Recent Change in CMS Manual Aims to Improve the RAC Program

James Carroll, April 30, 2010

A recent transmittal released by CMS implemented a number of changes to the Medicare Financial Management Manual that will ultimately enhance the structure of the Recovery Audit Contractor national program.

The transmittal, Change Request 6871, is dated April 23, 2010 with an effective date of May 24, 2010. Changes include Chapter 4 Sections 100.5 and 100.9.2. (You can read the transmittal at

Chapter 4 Section 100.5: Adjusting the Claim
The transmittal discusses updated language in chapter four of the manual, including the implementation of an N432 code with the remittance advice (RA) to denote its relationship to a RAC audit. An RA is a notice of payments and adjustments sent to providers, billers, and suppliers.

After a claim has been received and processed, a Medicare contractor produces the RA, which may serve as a companion to a claim payment (or payments) or as an explanation when there is no payment. The updated manual states that, "When possible, the remittance advice shall contain an N432 code to let the provider know that the adjustment is the result of a RAC audit."

The N432 code was believed to have been superseded in some of the systems by code N469, which is the Section 935 limitation on recoupment code, according to CMS. Some hospitals have already received remittance advices with the N432 code on there, which is a good thing, says Donna Wilson, RHIA, CCS, senior director, Compliance Concepts, Inc., Wexford, PA.

"There was never a RAC specific denial code," says Wilson. "This code helps because it lets the provider know that they should be receiving a demand letter for a particular claim."

Chapter 4 Section 100.9.2: Tracking Appeals
The second action item within the transmittal states that "affiliated contractors (ACs) and Medicare Administrative Contractors (MACs) shall submit monthly RAC appeal reports to the appropriate CMS RAC and MAC Project Officers."

There has yet to be an announcement about public disclosure of these reports, but still, these results should help to identify RAC patterns, which should lead to improvements in the overall scheme of the program, according to Wilson.

"During the demonstration project we did receive RAC evaluation reports, so I’m hoping that these will show up in a similar format," says Wilson. "But whether or not these results are made public, it will help the RACs improve upon their internal processes, which in turn should benefit providers."

The monthly RAC appeal report field requirements include:

  • Claim number
  • Claim line number
  • Provider number
  • A/R number
  • Receipt Date of Appeal
  • Level of Appeal
  • Appeal Decision
  • Appeal Decision Date
  • Adjustment Date
  • Dollar amount of reversal
  • Reason for reversal

"From a tracking standpoint, it might nice for these Monthly RAC Appeal Reports to include the RAC reviewers’ initials," says Wilson. "By tracking each RAC reviewer, CMS and the RAC will be able to monitor their performance." Overall, this transmittal should lead to both short- and long-term advances in the permanent RAC program.

James Carroll James Carroll is associate editor for the HCPro Revenue Cycle Institute.
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