Glossary · Compliance

RAC audit (Recovery Audit Contractor)

A Recovery Audit Contractor (RAC) is a CMS-contracted private company that conducts post-payment reviews of Medicare claims to identify and recover overpayments—and flag underpayments—using both automated data analysis and manual medical-record review.

Verified May 8, 2026 · 7 sources ↓

Drawn from CMSPubMedAAPCNoridianAcep

Definition

Source · Editorial summary grounded in 7 cited references ↓

RACs operate under the Medicare Fee-for-Service Recovery Audit Program, authorized by the Tax Relief and Health Care Act of 2006. They are paid on contingency—meaning they earn a percentage of the improper payments they recover—which creates a strong financial incentive to target high-volume, high-value claim errors. Reviews fall into two types: automated (system-level, no record requested) and complex (a qualified reviewer examines the actual medical record, requested via an Additional Documentation Request, or ADR). All audit issues must be pre-approved by CMS through a formal new-issue review process and posted publicly on the RAC's website before widespread review begins.

The U.S. is divided into geographic RAC regions (Regions 1–5). Regions 1–4 cover Part A and Part B claims; Region 5 is dedicated to DMEPOS, Home Health, and Hospice. As of April 2025, Cotiviti GOV Services LLC holds contracts for Regions 3, 4, and 5, with active reviews in Regions 3 and 5 expected to begin in summer 2025. Performant Recovery retains an administrative and appeals role in Region 5 during the transition.

For orthopedic practices, RAC scrutiny concentrates on medical necessity (especially for total joint arthroplasty), unbundling violations, and modifier misuse. A published study from two academic medical centers found that standardizing surgical decision-making documentation—specifically templating evidence of exhausted conservative care per CMS criteria—eliminated virtually all subsequent RAC denials for total joint arthroplasty after an initial denial rate of 2.8%. The lesson: RAC exposure is largely preventable through prospective documentation discipline.

Why it matters

A RAC denial triggers a formal demand letter requiring repayment of the identified overpayment, often with interest accruing if the repayment timeline is missed. For orthopedic practices, where procedures like total joint arthroplasty and shoulder arthroscopy carry high reimbursement values, even a small denial rate translates to material revenue clawback and administrative burden. Because RACs are paid contingency fees, they systematically target issues known to be widespread—such as CPT 29822 billed alongside other shoulder arthroscopy codes on the same day, or TJA claims lacking documented conservative-care exhaustion—making orthopedic coding patterns a recurring audit focus.

Common mistakes

Where people most often go wrong with this concept.

Source · Editorial brief grounded in cited references ↓

Billing CPT 29822 (shoulder arthroscopy, limited debridement) alongside other shoulder arthroscopy procedures on the same shoulder, same date—a known RAC-approved audit target for unbundling.
Failing to document exhaustion of conservative care (physical therapy, injections, NSAIDs) in the preoperative history and physical before total joint arthroplasty, leaving medical necessity unsupported.
Not responding to an ADR within the required timeframe, which converts the request into an automatic denial regardless of actual claim accuracy.
Assuming an automated review finding is final without escalating to the complex-review or appeals pathway, where documentation often reverses the determination.
Overlooking the RAC's publicly posted approved-issue list and failing to self-audit for those specific patterns before the RAC does.
Applying modifier 57 to procedures with a 0-day or 10-day global period—an incorrect-coding pattern flagged in multiple RAC regions.
Misusing modifiers TC and 26, or billing global versus technical/professional components incorrectly for imaging bundled with orthopedic procedures.

Related codes

Codes commonly involved when this concept appears in practice.

CPT

ICD-10

M17.11 M17.12 M16.11 M16.12

Modifiers

57 Decision for surgery 59 Distinct procedural service 26 Professional component

Frequently asked questions

Source · Generated from the editorial pipeline, verified against 7 cited references ↓

01How does a RAC differ from a MAC?

A MAC (Medicare Administrative Contractor) processes and pays Medicare claims prospectively. A RAC reviews claims after payment has already been made, looking for errors that resulted in overpayments or underpayments, and is paid on contingency based on what it recovers.

02What triggers a RAC audit for an orthopedic practice?

