Medicaid Program; Recovery Audit Contractors, 57808-57844 [2011-23695]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 76, Number 180 (Friday, September 16, 2011)]
[Rules and Regulations]
[Pages 57808-57844]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-23695]



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Vol. 76

Friday,

No. 180

September 16, 2011

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Part 455





Medicaid Program; Recovery Audit Contractors; Final Rules

Federal Register / Vol. 76 , No. 180 / Friday, September 16, 2011 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 455

[CMS-6034-F]
RIN 0938-AQ19


Medicaid Program; Recovery Audit Contractors

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule implements section 6411 of the Patient 
Protection and Affordable Care Act (the Affordable Care Act), and 
provides guidance to States related to Federal/State funding of State 
start-up, operation and maintenance costs of Medicaid Recovery Audit 
Contractors (Medicaid RACs) and the payment methodology for State 
payments to Medicaid RACs. This rule also directs States to assure that 
adequate appeal processes are in place for providers to dispute adverse 
determinations made by Medicaid RACs. Lastly, the rule directs States 
to coordinate with other contractors and entities auditing Medicaid 
providers and with State and Federal law enforcement agencies.

DATES: Effective Date: These regulations are effective on January 1, 
2012.

FOR FURTHER INFORMATION CONTACT: Joanne Davis, (410) 786-5127.

SUPPLEMENTARY INFORMATION:

I. Background

A. Current Law

    The Medicaid program is a cooperative Federal/State program 
designed to allow States to receive matching funds from the Federal 
Government to finance medical assistance to eligible low income 
beneficiaries. Medicaid was enacted in 1965 by the passage of the 
Social Security Act Amendments of 1965 creating title XIX of the Social 
Security Act (the Act).
    States may choose to participate in the Medicaid program by 
submitting a State Plan for medical assistance that is approved by the 
Secretary of the U.S. Department of Health and Human Services. While 
States are not required to participate in the Medicaid program, all 
States, the District of Columbia, and the territories do participate. 
Once a State elects to participate in the program, it is required to 
comply with its State Plan, as well as the requirements imposed by the 
Act and applicable Federal regulations.
    CMS is the primary Federal agency providing oversight of State 
Medicaid activities and facilitating program integrity efforts. Our 
administration of the Medicaid program requires that we expend billions 
of dollars in Federal matching payments to States for Medicaid 
expenditures. We also have an obligation to prevent, identify, and 
recover improper payments to individuals, contractors, and 
organizations.
    In November 2009, the President signed Executive Order (E.O.) 13520 
in an effort to reduce improper payments by increasing transparency in 
government and holding agencies accountable for reducing improper 
payments. On March 22, 2010, the Office of Management and Budget (OMB) 
issued guidance for agencies regarding the implementation of E.O. 13520 
entitled Part III to OMB Circular A-123, Appendix C (Appendix C). 
Appendix C outlines the responsibilities of agencies, determines the 
programs subject to E.O. 13520, defines supplemental measures and 
targets for high priority programs, and establishes reporting 
requirements under E.O. 13520 and procedures to identify entities with 
outstanding payments.
    Section 6411 of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148, enacted on March 23, 2010) (the Affordable Care Act) 
directs States to establish programs by December 31, 2010 in which they 
will contract with 1 or more Recovery Audit Contractors (Medicaid 
RACs). The Medicaid RACs will review Medicaid claims submitted by 
providers of services for which payment may be made under the State 
Plan or a waiver of the State Plan to identify overpayments and 
underpayments.
    Section 6411(a)(1) of the Affordable Care Act amended section 
1902(a)(42) of the Act to provide that ``the State shall establish a 
program under which the State contracts (consistent with State law and 
in the same manner as the Secretary enters into contracts with recovery 
audit contractors under section 1893(h) * * *) with 1 or more recovery 
audit contractors for the purpose of identifying underpayments and 
overpayments and recouping overpayments * * *'' To offer context for 
our approach to the Medicaid RAC program, we provide background 
discussion on the Medicare RAC program under section 1893(h) of the 
Act.

