CMS proposes rule on expanding RAC program to Medicaid

States must establish the programs by submitting amendments by Dec. 31, but full implementation isn't required until April 2011.

By Chris Silva — Posted Dec. 13, 2010

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The Centers for Medicare & Medicaid Services issued a proposed rule last month that outlines its plan for expanding the recovery audit contractor program to Medicaid, a change required under the health system reform law.

RACs are third-party auditors CMS hires to comb through Medicare claims from hospitals, physicians and others to identify improper payments. A permanent, nationwide RAC program now operates under fee-for-service Medicare. Provisions in the Patient Protection and Affordable Care Act mandate an expansion to Medicaid by Dec. 31. The health reform law also directs CMS to expand RACs to Medicare Advantage and the Medicare prescription drug program by year's end.

Under the proposed Medicaid rule, published Nov. 10 in the Federal Register, states must establish Medicaid RAC programs by submitting state plan amendments to CMS by Dec. 31. However, states are not required to have the program fully implemented until April 1, 2011.

Contractors working for states will audit payments made to physicians and hospitals, looking for Medicaid payments that may have been underpaid or overpaid. The program is part of the health reform law's larger strategy of cracking down on waste, fraud and abuse in the system.

"Tools provided by the Affordable Care Act will help us achieve that goal," said CMS Administrator Donald M. Berwick, MD. "We are using many of the lessons that we learned from the Medicare RAC program in the development and implementation of the Medicaid RACs, including a far-reaching education effort for health care providers and state managers."

In October, CMS sent state Medicaid directors a letter that provided initial guidance on the RAC program. It hosted an education forum on the topic Nov. 4.

Comments on the proposed rule are due by Jan. 10, 2011.

Senator favors program

RACs will review Medicaid physician claims and identify and recover overpayments made for services provided under Medicaid's state plans and waivers. The proposed regulation gives states the option to pay their Medicaid RACs on a contingency basis or under some other fee structure for identifying and recovering overpayments.

Under the regulation, as proposed, a state may use its current administrative appeals process or modify its process for Medicaid RAC-related appeals. All fees paid to the Medicaid RACs must come from amounts recovered after all available appeals have been exhausted, CMS has proposed.

Sen. Tom Carper (D, Del.) has been a leading proponent of expanding the RAC program. During a hearing on Capitol Hill this year, he highlighted progress made under a three-year Medicare RAC demonstration program that launched in several states in 2005 and identified about $1 billion in Medicare overpayments.

But Carper is still waiting for CMS to issue proposed rules on how RACs would work in Medicare Advantage plans and Medicare Part D, something the agency is mandated to do by the end of the year. Nonetheless, he is pleased to see the expansion of RACs to Medicaid under way and the progress made in the Medicare program.

"CMS learned a lot from the recovery audit contractor pilot program, including the importance of working closely with the provider community," Carper told American Medical News. "Along with many other lessons learned, good two-way communications between CMS and providers must be maintained as the RAC program expands to all of Medicare and Medicaid. Ultimately, this program is an important tool as we work to save taxpayer dollars and strengthen Medicare and Medicaid for years to come."

AMA critical of RACs

However, a report released by the Government Accountability Office in March criticized CMS' efforts with the Medicare RAC program.

The report concluded that though the agency used auditors to identify payment system vulnerabilities that lead to overpayments, it had not implemented corrective actions for 60% of the most significant vulnerabilities. Those systemic problems represented $231 million of the roughly $1 billion in improper payments discovered by the contractors, GAO concluded.

CMS said in response to the report that it was taking steps to resolve coordination issues and address payment system vulnerabilities through the national, permanent RAC program.

Physicians also raised concerns during the Medicare RAC demonstration. As a result, CMS said it has made some changes to the program. For example, every audit firm is required to hire a physician medical director to assist nurses, therapists and certified coders upon request, manage quality assurance procedures, and maintain relationships with physician associations.

The American Medical Association has disapproved of the RAC program, saying it has proved burdensome for physician practices to comply with the audits even when the reviews turn up little or no evidence of Medicare overpayments. Some physicians who were audited during the Medicare demonstration project said some reviews appeared to be fishing expeditions to find overpayments, demanding scores of medical records that went back several years.

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Tabulating the savings

The recovery audit contractor program could save the federal government more than $1 billion in Medicaid spending during the next five years, according to the Office of the Actuary at the Centers for Medicare & Medicaid Services. Auditors used historical experience from the Medicare program to estimate the potential savings.

Potential net savings to federal Medicaid from RAC expansion, in millions:

Fiscal year Estimated savings
2011 $80
2012 $170
2013 $250
2014 $310
2015 $330

Source: "Medicaid Program; Recovery Audit Contractors," Federal Register, Nov. 10 (link)

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External links

Centers for Medicare & Medicaid Services proposed rule on Medicaid program; recovery audit contractors, Federal Register, Nov. 10 (link)

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