Press Release

New Legislation Provides Much-Needed Reform to the Medicare RAC Program

WASHINGTON (May 1, 2015) – The American Hospital Association (AHA) today announced its strong support for H.R. 2156, the Medicare Audit Improvement Act of 2015, introduced by Representatives Sam Graves (R-MO) and Adam Schiff (D-CA) that would make significant, fundamental changes to the Recovery Audit Contractor (RAC) program. While RACs were established to ensure the accuracy of Medicare and Medicaid payments, the faulty design of the program instead imposes significant administrative and financial burden on hospitals.

“Physicians do what is best for their patients and make medical decisions based on the care needs of their patients. But recovery audit contractors second guess medical decisions and divert resources from patient care,” said Rick Pollack, AHA’s executive vice president. “This legislation makes long-overdue repairs to the broken RAC program.”

Under a contingency fee structure, RACs are paid 9 to 12.5 percent of every claim they deny, so they have no reason to reward efficient hospital care and every reason to deny it. RACs are not penalized for inappropriate denials that are later overturned in the Medicare appeals system. Hospitals win 72 percent of appeals of denied inpatient claims at the third level of the appeals process, according to the Department of Health and Human Services Office of Inspector General.

Inappropriate denials have flooded the Medicare appeals system. As a result, hospitals must wait more than two years for an appeal to be assigned to an impartial administrative law judge. In the meantime, hospitals are not paid for the cost of providing medically necessary care to Medicare patients, and they are never reimbursed for the costly appeals process.

The legislation would address some of the issues that make the program inefficient. It would:

  • Eliminate the contingency fee structure; instead, it would pay RACs a flat fee, as every other Medicare contractor is paid, to reduce the financial incentive for overzealous auditing practices.
  • Reduce payments to RACs that are inaccurate in their audit determinations and have high appeals overturn rates.
  • Fix the Centers for Medicare & Medicaid Services’ unfair rebilling rules by allowing hospitals to rebill claims when appropriate.
  • Require RACs to make their inpatient claims decisions using the same information the physician had when treating the patient, not information that becomes available after the patient leaves the hospital.

A new report released today by the AHA shows why the RAC program needs an overhaul. The report reveals the real expense of the costly Medicare RAC program. Based on a survey of hospitals, the report found a number of hidden costs to hospitals from overzealous RAC audits:

  • Hospitals report an average of $1.4 million per hospital in claims under appeal; some larger hospitals have $20 million tied up in the appeals process.
  • On average, hospitals hire or reassign 2.2 full-time-equivalent employees to handle the operational aspects of RAC audit requests and the appeals process.
  • Hospitals report that they dedicate an average of 2,868 staff hours a year to the appeals process. Much of this time is avoidable because it is taken up by appeals for inaccurate RAC denials that are later overturned. Seventy-three percent of hospitals report that they reassigned staff to fulfill RAC-related duties.
  • Hospitals spend on average $117,000 annually to hire external services to assist in RAC audit management.
  • Fifty-five percent of hospitals report that RAC audits and delays in the appeals process have created significant issues with the availability of capital resources.
  • Hospitals report delaying other priorities such as hiring personnel, updating equipment, implementing health information technology and updating buildings.

The report is available at

Infographic is available at:

About the AHA

The AHA is a not-for-profit association of health care provider organizations and individuals that are committed to the health improvement of their communities. The AHA is the national advocate for its members, which include nearly 5,000 hospitals, health care systems, networks, other providers of care and 43,000 individual members. Founded in 1898, the AHA provides education for health care leaders and is a source of information on health care issues and trends. For more information, visit the AHA website at

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