Legislation and Guidance

Medicare RACs

In 2005, CMS started the Medicare Recovery Audit Contractor (RAC) program with pilots in three states—California, New York, and Florida. This initial effort by CMS aimed to determine whether RACs would be a cost-effective way to ensure correct payment to providers and suppliers that bill claims for Medicare Part A and Part B reimbursement.

The recovery audits involved post-payment review of supporting documents and other information to identify overpayments and underpayments. Even though this program caused provider concerns with regard to recovery protocols and appeal rights, the RAC contractors recovered over $900 million in overpayments and returned nearly $38 million in underpayments to healthcare providers during the three year demonstration period. Based on this success, Congress directed that the Medicare RAC program be rolled out nationwide by January 1, 2010.

While the RACs were noted to have identified a large number of Medicare overpayments, there was also a proliferation of provider association complaints over RAC protocols, practices, and qualifications. These concerns led CMS to materially reduce the scope and alter RAC protocols in the expansion contracts.

Medicaid RACs

The success of the Medicare RACs resulted in the inclusion of Section 6411 of the Affordable Care Act (ACA), which expands the current RAC program to Medicaid and Medicare Parts C and D.

Specifically, the legislation calls for states to:

  • Contract with RACs in order to identify overpayments and underpayments by the state Medicaid agency, and to recoup overpayments;
  • Create processes for entities to appeal adverse determinations made by RACs; and
  • Coordinate recovery efforts with other governmental entities performing audits, including federal and state law enforcement agencies such as the FBI, HHS, and the state Medicaid Fraud Control Unit.

The ACA called for states to enter into a contract with a Medicaid RAC by prior to December 31, 2010, however on October 1, 2010 CMS issued a letter to State Medicaid Directors which required states and territories to submit to CMS a state plan amendment (SPA) by December 31, 2010 attesting that the state would establish a Medicaid RAC program or indicate that it would seek an exemption from this provision. In this letter states were instructed that they did not have to have an operational Medicaid RAC program by December 31, 2010, but CMS expected states to fully implement their RAC programs by April 1, 2011.

On November 10, 2010 CMS published a proposed rule for the Medicaid RAC program. The proposed rule codified the requirements that were outlined in the October guidance letter to states. CMS received over 500 letters from stakeholders on the proposed rule, including many from states asking that the April 1 implementation deadline be extended. As a result, on February 1, 2011 CMS issued an informational bulletin to states announcing the deadline would be delayed. Specifically, the bulletin said:

“Out of consideration for state operational issues and to ensure states comply with the provisions of the final rule, we have determined that states will not be required to implement their RAC programs by the proposed implementation date of April 1, 2011.”

CMS released its final rule for the Medicaid RAC program on September 14, 2011. In the rule CMS specified that states could receive partial or full RAC exemptions by sending the agency written justification. Additionally, CMS acknowledged that a reasonable amount of time should be given to states to implement their Medicaid RAC programs and set a new date of January 1, 2012.

In December 2011, CMS released an informative frequently asked questions document. In the document the agency indicated that “implementation” as outlined in the final rule meant that states should have a signed contract in place with a Medicaid RAC vendor by January 1, 2012. States that were unable to sign a contract with a vendor were required to submit a state plan amendment to CMS by that date.

For a list of known RAC vendors by state, please visit the State Activity section of Medicaid-RAC.com.

Medicaid RAC vs. Other Programs

Medicaid RACs differ from other programs in a number of ways: