The state Medicaid RAC audits begin... now!

Michael Silhol

Plain and simple, they are bounty hunters. 

They don’t hunt fugitives. They hunt for Medicaid fraud.

Effective immediately, if you provide healthcare services to Medicaid patients, these bounty hunters are authorized to look for fraud in your office. These Medicaid Recovery Audit Contractors (RACs) were mandated as part of the 2010 Patient Protection and Affordable Care Act, also known as President Obama’s Health Care Reform Act.

The new audits will be in addition to existing audits being conducted by Medicare RACs, Medicaid Integrity Contractors (MICs) and Zone Program Integrity Contractors (ZPICs).

According to the federal government, the RAC audits are expected to result in the recovery of $2.13 billion over the next five years. And the bounty for this?

A Medicaid RAC auditor will receive contingency fees of between 9 and 12.5 percent of amounts recovered from overpayments, resulting in total contingency payments to Medicaid RACs of between $190 million and $266 million over the five-year period. Medicaid RACS will also be required to refer instances of suspected fraud to states’ Medicaid Fraud Control Units.

The bottom line: Physician practices that are Medicaid providers will face audits from entities that have large financial incentives and resources to mount aggressive challenges to payments received from Medicaid programs.

All of this comes after a nine-month delay in implementing the Medicaid RAC programs to allow the Center for Medicare & Medicaid Services (CMS) to review and revise regulations after numerous comments. Key comments were assertions that Medicaid RACs would duplicate other audit functions, such as MICs. 

CMS disagreed, noting that the MICs were designed to focus on potentially fraudulent audit issues, and not necessarily to yield overpayment recoveries.
States will be given some discretion in designing their Medicaid RAC programs. However, CMS has minimum requirements the states must follow, including these:

  • States must coordinate recovery audit efforts with other auditing entities including MICs and ZPICs. RACs shouldn’t audit Medicaid claims that have already been audited, or are currently going through an audit.
  • RACs must limit their reviews to claims that are not older than three years from the date of the claim, unless the RACs have approval from the state.
  • States must set contingency fees for RACs for identifying both overpayments and underpayments.
  • States must make timely referrals of suspected fraud and abuse to the respective state’s Medicaid Fraud Control Unit.
  • RACs must hire at least one full-time medical director, who is a doctor of medicine or a doctor of osteopathy, and hire certified coders.

Providers should remain aware of how their state establishes its own Medicaid RAC program. Because the appeals process for contesting overpayments may differ from state to state, special care must be taken to ensure that timely appeals are filed in instances where RAC claims overpayments have been made.

Michael Silhol is the former senior vice president and general counsel at Parkland Health & Hospital System.  He is an attorney with Haynes and Boone LLP in Dallas and represents healthcare providers in corporate, regulatory and enforcement matters.


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