Author: Knicole C. Emanuel Esq. | November 4, 2026
For many providers, the first sign of trouble is a records request from a Medicare contractor. Recovery Audit Contractors, (RACs) are private firms hired by the Centers for Medicare & Medicaid Services (CMS) to find and correct improper fee-for-service payments. They work alongside Medicare Administrative Contractors (MACs), which process claims and conduct their own medical reviews, and Unified Program Integrity Contractors (UPICs), which focus on suspected fraud and abuse.
RACs are paid a percentage of what they recover. Contractors can also extrapolate errors in a small sample across thousands of claims, producing seven-figure demands. Many denials, however, are reversed on appeal.
The Story: In Home Health, LLC v. Kennedy
In Home Health, a hospice provider, faced a demand for roughly $1 million after Medicare contractors denied hundreds of its claims. The MAC concluded that many patients did not meet the definition of “terminal illness” in a local coverage determination. The denials were upheld by a Qualified Independent Contractor and then by an administrative law judge (ALJ).
Beyond arguing that each patient qualified, the hospice invoked Section 1879 of the Social Security Act, the “limitation on liability” provision, which protects a provider that reasonably believed a service would be covered. The ALJ rejected that defense because the hospice knew about the governing Medicare notice on hospice standards.
On July 27, 2026, the U.S. Court of Appeals for the Sixth Circuit held that the ALJ applied the wrong test. The question is whether the provider reasonably interpreted the rules, not whether it knew them. In the court’s words, if a provider “reasonably – albeit incorrectly” read the Medicare standards as covering a claim, “the safe harbor saves them from liability.” The court sent the case back to the ALJ to apply that standard.
Two cautions apply. The win is a remand, not a final victory, and the decision binds only federal courts in Kentucky, Michigan, Ohio, and Tennessee.
Key takeaways:
- Plead “without fault” defenses. Before you refund anything, consider waiver under Sections 1870 and 1879 and raise those defenses at every level.
- Document clinical reasoning in real time. A physician’s contemporaneous judgment is what makes a belief in coverage “reasonable.”
- Build the record before the ALJ. Evidence not submitted by reconsideration may be excluded absent good cause.
- Test the math in extrapolated audits. In 2024, a South Carolina federal court ordered the government to produce the full claims universe, including zero-paid claims, that a contractor had excluded when extrapolating an overpayment (Goose Creek Physical Medicine, LLC v. Becerra).
Conclusion: Best Practices
Begin with documentation. Answer every Additional Documentation Request completely and on time, making sure the records clearly support medical necessity. When a RAC issues an adverse finding, use its informal discussion period. The RAC may reverse itself if you send additional records.
Then calendar the deadlines carefully:
- Redetermination by the Medicare Administrative Contractor: 120 days from receipt of the initial determination. File within 30 days of the demand letter to avoid recoupment.
- Reconsideration by a Qualified Independent Contractor: 180 days. A timely filing again halts recoupment.
- ALJ hearing: 60 days. For 2026 requests, the amount in controversy must be at least $200, and related claims may be combined to meet it.
- Medicare Appeals Council: 60 days.
- Federal district court: 60 days. The 2026 minimum amount in controversy is $1,960.
Finally, bring in counsel early, especially for extrapolated demands or any sign of a fraud referral. Medicare audits can be won, but usually only by providers who build the record, respect the clock, and are prepared to take the fight to an independent judge.
This article was originally published on RACmonitor.