B. Medicare RACs

    Medicare RACs are private entities with which CMS contracts to 
identify underpayments and overpayments as well as recoup overpayments, 
until recently, limited to Medicare's fee-for-service program. 
Initially authorized by the Congress as a 3-year demonstration program 
by the Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173, enacted on December 8, 2003) (MMA), Medicare 
RACs were permanently authorized in the Tax Relief and Health Care Act 
of 2006 (Pub. L. 109-432, enacted on December 20, 2006)(TRHCA).
    During the Medicare RAC demonstration period, CMS contracted with 
RACs to review claims from Medicare participating providers and 
suppliers in New York, Florida, California, Arizona, Massachusetts, and 
South Carolina. From 2005 through 2008, the Medicare RACs identified 
and corrected over $1 billion in improper payments. The majority, or 96 
percent, of the improper payments were overpayments, while the 
remaining 4 percent were underpayments. As a result of the demonstrated 
cost effectiveness of the Medicare RACs, the TRHCA required CMS to 
implement a nationwide Medicare RAC program. The TRHCA directed CMS to 
expand the Medicare RAC program nationwide by January 1, 2010.
    In our evaluation of the Medicare RAC demonstration, providers were 
surveyed and they identified to CMS a number of concerns and processes 
that needed to be improved. For example, Medicare RACs were reportedly 
inconsistent in documenting their ``good cause'' for reviewing a claim. 
In addition, providers complained that a lack of physician presence on 
Medicare RAC staffs contributed to Medicare claims incorrectly being 
denied. As a result, we met with stakeholders, including the provider 
community, and made a number of changes to improve the Medicare RAC 
program. In the permanent Medicare RAC program, CMS directed Medicare 
RACs to consistently document their ``good cause'' for reviewing a 
claim. In addition, CMS now requires each Medicare RAC to hire a 
minimum of 1.0 Full Time Equivalent (FTE) physician Medical Director to 
oversee the medical record review process; assist nurses, therapists, 
and certified coders upon request; manage quality assurance procedures; 
and maintain relationships with provider associations.
    Both the MMA and the TRHCA required CMS to pay Medicare RACs on a 
contingency fee basis. Currently, CMS

[[Page 57809]]

pays Medicare RACs a contingency fee rate ranging between 9 and 12.50 
percent. These contingency fees were not fixed by CMS, but were 
established by the contractors through a bidding process with CMS. 
Providers may appeal Medicare RAC determinations through the 
established Medicare appeals process. During the demonstration period, 
Medicare RACs were required to return contingency fees if the claim 
determination was overturned on the first level appeal. However, 
Medicare RACs were entitled to retain contingency fees if the 
determination was overturned on subsequent levels of appeal. In the 
permanent Medicare RAC program, CMS requires Medicare RACs to return 
the contingency fee payment if the determination is overturned at any 
stage of the appeals process.

C. Existing State Contingency Fee Contracts

    There is precedent for State Medicaid contingency fee contracts for 
purposes of recovering Medicaid overpayments subject to third party 
liability (TPL) requirements. Section 1902(a)(25) of the Act requires 
States to take all reasonable measures to determine the legal liability 
of third parties to pay for medical assistance furnished to a Medicaid 
recipient under the State Plan. Several States have elected to do so 
through the use of contingency fee arrangements with TPL contractors. 
In addition, several States currently contract with contingency fee 
contractors to recover Medicaid overpayments unrelated to TPL. In a 
memorandum to CMS Regional Administrators dated November 7, 2002, we 
revised our policy prohibiting Federal financial participation (FFP) 
for States to pay costs to contingency fee contractors, unrelated to 
TPL. The revised policy allowed contingency fee payments if the 
following conditions were met: (1) The intent of the contingency fee 
contract must be to produce savings or recoveries in the Medicaid 
program and (2) the savings upon which the contingency fee payment is 
based must be adequately defined and the determination of fee payments 
documented to CMS's satisfaction.

