On November 5, 2010, CMS released a proposed rule which would implement the Medicaid Recovery Audit Contractor (RAC) program, as required by § 6411 of The Patient Protection and Affordable Care Act (PPACA). The proposed rule is scheduled to be published in the Federal Register on November 10, 2010. CMS estimates that the Medicaid RAC program will result in net savings to the federal Medicaid program of $80 million in fiscal year (FY) 2011, $170 million in FY 2012, $250 million in FY 2013, $310 million in FY 2014, and $330 in FY 2015. CMS, however, notes that these estimates are “highly uncertain.”

As we reported in prior Health Headlines, States may contract with one or more Medicaid RACs. States must submit a State Plan Amendment (SPA) attesting that the State will either establish a Medicaid RAC program or seek exemption from the program by December 31, 2010. In addition, CMS expects States to fully implement their Medicaid RAC programs by April 1, 2011. In the proposed rule, CMS solicits comments on the proposed implementation date.

Noting that the Medicare RAC program is still a somewhat new program, CMS will apply “lessons learned” from the Medicare RAC Demonstration program, as well as lessons learned from the permanent Medicare RAC program, to the Medicaid RAC program. According to the proposed rule, Medicaid RACs would be required to employ trained medical professionals to review Medicaid claims. Moreover, States may consider establishing requirements regarding the documentation of good cause to review a claim. The proposed rule also provides that States should be aware of potential organizational conflicts of interest, and should take necessary steps to identify and prevent any such conflicts of interest. The proposed rule also encourages States to design their Medicaid RAC program in a way to ensure that Medicaid RACs report instances of potential fraud and/or criminal activity to appropriate law enforcement officials.

Like Medicare RACs, Medicaid RACs will be paid on a contingency fee basis. While CMS is allowing States some flexibility in determining the specific Medicaid RAC payment formula, resulting contingency fees may not exceed that of the highest contingency fee Medicare RAC arrangement—which is currently 12.50 percent—unless the State submits, and CMS approves, a waiver of the specified maximum contingency rate. Any amount exceeding the specified maximum rate is not eligible for federal financial participation (FFP), unless a waiver of the specified maximum rate has been approved by CMS.

According to the proposed rule, States are not required to adopt new administrative review processes to accommodate the Medicaid RACs. However, States must submit, and CMS must approve, a proposal describing their appeals infrastructure prior to implementing their Medicaid RAC programs. Finally, the proposed rule emphasizes that Medicaid RACs are not intended to replace current Medicaid program integrity or audit efforts.

Comments must be received no later than sixty days after the proposed rule is published in the Federal Register. As noted, the proposed rule is anticipated to be published in the Federal Register on November 10, 2010.

The proposed rule is available by clicking here.