Question: How should hospitals account for recovery audit contractor (RAC) reserves on their balance sheets? Our hospital currently has an amount reserved, but it is a static number. When a RAC pulls money back, there is a dedicated transaction code posted to record the adjustment but nothing ever goes against the reserve. How are other hospitals actively managing their RAC reserve to reflect actual exposure based on current events and/or experience?
Answer: If you can demonstrate to the CFO, using both current data and historical data, what the amount at risk is, and how much has been refunded, and show that it is an over-reserve, theoretically, the CFO should agree to change methods and perhaps reset the amount each year according to the latest RAC activity.
However, there are CFOs who want to have extra reserves just in case. As no one has a crystal ball, this may be an area where the CFO and revenue cycle folks have to respectfully disagree. (In my world, this debate sometimes comes up regarding bad debt reserves.)
This question was answered by: Ruth Landé, senior vice president, patient revenues, Memorial Sloan-Kettering Cancer Center, and a member of HFMA’s Metropolitan New York Chapter.
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