. RACs do not have prepayment review authority, distinguishing them from UPICs. RAC review targets categories CMS identifies as high improper-payment risk: DME, inpatient hospital, outpatient hospital, physician services, home health, hospice, and pharmacy. Medicaid RACs operate under a parallel state-level framework with state-specific contracting.

The provider's exposure under RAC audit

RAC findings produce immediate recoupment through Medicare Administrative Contractor offset against future claim payments. The dollar exposure can be substantial when the RAC reviews a large claim universe, though RAC denials are reversed at higher appeal levels at meaningful rates. The contingency-fee structure that incentivizes aggressive denials also creates appeal opportunity: a well-built ALJ appeal record often reverses RAC findings. The defense framework focuses on the documentation provided to the RAC, the timely Level 1 redetermination filing, and the appeals record at the Qualified Independent Contractor and ALJ stages.

Related terms

• UPIC The CMS program integrity contractor with broader audit authority including prepayment review and fraud referral.
• Recoupment The Medicare offset mechanism by which RAC findings are collected from future claim payments.
• Extrapolation The statistical technique sometimes applied in RAC findings, though less common than in UPIC matters.
• Audit appeal The 5-level Medicare appeals track that governs RAC denial disputes.

See also

• Practice area
  RAC Audit Defense

  The full RAC defense framework, focused on the contingency-fee dynamics and the appeals-record strategy.

• Practice area
  Medicare & Medicaid Audit Defense

  The umbrella Medicare audit defense framework covering UPIC, RAC, MAC, SMRC, and CERT contractors.