RARC N432: Alert: Adjustment Based on Recovery Audit

What Does RARC N432 Mean?

RARC N432 is an informational alert indicating that the claim adjustment resulted from a Recovery Audit Contractor (RAC) review. RAC audits are a post-payment review program authorized by Congress to identify and correct improper payments in the Medicare program. RACs review claims that have already been paid and may demand repayment if they find issues such as upcoding, unbundling, duplicate billing, services lacking sufficient medical necessity documentation, or incorrect coding.

When N432 appears on a remittance, it means the RAC reviewed a previously paid claim and determined that an overpayment occurred. The adjustment typically appears as a negative amount or recoupment on the remittance, reducing the provider's current payment by the amount the RAC determined was overpaid. The provider should also receive a separate determination letter from the RAC explaining the specific reason for the adjustment.

RAC reviews can be automated (where the RAC's algorithms identify clearly incorrect payments based on data patterns) or complex (where the RAC requests and reviews medical records before making a determination). Complex reviews are more likely to involve clinical judgment calls about medical necessity or coding appropriateness, and they typically have stronger grounds for appeal if the documentation supports the original claim.

What to Do

Locate the RAC determination letter that accompanies this adjustment — it will specify the claim(s) involved, the reason for the overpayment finding, and the amount being recouped. Review the letter carefully alongside the original claim and medical record to assess whether the RAC's determination is accurate.

If you disagree with the finding, file a redetermination appeal within 120 days of the date on the determination letter. Include the medical records, coding rationale, and any supporting documentation that demonstrates the original claim was billed correctly. RAC appeal success rates can be favorable for providers who have strong documentation, so do not automatically accept the adjustment without review. If the RAC's finding is correct, adjust your internal billing practices to prevent the same issue from generating additional RAC recoveries on other claims.

Common Scenarios

• A RAC automated review identifies a claim where an inpatient admission should have been billed as outpatient observation, and the payment difference is recouped
• A complex RAC review of medical records for a series of therapy claims determines that the documentation did not support medical necessity for the frequency of visits billed
• A RAC audit identifies duplicate payments for the same service submitted on two separate claims with slightly different dates, and one payment is recouped

Commonly Paired With

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