II. Provisions of the Proposed Medicaid RAC Rule

    In the November 10, 2010 Federal Register (75 FR 69037), we 
published a proposed rule that set forth guidance to States related to 
Federal/State funding of Medicaid RACs and the payment methodology for 
State payments to Medicaid RACs in accordance with the Affordable Care 
Act. We proposed adding new regulatory provisions in 42 CFR part 455 
subpart F governing Program Integrity--Medicaid.
    Section 6411(a) of the Affordable Care Act amended and expanded 
section 1902(a)(42) of the Act to require States to establish Medicaid 
RAC programs by December 31, 2010, to contract with 1 or more 
contractors to audit Medicaid claims and to identify underpayments and 
overpayments and collect overpayments. While States were required to 
establish their Medicaid RAC programs by December 31, 2010, via the 
State Plan amendment (SPA) process, the Medicaid RAC programs were not 
required to be implemented by this date. In the November 10, 2010 
proposed rule, we stated that, absent an exception, States were 
required to fully implement their Medicaid RAC programs by April 1, 
2011.
    The difference between establishing and implementing Medicaid RAC 
programs was clarified for States prior to the publication of the 
proposed rule. On October 1, 2010, we issued a State Medicaid Director 
(SMD) letter providing preliminary guidance to States on the 
implementation of their RAC programs. In the SMD letter, States were 
advised that they should attest that they would establish a Medicaid 
RAC program by submitting a SPA to CMS no later than December 31, 2010, 
or indicate that they would be seeking to be excepted from one or more 
of the proposed provisions, or indicate that they would be seeking a 
complete exception from establishing a Medicaid RAC program. 
Subsequently, on February 1, 2011, we issued an Informational Bulletin 
stating that the proposed April 1, 2011 implementation date would be 
delayed, in part, to ensure that States would be able to comply with 
the provisions of the final rule.
    Section 1902(a)(42)(B) of the Act directs all States to establish 
Medicaid RAC programs, subject to the exceptions and requirements as 
the Secretary may require. This provision enables CMS to vary the 
Medicaid RAC program requirements, or except a State from establishing 
a Medicaid RAC program in certain circumstances, including where it 
would be inconsistent with State law. For example, the Secretary may 
exempt a State from the requirement to pay Medicaid RACs on a 
contingent basis for collecting overpayments when State law expressly 
prohibits contingency fee contracting. However, some other fee 
structure could be required under any exception.
    Similarly, during the Medicaid RAC SPA process, some States advised 
CMS that they were required to enact legislation before amending their 
State plans. Because the establishment of a Medicaid RAC program is 
accomplished by a SPA, some State legislatures did not have the 
opportunity to convene and enact the amendment to their State plans 
prior to December 31, 2010. In this case, those States submitted 
requests to delay establishing Medicaid RAC programs until after those 
State legislatures met. CMS granted these requests.
    Also, there were circumstances, unrelated to the examples above, 
where States sought exceptions from some or all of the requirements of 
the Medicaid RAC program. Accordingly, Sec.  455.516 proposed that 
States seeking exceptions from contracting with Medicaid RACs must 
submit a written justification for the request to CMS. We anticipate 
granting complete Medicaid RAC program exceptions rarely, and only 
under the most compelling of circumstances.
    Section 6411(a) of the Affordable Care Act amended section 
1902(a)(42) of the Act, regarding States Medicaid RAC programs:
     Under section 1902(a)(42)(B)(ii)(I) of the Act, payments 
must be made to a Medicaid RAC under contract with a State only from 
amounts recovered. As discussed in the proposed rule, we interpret this 
to mean that payments to Medicaid RACs may not exceed the total amounts 
recovered. For example, if a Medicaid RAC's efforts result in the 
recovery of a total of $1 million, the fees paid to the RAC for its 
work regarding both overpayments and underpayments must not exceed $1 
million. The intent of the statute is for States and the Federal 
government to reduce improper payments in the Medicaid program in order 
to realize savings. Additionally, we interpret this to mean that 
payments to contractors were not made based upon amounts merely 
identified but not recovered, or amounts that may initially be 
recovered but that subsequently must be repaid due to determinations 
made in appeals proceedings.
    In the proposed rule, we stated that the payment methodology 
determinations for States, as well as the timing of payments to 
Medicaid RACs for their work, were separate but closely related issues. 
We stated that the distinction between amounts recovered and amounts 
identified had implications for how States structured and administered 
payment agreements with Medicaid RACs, as well as the timing of 
Medicaid RACs' receipt of payments. We offered two options illustrating 
ways that States could structure payments.

