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Reconciling Your Remittances: Remark Code N432 Tracks RAC Impact on Cash Flow


cengle120xYou all are probably aware about how remark code N432 is supposed to indicate RAC-related claims activity on your remittance advices, and that some problems related to this code have been happening for some providers around the country.


Just a bit of background: according to CMS, all RAC-identified overpayments are supposed to be identified specifically by the FI or MAC on the Medicare remittance advice with a remark code of N432. This remark code is supposed to appear as a note on the RA prior to the actual payment retraction, and is intended to be initiated at the same time the demand letter is generated. Identifying and recording these remark codes, preferably automatically, is essential to a hospital's ability to track and report the impact of RAC audits on its cash flow.


CMS created N432 for claim processing contractors to identify RAC adjusted claims, however, CMS believes the code is being superseded in some systems by code N469, the Section 935 limitation-on-recoupment code. CMS is working with contractors to fix this now. N469 is used to identify any account in which a provider filed the first level of appeal within 30 days to stop the automatic recoupment on the 41st day from the demand letter. Providers will always receive demand letters for all RAC adjusted claims, which will allow providers to keep track of RAC adjustments versus all other claims processing adjustments.


Update from AHA


In its RAC Report/Recovery Audit Contractor Program Update, the American Hospital Association (AHA) on Oct. 5, 2009 published this in the Remittance Advice Update:

According to CMS, listings of RAC-related claims activity on the Medicare remittance advice will be marked with code N432. CMS further notes that the RAC code will be used in conjunction with other codes to provide additional detail on a claim - for instance, code N469 may also be used to indicate that recoupment should be delayed under the Section 935 appeals process described above.

CMS is aware of several problems with the current process that prevent claim-level reconciliation by hospitals. Specifically, while the remittance advice uses codes to notify hospitals that a RAC or other CMS contractor identified a particular claim for future recoupment, the remittance advice fails to provide claim-specific data when the recoupment is processed. Instead of claims-level detail, the remittance advice combines information on all recoupments occurring on a particular day into a single batched amount. The lack of claim-level data on the remittance advice at the point of recoupment prevents hospitals from reconciling anticipated recoupments with actual recoupments.

CMS is developing a solution to this problem, with implementation targeted for summer 2010; this would be announced to its contractors in a transmittal and to providers in a MedLearn Matters Article. AHA is working with CMS and several state hospital associations on this problem.


There will be no differences on the remark codes on the remittance advices for automated and complex reviews. This process is just the method used by the RACs to identify claims to adjust. Once it is determined that an adjustment is necessary, the adjustment will flow and appear on the remittance advice as it has in the past. The only difference is that the new remark code will identify the adjustment that was initiated by the RAC, and the adjustment will not immediately offset since it is subject to 935 limitation of recoupment.


System Corrections


CMS's billing systems in some circumstances have not been able to properly use the N432 code designated for RAC claims, and as a result the code is not appearing on the RAs. CMS initially indicated that the necessary system corrections would be implemented through a two-stage process in April and July 2010, and we have more insight into the Change Requests now.


In the meantime, CMS and the RACs are developing an interim solution to allow the RAC remark code to function properly. Also, CMS is working on a Medicare-wide edit to provide claim-level detail on the remittance advice, both when a denial is reported and when the actual recoupment occurs; this should be completed by summer 2010. Talk to your MACs about this to keep up on the progress of rectifying this problem. This is obviously a huge issue for you providers when it comes to being able to track your cash flow and recoupments, and now there are a few recent developments on the fixing of this issue pertinent to those April and July dates.


CMS recently updated its response to this question on its FAQ Web site as well (


Q: Will Code N432 appear on the remittance advice for Recovery Audit Contractor (RAC) adjusted claims?  (Last updated 03/15/10)

A: CMS created code N432 to identify RAC adjusted claims, however CMS believes the code is being superseded in some of the systems by code N469, which is the Section 935 Limitation on Recoupment code. We are working to correct this problem in the system. Providers will receive demand letters for all RAC adjusted claims. These letters will allow providers to keep track of RAC adjustments versus all other claims processing adjustments.