ABA Health eSource
July 2010 PPACA Special Edition

Health Care Reform and Expansion of the RAC Program

By Andrew B. Wachler and Amy K. Fehn, Wachler & Associates, P.C., Royal Oak, MI 

AuthorAuthorThe Patient Protection and Affordable Care Act (PPACA) 1 calls for significant expansion of the Recovery Audit Contractor (RAC) program by the end of 2010.

The RAC program, which is currently limited to review of Medicare Parts A and B claims, uses contractors who are paid on a contingency fee basis to identify Medicare overpayments and underpayments. 2 The program began as a demonstration program in 2005 and was expanded to a permanent program by Section 302 of the Tax Relief and Health Care Act of 2006. 3 The permanent program was “rolled out” over several years and, as of January 2010, is now active in all 50 states.

With the enactment of PPACA on March 23, 2010, CMS is now required to further expand the program to Medicare Advantage programs (Part C) and Medicare Prescription Drug programs (Part D), as well as the Medicaid program. 4

CMS is required to enter into contracts with RACs to review Parts C and D services no later than December 31, 2010. The RAC program for Parts C and D will be identical to that currently in effect for Parts A and B, except that PPACA sets forth “special rules” for Parts C and D. These “special rules” require the RACs to ensure that Medicare Advantage and prescription drug plans under Parts C and D have effective anti-fraud plans in place. In addition, the RACs will be required to review Part D reinsurance payments to monitor whether costs exceed the “allowable reinsurance costs” as defined by the Social Security Act. Finally, the RACs will be required to review the legitimacy of estimates submitted by prescription drug plans with respect to the enrollment of “high cost beneficiaries” by comparing such estimates to the actual enrollment numbers.

With regard to the Medicaid program, PPACA requires CMS to coordinate the Medicaid expansion with the states. Each state will be required to contract with at least one RAC by December 31, 2010. As with the Medicare program, the Medicaid RACs will be responsible for identifying underpayments and overpayments for services payable under state programs, including waiver programs. Medicaid RACs will also be paid on a contingency fee basis and will be paid a set fee for the identification of underpayments. Each state will also be required to have “an adequate process” for entities to appeal adverse determinations made by the Medicaid RACs. While the states currently have Medicaid appeals processes in place, it is uncertain whether the current processes will be deemed by the Department of Health and Human Services (HHS) to be “adequate”. In addition, PPACA also requires Medicaid RACs to coordinate with state and federal law enforcement, including the Department of Justice and the FBI. Additional clarifications with regard to the Medicaid expansion are expected, as PPACA also requires HHS to promulgate implementing regulations.

It is important to note that the Medicaid RAC program is in addition to and not in lieu of the Medicaid Integrity Program (MIP). 5 Although some comparisons have been drawn between Medicaid RACs and the MIP’s Medicaid Integrity Contractors (MICs), there are several important distinctions. For example, the Medicaid RACs will contract with individual states, while the MICs contract directly with the federal government through HHS. In addition, the MICs are not paid on a contingency fee basis and, thus, do not have the same incentives to identify overpayments. While it is possible that these two programs may be merged in the future, they currently remain two distinct programs , likely increasing the potential of an audit for Medicaid providers . The MICs are expected to coordinate with RAC contractors to avoid overburdening providers with duplicate audits. However, the addition of another Medicaid fraud and abuse recovery program will likely increase a Medicaid provider’s chances of being subjected to an audit.


1 The Patient Protection and Affordable Care Act (PPACA), Pub. L. 111-148 (Mar. 23, 2010).
2 Social Security Act §1893(h).
3 42 U.S.C. § 1395ddd (2006).
4 PPACA §6411.
5 Social Security Act §1936. Social Security Act §1936.

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