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    In option one, for example, State A paid RAC A its fee when RAC A 
identified and recovered an overpayment. If provider A appealed and 
prevailed at any stage, RAC A would be required to return any portion 
of the contingency fee that corresponded to the amount of an 
overpayment that was overturned at any level of appeal.
    In the second option, State B determined it would pay RAC B its 
contingency fee at the point at which the recovery amount is fully 
adjudicated; that is, at the conclusion of any and all appeals 
available to provider B. At that point, State B would pay RAC B a 
contingency fee based on the amount recovered.
     Under section 1902(a)(42)(B)(ii)(II)(aa) of the Act, 
payments to a Medicaid RAC contractor must be made on a contingent 
basis for collecting overpayments from the amounts recovered. In the 
proposed rule, we noted that we were aware that the Medicaid RAC 
program, by virtue of the differences between the Medicare and Medicaid 
programs, would not operate identically to the Medicare RAC program. We 
recognized that each State must tailor its Medicaid RAC activities to 
the uniqueness of its own State, and indicated that we would not 
prescribe a set contingency fee rate for States. Instead, we would 
implement certain guidelines based upon section 1902(a)(42)(B) of the 
Act and our experience with the Medicare RAC program, but allow States 
the discretion to set their fees within those guidelines.
    Medicaid RACs will contract with States and territories to identify 
and collect overpayments, and will be paid on a contingency fee basis 
by the States. In the Medicare RAC program, CMS contracts with Medicare 
RACs to identify and recover overpayments from Medicare providers, and 
are paid on a contingency fee basis by CMS. In the proposed rule, we 
recognized the differences among States and territories when 
coordinating the collection of overpayments with RACs. The statute 
requires Medicaid RACs to collect overpayments. However, some States 
may not be able to delegate the collection of overpayments to 
contractors, while other States may have other restrictions.
    Currently, there are 4 Medicare regional RACs operating. Those RACs 
are paid an average contingency fee rate of 10.86 percent by CMS, with 
the highest rate being 12.50 percent. We interpret the statutory 
language that States must establish a Medicaid RAC program ``in the 
same manner as the Secretary enters into contracts with'' Medicare RACs 
to mean that some of the provisions of the Medicare RAC program, 
generally, should serve as a model for the proposed Medicaid RAC 
program, not that Medicaid RACs should be structured identically to 
Medicare RACs. Accordingly, in Sec.  455.510(b)(3) and (b)(4), we 
stated that CMS would not provide FFP for any amount of a State's 
contingency fee in excess of the then highest Medicare RAC contingency 
fee rate unless a State requests an exception from CMS and provides an 
acceptable justification.
    We proposed that, in the absence of an approved exception, a State 
may only pay a RAC from the overpayments collected, and may only 
receive FFP on a contingency fee up to the highest Medicare RAC 
contingency rate. Any additional payment from the State to the RAC must 
be made using State-only funds. FFP is not available for administrative 
expenditure claims for the marginal difference between the highest 
Medicare fee and the State's contingency fee. For example, unless an 
exception applies, if the highest Medicare RAC contingency fee is 12.50 
percent and the State pays a Medicaid RAC 14 percent, we will not pay 
the Federal match on the 1.50 percent difference. In other words, the 
State must use State-only funds to make up the difference between the 
State's 14 percent contingency fee and the 12.50 percent contingency 
fee ceiling. Currently, the Medicare RAC contracts have an established 
period of performance of up to 5 years, beginning in calendar year 
2009. Initially, the maximum contingency fee rate for which FFP will be 
available for States to pay Medicaid RACs will be the highest Medicare 
RAC contingency fee, which is 12.50 percent. We anticipate that fee 
will be the maximum rate when States implement their RAC programs. 
Subsequently, we will make States aware of any modifications to the 
payment methodology for contingency fees and Medicaid RAC maximum 
contingency rates for which FFP will be available by publishing in a 
Federal Register notice, by December 31, 2013, the maximum Medicare 
contingency fee rate, which will apply to FFP availability for any 
Medicaid RAC contracts covering the period of performance beginning on 
July 1, 2014. The established rate will be in place for 5 years, or 
until we publish a new maximum rate in the Federal Register.
    The Medicare RAC program is still a relatively new program. In our 
early outreach campaign to provide technical support and assistance to 
States in the procurement of their RAC contracts, we studied many of 
the lessons learned from the Medicare RAC Demonstration, as well as the 
current provisions of the permanent Medicare RAC program and sought to 
incorporate many lessons learned in this final rule. For example, we 
proposed that States require their Medicaid RACs to employ trained 
medical professionals to review Medicaid claims, as we now require the 
Medicare RACs to do. We indicated that States should also be cognizant 
of potential organizational conflicts of interest and should take 
affirmative steps to identify and prevent any conflicts of interest.
    In the proposed rule, we reported that the Office of Inspector 
General of the U.S. Department of Health and Human Services (HHS-OIG) 
had found that the Medicare RACs identified over $1 billion in improper 
payments, but referred only two cases of potential fraud to CMS. HHS-
OIG opined that Medicare RACs had no incentive to make fraud referrals 
because the RACs did not receive contingency fees for those referrals. 
In the proposed rule, we cautioned States, in their design of Medicaid 
RAC programs, to ensure that the Medicaid RACs report instances of 
fraud and/or abuse in addition to the pursuit of overpayments. At Sec.  
455.508(b), we proposed that whenever RACs had reasonable grounds to 
believe that fraud and/or abuse had occurred, they must report it to 
the appropriate law enforcement officials. We solicited comments on 
these proposals, as well as other issues that States should consider in 
the design of their RAC programs. At Sec.  455.508(c), we proposed that 
Medicaid RACs must meet the additional requirements that States may 
establish.
     Under section 1902(a)(42)(B)(ii)(II)(bb) of the Act, 
payment to a Medicaid RAC for identifying underpayments may be made in 
any amount as the State may specify. Currently, Medicare RACs are paid 
a contingency fee to identify underpayments, similar to the way in 
which they are paid to identify and recover overpayments. In the 
proposed rule, we stated that a State may elect to use a similar 
approach, or elect to establish a set fee or some other fee structure 
for the identification of underpayments. Consistent with a State's 
obligation to ensure that it pays the correct amount to the right 
provider for the appropriate service at the right time for the right 
beneficiary, whatever methodology a State chooses must adequately 
incentivize the detection of underpayments. At Sec.  455.510(c), we 
proposed granting States the flexibility to specify the underpayment 
fee for Medicaid RACs. Additionally, we stated

[[Page 57811]]

that CMS would monitor the methodologies and amounts paid by States to 
Medicaid RACs to identify underpayments, and may consider future 
additional regulation depending on what data reveal over time.
    Section 1902(a)(42)(B)(ii)(I) of the Act requires that payments to 
a Medicaid RAC only come from amounts recovered. We proposed that 
Federal matching payments were not available for RAC contingency fees 
paid in excess of the overpayment amounts collected. The proposed rule 
stated that the total fees paid to a Medicaid RAC included both the 
amounts associated with: (1) Identifying and recovering overpayments; 
and (2) identifying underpayments. Due to the requirement in section 
1902(a)(42)(B)(ii)(I) of the Act that contingency fees only come from 
amounts recovered, total fees must not exceed the amount of 
overpayments collected.
    In the proposed rule, we cited data from the Medicare RAC 
Demonstration that overpayment recoveries by Medicare RACs exceeded 
underpayment identification by more than a 9:1 ratio. Therefore, we 
concluded that States would not need to maintain a reserve of recovered 
overpayments to fund Medicaid RAC costs associated with identifying 
underpayments. However, we proposed that States maintain an accounting 
of amounts recovered and paid.
    We also proposed that States report overpayments to CMS based on 
the net amount remaining after all fees are paid to the Medicaid RAC. 
In the proposed rule, we linked the treatment of the fees and 
expenditures to the specific statutory language implementing the 
Medicaid RAC requirements and did not extend it to Medicaid overpayment 
recoveries in other contexts.
    We stated, for example, RAC X's fee for overpayment identification 
is 10 percent of the recovery amount. The fee for identification of 
underpayments is 10 percent of the amount identified. If an overpayment 
recovery amount was $100, and the total amount of underpayment was $20, 
the total fees paid to the Medicaid RAC would be $12 ($10 for the 
identification and recovery of the overpayment and $2 for the 
identification of the underpayment). The State would report the 
recovery (collection) amount of $100 and the $10 RAC fee at the 
original match rate for the overpayment and the $2 RAC fee at the match 
rate for payment of the underpayment. If the State paid a provider 
based on the Medicaid RAC-identified underpayment, and that expenditure 
was claimed in accordance with timely filing requirements, we proposed, 
the $20 expenditure would be matched at the regular Federal Medical 
Assistance Percentage (FMAP), or the appropriate FFP rate.
    Currently, Sec.  433.312 directs States to refund the Federal share 
of overpayments, regardless of whether the State actually recovers the 
overpayments from the provider. In the proposed rule, we noted that 
this requirement, and all other requirements relating to overpayments, 
would apply to Medicaid RAC-identified overpayments. Therefore, if a 
Medicaid RAC identified an overpayment to a provider, the State would 
refund the Federal share of the overpayment amount to the Federal 
Government, regardless of whether the State collected the overpayment.
     Under section 1902(a)(42)(B)(ii)(III) of the Act, States 
must have an adequate appeals process for entities to challenge adverse 
Medicaid RAC determinations. We proposed at Sec.  455.512 that States 
must provide appeal rights available under State law or administrative 
procedures to Medicaid providers that seek review of an adverse 
Medicaid RAC determination. We proposed two alternatives the State 
could use to achieve this. In alternative one, a State may utilize an 
existing appeals infrastructure to adjudicate Medicaid RAC appeals. The 
State would submit to CMS a proposal describing the appeals process, 
which would need to be approved prior to implementing its RAC program.
    In alternative two, a State may elect to establish a separate 
appeals process for RAC determinations, which must also ensure 
providers adequate due process in pursuing an appeal. Accordingly, in 
Sec.  455.512 we proposed to give States the flexibility to determine 
the appeals process that will be available to providers seeking review 
of adverse RAC determinations. However, through the State Plan 
amendment (SPA) process, each State has indicated that it already has 
in place an administrative appeals infrastructure they will use for a 
provider to appeal an adverse Medicaid RAC determination.
    Finally, we also noted in the proposed rule that the potential 
length of a State's administrative appeals process may have an impact 
on the methodology or structure of the payment agreement between a 
State and a Medicaid RAC. For example, in a contract between State X 
and RAC X, where State X's administrative appeal process can extend for 
2 years, RAC X may not receive payment for an extended period of time. 
Accordingly, RAC X's contingency fee rate will most likely reflect 
operating, maintenance and legal costs over that period. Alternatively, 
in State Y, completion of the administrative appeals process takes 9 
months. A contract between State Y and RAC Y may reflect a different 
contingency fee rate.
     Under section 1902(a)(42)(B)(ii)(IV)(aa) of the Act, for 
purposes of section 1903(a)(7) of the Act, expenditures made by the 
State to carry out the Medicaid RAC program are necessary for the 
proper and efficient administration of the State Plan or waiver of the 
plan. We interpret this reference to section 1903(a)(7) of the Act to 
mean that amounts expended by a State to establish and operate the 
Medicaid RAC program (aside from fee payments, the treatment of which 
is discussed elsewhere in this preamble) are to be shared by the 
Federal Government at the 50 percent administrative rate. Therefore, we 
proposed at Sec.  455.514(b), that FFP is available to States for 
administrative costs subject to reporting requirements.
    We also proposed that States would report to CMS certain elements 
describing the effectiveness of their Medicaid RAC programs. These 
proposed elements included general program descriptors (for example, 
contract periods of performance, contractors' names) and program 
metrics (for example, number of audits conducted, recovery amounts, 
number of cases referred for potential fraud). These elements will be 
provided in sub-regulatory guidance specified by CMS.
     Sections 1902(a)(42)(B)(ii)(IV)(bb) and 1903(d) of the Act 
apply to amounts recovered (not merely identified) under the Medicaid 
RAC program. In the proposed rule, we indicated that a State would be 
required to refund the Federal share of the net amount of overpayment 
recoveries after deducting the contingency fees paid to a RAC (in 
conformance with the restrictions discussed above, including the 
maximum allowed RAC contingency fee and the exception process). In 
other words, a State would be required to take a RAC's contingency fee 
``off the top'' before calculating the Federal share of the overpayment 
recovery to be returned to CMS. The amounts recovered would be subject 
to a State's quarterly expenditure estimates and the funding of the 
State's share.
    Additionally, we noted in the proposed rule that the U.S. 
territories operate under a separate funding authority that is 
statutorily-capped. As a result of the limitations placed on FFP by 
section 1108(g) of the Act, territories would need to assess the 
feasibility of implementing and funding Medicaid RAC contractors in 
their jurisdictions.

[[Page 57812]]

As of the date of this final rule, all of the territories requested and 
were granted exceptions from establishing RAC programs. These 
exceptions will not be reassessed. Should RAC programs become feasible 
due to a change in circumstances, the territories can amend their State 
Plans to establish RAC programs.
     Under section 1902(a)(42)(B)(ii)(IV)(cc) of the Act, 
States and their Medicaid RACs must coordinate their efforts with other 
contractors or entities performing audits of entities receiving 
payments under the State Plan or waiver in the State, including State 
and Federal law enforcement agencies. In the proposed rule, we 
emphasized that Medicaid RACs were not intended to, and would not, 
replace any State program integrity or audit initiatives or programs. 
We proposed under Sec.  455.508(b) that an entity that wanted to enter 
into a contract with a State to perform the functions of a Medicaid RAC 
must agree to coordinate its audit recovery efforts with other 
entities.
    In the proposed rule, we stated that although overlapping or 
multiple provider audits may be necessary, we hoped to minimize the 
likelihood of overlapping audits. Section 1902(a)(42)(B)(ii)(IV)(cc) of 
the Act directs States to assure CMS that they will coordinate Medicaid 
RAC audit activity with an array of other entities that also conduct 
audits of Medicaid providers. Providers are currently subject to audits 
by the States' routine program integrity audits, CMS' Medicaid 
Integrity Contractors' (MICs) audits, as well as audits conducted by 
other State and Federal entities. For example, the MICs perform audits 
of providers, on behalf of CMS, in order to identify overpayments. 
Payment Error Rate Measurement (PERM) audits are ongoing CMS audits 
that measure improper payments in the Medicaid and Children's Health 
Insurance Program and error rates for each program. As we stated in the 
proposed rule, we anticipate working both internally and with the 
States to minimize this administrative burden on Medicaid providers.
    In addition to the obligation to coordinate auditing efforts to 
reduce the overburdening of Medicaid providers, we also wanted to 
ensure coordination between Medicaid RACs and law enforcement 
organizations so that suspected cases of fraud and abuse were processed 
through the appropriate channels. Law enforcement organizations may 
conduct audits or investigations of Medicaid providers in addition to 
Federal and State agencies. Those organizations include, but are not 
limited to, the HHS-OIG, the U.S. Department of Justice, including the 
Federal Bureau of Investigation, State Medicaid Fraud Control Units 
(MFCUs), other Federal and State law enforcement agencies, as 
appropriate, and CMS. We concluded that States are in the best position 
to coordinate audit activities.
    We also proposed at Sec.  455.508(b) that a Medicaid RAC must 
report fraud or criminal activity to the appropriate law enforcement 
officials whenever it has reasonable grounds to believe that such 
activity has occurred.

III. Analysis of and Responses to Public Comments

    We received 76 timely comments on the November 10, 2010 proposed 
rule (75 FR 69037) from State associations, hospitals, medical 
associations, providers, managed care organizations, and contingency 
fee contractors. We reviewed each commenter's comments and grouped 
related comments. After associating like comments, we placed them in 
categories based on subject matter. Summaries of the public comments 
received and our responses to those comments are set forth below.