RACs use data-mining algorithms to identify billing patterns that statistically deviate from peers or that match a CMS-approved audit issue—such as high-volume TJA claims lacking conservative-care documentation, or shoulder arthroscopy claims with unbundled debridement codes. A practice does not receive advance notice before an automated review; the first signal is often an ADR.

03What is an ADR and how quickly must I respond?

An Additional Documentation Request (ADR) is the RAC's formal ask for medical records supporting a specific claim. Response deadlines are strict—typically 45 days—and missing the deadline results in automatic denial of the claim, independent of whether the underlying care was appropriate.

04Can a RAC denial be appealed?

Yes. Medicare provides a five-level appeals process: redetermination by the MAC, reconsideration by a Qualified Independent Contractor, hearing before an Administrative Law Judge, Medicare Appeals Council review, and federal district court. Published evidence from orthopedic institutions shows that well-documented appeals can achieve high reversal rates.

05Are RAC audit issues publicly available before the audit begins?

Yes. CMS requires RACs to post all approved audit issues on their public websites before conducting widespread reviews. Cotiviti maintains a live list at cotiviti.com/cms-approved-issues-cotiviti. Reviewing this list regularly is one of the most cost-effective compliance steps an orthopedic practice can take.

06Does the RAC program cover Medicaid claims as well?

There is a separate Medicaid RAC program administered at the state level. The federal Medicare RAC program described here covers Medicare Fee-for-Service Part A and Part B claims (Regions 1–4) and DMEPOS/Home Health/Hospice (Region 5). Medicaid RAC rules vary by state.

07What is the single most effective thing an orthopedic practice can do to reduce RAC risk?

Standardize preoperative documentation to explicitly satisfy CMS medical-necessity criteria before the claim is submitted. Peer-reviewed data from orthopedic arthroplasty programs show that templating conservative-care exhaustion language in the preoperative H&P can reduce denial rates to near zero after an initial audit cycle.

Sources & references

Editorial content was developed using the following public sources. Last verified May 8, 2026.

Mira AI Scribe

Mira flags documentation elements that directly affect RAC audit survivability at the point of note creation. For total joint arthroplasty and other high-value orthopedic procedures, Mira's documentation layer prompts the surgeon to explicitly record: (1) the specific conservative treatments attempted (e.g., supervised physical therapy duration, corticosteroid or hyaluronic acid injection dates, NSAID trial), (2) the reason those treatments failed or are contraindicated, and (3) the functional limitations corroborating medical necessity, aligned with CMS coverage criteria. This structured language is embedded in the preoperative H&P template so that if an ADR arrives, the supporting record is already in compliant form. For shoulder arthroscopy encounters, Mira's code-selection layer enforces NCCI bundling logic and surfaces a real-time alert when CPT 29822 is selected alongside other same-session shoulder arthroscopy codes, preventing the specific unbundling pattern that CMS has approved RACs to audit across all regions. Modifier recommendations (e.g., flagging improper use of modifier 57 on procedures with 0- or 10-day globals) are surfaced before claim submission, reducing the automated-review hit rate. Mira does not submit claims or act as a billing agent; these prompts are informational guidance for the ordering clinician and coding team.

See Mira's approach

CERT (Comprehensive Error Rate Testing) is the CMS program that annually measures the Medicare fee-for-service improper payment rate by auditing a statistically valid random sample of processed claims against coverage, coding, and billing rules. It does not identify fraud—it identifies payments that failed to meet Medicare requirements.

Medical necessity Compliance

Medical necessity is the standard requiring that a service or item be reasonable and appropriate for diagnosing or treating a patient's condition according to accepted clinical practice. Payers—including Medicare—use this standard to determine whether a claim will be covered and paid.

Unbundling Coding

Unbundling is the incorrect practice of billing multiple separate CPT or HCPCS codes for components of a procedure that a single, more comprehensive code already covers—resulting in inflated reimbursement claims and potential fraud exposure.

NCCI (National Correct Coding Initiative) Coding

The National Correct Coding Initiative (NCCI) is a CMS program of automated prepayment edits that prevent Medicare and Medicaid from paying for procedure code combinations that are incorrectly billed together or billed in quantities that exceed what is clinically reasonable.