Are RAC Auditors Abusing Incentives to Recovery Fees?
March 25, 2026The recent aggressiveness and persistence of Recovery Audit Contractor (RAC auditor) activities have caused medical associations, including the American Medical Association and the American Hospital Association, to allege a “bounty hunter-like” approach on the part of RAC auditors.
Allegations of inaccurate and increasingly expensive audit behaviors are based partly on how RAC auditor contingency payments are calculated — the Centers for Medicare & Medicaid Services (CMS) almost always pays between 9% and 12.5% of the recovered funds as a fee to RAC auditors. Legal as well as legislative remedies are essential.
The RAC Program
The Tax Relief and Health Care Act of 2006 called for the creation of a recovery audit program to identify improper payments — both over and underpayments — made on claims for services provided, in order to address fraud and waste in the Medicare program. Any provider or supplier that submits claims to Medicare is subject to review, including hospitals, physician practices, nursing homes, home health agencies, durable medical equipment suppliers, etc.
Each RAC auditor uses proprietary software, their own interpretation of Medicare rules and regulations, and medical records from the provider, when requested, to analyze data. The RAC program did not replace existing review entities such as Medicare administrative contractors, Medicaid, program safeguard contractors, the office of inspector general, or Quality Improvement Organizations (QIOs). In fact, RAC auditors do not review previously examined claims.
While CMS has modified the RAC program in response to concerns, there is much room for improvement.
Provider Costs Imposed by a RAC Audit
There is no question that the high volume of audits and the lengthy appeals process are a significant drain on administrative resources and staff time within physician practices and networks. In addition to internal costs, many providers hire legal counsel, billing and coding experts, and other specialists to address the notice of a RAC audit.
Aside from the substantial price of appealing a RAC audit, there is uncertainty from multi-year lookback periods, which can negatively impact financial planning, as well as a more immediate financial setback: A RAC audit often claws back money allegedly overpaid before the provider has a chance to appeal, recovering those alleged overpayments from ongoing reimbursements.
Some providers believe RAC auditors are disincentivized to limit their audits and/or increase accuracy because RAC auditors can keep their fees unless and until an overpayment is overturned on appeal, often years after the original “take back” of monies has occurred.
RAC Audit Example
In a recent matter, our client received a letter from a Blue Cross/Blue Shield insurer alleging that more than 28,000 reimbursements from six Current Procedural Terminology (CPT®) codes were found to be inappropriate and approximately $2 million was overpaid. The letter failed to identify the billing records involved, patient names, or the dates of service.
Such a notice gives a seemingly unfair advantage to the Blue Cross/Blue Shield insurer, who is aware of the increased internal resources that would be required of our client to contest the allegation as well as compiling thousands of medical records to substantiate payment of the claims.
Long Term Legislative Remedies
Neubert, Pepe & Monteith supports the reforms to RAC audits urged by the AMA. Our firm believes CMS should adopt those reforms, including: (i) placing financial penalties on RAC auditors for inaccurate audits; (ii) limiting RAC audits to those conducted by a physician in the same specialty as the providers targeted; and (iii) ensuring providers receive interest on recouped billings if it is determined that a recoupment was in error, charging that interest payment against the RAC auditor.
Ultimately, state legislators should examine ways to enact these reforms, since virtually all of them “relate to” the business of insurance, and can therefore be exempt from Employee Retirement Income Security Act of 1974 (ERISA) preemption. The federal government should adopt the same reforms when these practices involve claims in the Medicare system.
Immediate Legal Remedies
While the abuse of recovery fee incentives by RAC auditors poses serious challenges, providers are not without recourse.
Physicians and healthcare organizations can assert their contractual rights through litigation or arbitration. Legal actions can hold payors accountable and recover improper denied reimbursement, as well as interest on improperly denied claims.