A. General

    Comment: One commenter requested clarification and asked CMS to 
consider addressing the fundamental differences between Medicaid RACs 
and Medicare RACs.
    Response: Medicaid RACs are State funded, designed, procured, 
operated and administered programs authorized by section 6411 of the 
Affordable Care Act to identify underpayments and overpayments and to 
recover overpayments to Medicaid providers, on a contingency fee basis. 
Medicare RACs are regionally operated contractors that are federally 
funded, procured, operated and administered programs authorized 
permanently by section 302 of the TRHCA to identify underpayments and 
overpayments and to recoup overpayments under parts A and B of the 
Medicare program. The Congress provided for payments to the Medicare 
RACs on a contingency fee basis for correcting overpayments and 
identifying underpayments. In constructing this final rule, we took 
into consideration these fundamental differences between the Medicaid 
and Medicare programs along with feedback from commenters on how these 
differences can be addressed as well as how best practices from the 
Medicare RAC program can be incorporated.
    Comment: One commenter asserted that CMS should seek input from 
States concerning reporting metrics and that a cooperative approach to 
this requirement should provide CMS with the data needed for oversight 
of the program but not be overly burdensome to the States.
    Response: We agree with the comment regarding reporting metrics. We 
anticipate working with States to develop performance metrics and will 
issue sub-regulatory guidance regarding specific reporting criteria 
when appropriate.
    Comment: One commenter indicated that the Medicaid RAC program 
would be further enhanced by developing consistent objective criteria 
for States to follow and this information should be publicly available 
to establish a baseline for the community.
    Response: We agree that the Medicaid RAC program should have 
consistent and objective criteria. As a result of comments from 
stakeholders, we considered and are finalizing the following 
provisions:
     State coordination of recovery audit efforts with other 
auditing entities (Sec.  455.506(c)).
     State reporting of fraud and/or abuse, as defined by Sec.  
455.2, to its MFCU or other appropriate law enforcement agency (Sec.  
455.506(d)).
     State established limit on the number and frequency of 
medical records requested by a RAC (Sec.  455.506(e)).
     The entity must hire a minimum of 1.0 FTE Contractor 
Medical Director who is a Doctor of Medicine or Doctor of Osteopathy in 
good standing with the relevant State licensing authorities and has 
relevant work and educational experience. A State may seek to be 
excepted, in accordance with Sec.  455.516, from requiring its RAC to 
hire a minimum of 1.0 FTE Contractor Medical Director by submitting to 
CMS a written request for CMS review and approval (Sec.  455.508(b)).
     A requirement that RACs hire certified coders unless the 
State determines that certified coders are not required for the 
effective review of Medicaid claims (Sec.  455.508(c)).
     The RAC must work with the State to develop an education 
and outreach program component, including notification of audit 
policies and audit protocols (Sec.  455.508(d)).
     Mandatory RAC customer service measures, including: 
Providing a toll-free customer service telephone number in all 
correspondence sent to providers and staffing the toll-free number 
during normal business hours from 8:00 a.m. to 4:30 p.m. in the 
applicable time zone (Sec.  455.508(e)(1)); compiling and maintaining 
provider approved addresses and points of contact

[[Page 57813]]

