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RAC Audit Insurance: Cost-Efficient Protection or Expensive Luxury

October 22, 2013

do you need rac audit insurance?Medical practices of all sizes and specialties must have knowledge of RAC (Recovery Audit Contractor) audits. Physicians and practice managers should know what RAC audits are, how they work and understand their goals.

In addition, practices must learn how to avoid RAC violations and protect the practice against costly penalties. This is an important requirement of effective practice risk management. Ignoring the contingent liability of RAC audit issues could cost the practice big dollars, both current and future funds.

RAC Audit Defined

RAC audits are components of the federal government’s fraud, waste and error reduction strategy with healthcare insurance claims billing. Since Medicare and Medicaid are government programs, these two health coverages are the focus of RAC audits.

These practice audits have returned around two billion (with a “b”) dollars to the Medicare Trust Fund since 2005. RAC auditors identified this amount of fraudulent and erroneous billing and coding claim submissions.

This represents monies already paid to medical service providers that they had to send back to the government. The key reasons for these overpayments include the following items.

  • Incorrect payment reimbursements.
  • Uncovered services (those determined to be unreasonable or not necessary).
  • Coding errors identifying incorrect services for payment.
  • Billing for duplicate services.

Accurate billing and coding at the time of service should be the primary objective of all medical practices. Government auditors take a dim view of numerous or repeated errors generating excess payments to providers.

While most overpayments result from honest mistakes, returning excess payment amounts are the minimum financial penalties providers face. Should auditors uncover evidence of willful fraud, the practice will endure much closer scrutiny–and potential cost.

Who Faces RAC audits?

Healthcare providers that submit bills to Medicare and/or Medicaid face RAC audits. This includes medical practices, hospitals, clinics, nursing homes and home healthcare providers.

Download: RAC Audit Checklist – Simple Action Plan for RAC Audit Compliance

If this appears to be almost all healthcare providers, it does. Should the provider’s billing and coding be inefficient or error-prone, the cost to practices can be monumental.

Protect Your Practice

While the optimum protection is for practice coding and billing departments to never make mistakes, such perfection is impossible to achieve. Having meticulous and diligent internal billing departments or outstanding third party billing firms, such as M-Scribe Technologies, will reduce your errors–and risks–to a minimum, expecting a 100 percent error rate is unrealistic.

However, RAC audit insurance is often a cost-effective option to protect medical providers and their practices. This solution covers RAC audit liability, but often offers extra protection.

  • Protects for commercial payer overpayments;
  • Protects practice HIPAA compliance; and/or
  • Covers STARK and EMTALA violations.

Most RAC audit insurance policies also cover costs of defending the provider and the practice against claims made by government or private payer auditors. These reimbursable expenses typically include the following defense costs.

  • Applicable legal fees for the physician and the practice;
  • Cost of retaining specialized consultants;
  • Reproducing evidential documents;
  • Retained independent auditors’ fees; and
  • Cost of RAC audit fees, fines and penalties.

RAC Audit Insurance Cost

Fortunately, unless the physician or practice has had serious problems in the past, RAC audit insurance coverage is usually quite affordable. When you consider the potential massive costs that could impact physicians and practices, RAC audit insurance becomes even more attractive as a medical provider necessity.


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