(Sec.  455.508(e)(2)); mandatory acceptance of provider submissions of 
electronic medical records on CD/DVD or via facsimile at the providers' 
request (Sec.  455.508(e)(3)); and notifying providers of overpayment 
findings within 60 calendar days (Sec.  455.508(e)(4)).
     A three-year maximum claims look-back period (Sec.  
455.508(f)).
     Timely referral of suspected cases of fraud and/or abuse 
by the Medicaid RAC to the State (Sec.  455.508(h)).
     Return of contingency fees within a reasonable timeframe 
as prescribed by the State if a Medicaid RAC determination is reversed 
at any level of appeal (Sec.  455.510(b)(3)).
    Comment: One commenter indicated that parallel Medicare and 
Medicaid RAC standards are consistent with CMS' aim of harmonization of 
the anti-fraud activities of the Medicare and Medicaid programs under 
the Center for Program Integrity (CPI).
    Response: We agree with the commenter. Medicaid RAC programs are, 
by statute, administered differently than Medicare RAC programs. 
However, we have concluded that many aspects of the Medicaid RAC 
program can operate in alignment with the Medicare RAC program 
including the following: Staffing requirements (Sec.  455.508(a), (b), 
and (c)); State and RAC development of an education and outreach 
program, including notification of audit policies and protocols (Sec.  
455.508(d)); minimum customer service measures including: Providing a 
toll-free customer service telephone number in all correspondence sent 
to providers and staffing the toll-free number during normal business 
hours from 8:00 a.m. to 4:30 p.m. in the applicable time zone (Sec.  
455.508(e)(1)); compiling and maintaining provider approved addresses 
and points of contact (Sec.  455.508(e)(2)); mandatory acceptance of 
provider submissions of electronic medical records on CD/DVD or via 
facsimile at the providers' request (Sec.  455.508(e)(3)); notifying 
providers of overpayment findings within 60 calendar days (Sec.  
455.508(e)(4)); a 3 year maximum claims look-back period (Sec.  
455.508(f)); and a State established limit on the number and frequency 
of medical records requested by a RAC (Sec.  455.506(e)).
    Comment: Several commenters indicated that processes should be 
developed to minimize provider burden to the greatest extent possible 
in connection with the identification of improper payments. 
Additionally, the commenters stated that the final rule should 
incorporate increased accountability and transparency provisions which 
ultimately became part of the permanent Medicare RAC program.
    Response: Again, we have concluded that many aspects of the 
Medicaid RAC program can operate in alignment with the Medicare RAC 
program, consistent with State law, thereby minimizing provider burden 
including the following: Staffing requirements (Sec.  455.508(a)), (b), 
and (c)); State and RAC development of an education and outreach 
program, including notification of audit policies and protocols (Sec.  
455.508(d); minimum customer service measures including: Providing a 
toll-free customer service telephone number in all correspondence sent 
to providers and staffing the toll-free number during normal business 
hours from 8:00 a.m. to 4:30 p.m. in the applicable time zone (Sec.  
455.508(e)(1)); compiling and maintaining provider approved addresses 
and points of contact (Sec.  455.508(e)(2)); mandatory acceptance of 
provider submissions of electronic medical records on CD/DVD or via 
facsimile at the providers' request (Sec.  455.508(e)(3)); notifying 
providers of overpayment findings within 60 calendar days (Sec.  
455.508(e)(4)); a 3 year maximum claims look-back period (Sec.  
455.508(f)); and a State established limit on the number and frequency 
of medical records requested by a Medicaid RAC (Sec.  455.506(e)). 
States are obligated to coordinate auditing efforts to reduce the 
overburdening of Medicaid providers.
    Comment: One commenter expressed concern with the implementation of 
a ``Medicare based audit program'' due to budget deficits in the States 
and pressure to look for opportunities to find savings in the already 
underfunded Medicaid program.
    Response: We understand the commenter's concerns. However, the 
Affordable Care Act requires the implementation of a Medicaid RAC 
program, with certain exceptions as permitted by the Secretary. Because 
the Affordable Care Act requires States to contract with RACs on a 
contingency fee basis, out-of-pocket expenses should be minimized. 
Therefore, the majority of the program costs will be offset by 
overpayment recoveries. Further, Medicaid RACs are part of a 
significant initiative to reduce waste and improper payments and recoup 
the improper payments. Accordingly, we believe that the Medicaid RAC 
program will lead to significant savings for States, as indicated in 
Section VI. of this final rule, titled ``Regulatory Impact Analysis.''
    Comment: One commenter urged CMS to balance the goal of recovery of 
funds improperly paid with the ``respectful treatment of the 
overwhelming number of Medicaid providers who continue to provide 
healthcare services at substantially less than market rates and who 
diligently attempt to abide by all applicable regulations and payment 
policies.'' Another commenter suggested that providers would no longer 
participate in Medicaid and its clients would no longer have access to 
care.
    Response: We agree that Medicaid providers deserve to receive 
respectful treatment from CMS and we understand the commenters' 
concerns regarding the burden of additional audits on providers. In the 
proposed rule, we specifically emphasized that States and their RACs 
must undertake coordination efforts to reduce the potential 
overburdening of Medicaid providers, as well as ensuring that suspected 
cases of fraud and abuse are processed through the appropriate 
channels. We emphasized that it is the State's obligation to ensure 
that RACs do not duplicate or compromise the efforts of other entities 
performing audits. In the final rule, we require at Sec.  455.506(c) 
that States must coordinate the recovery audit efforts of their RACs 
with other auditing entities.
    Comment: One commenter stated that the Department of Health and 
Human Services (HHS) should better target program integrity dollars to 
efforts that have the most opportunity for success.
    Response: We believe that the Medicare and Medicaid RAC programs 
are an investment in successful program integrity efforts. In FY 2010, 
Medicare RACs identified and corrected $92.3 million in combined 
overpayments and underpayments. Eighty-two percent of all RAC 
corrections were collected overpayments, and 18 percent were identified 
underpayments that were refunded to providers. We expect that States 
will realize a similar ratio of overpayments to underpayments in 
connection with the implementation of the Medicaid RAC program, and 
will examine the trends among the States over several years.
    Comment: One commenter indicated that HHS should clarify whether it 
is considering or recommending to the Congress that it eliminate the 
Audit Medicaid Integrity Contractor (MIC) and Review of Provider MIC 
effort since it appears to be duplicative of the Medicaid RAC program.
    Response: We disagree that the work of MICs, both Audit and Review 
of Provider, is duplicative of Medicaid RACs. As stated previously, 
Federal MICs are better positioned to address certain Medicaid program

[[Page 57814]]

vulnerabilities than State-administered RACs.
    Comment: One commenter recommended that CMS require States to 
provide transparency in coding/billing rules and guidelines, share 
screening guidelines for medical necessity determinations, and provider 
education. According to the commenter, this can ensure provider success 
as well as develop a framework for auditing bodies to follow. This 
commenter believes that existing State rules and guidelines are often 
vague or unwritten. Therefore, audits should not be allowed except 
where the State has promulgated clear criteria.
    Response: We agree that States should be as transparent as possible 
with regard to their Medicaid RAC programs. While we are not requiring 
States to provide coding/billing guidelines, we are requiring RACs to 
work with the State to develop a provider education and outreach 
program, including notification of audit policies and protocols for 
auditing bodies and providers to have clearly defined roles and 
expectations (Sec.  455.508(d)).
    Comment: One commenter indicated that allowing contingency fees to 
be based on actual recoveries puts a ``tremendous strain on a company's 
cash flow.'' The commenter indicated that a company has to prepare for 
a long lead time between providing the service of identifying a 
recovery and being paid after a governmental agency has made the effort 
to collect the recovery and then process the payment. This commenter 
further stated that the company providing the service has no input or 
control over the collection process and must rely on the good faith of 
the agency to process payments in a timely and efficient manner.
    Response: We disagree with this comment because we do not believe 
that there is credible evidence to suggest that any State agency would 
intentionally withhold compensation from one of its contractors. As 
envisioned, a State and a RAC would voluntarily enter into a 
contractual agreement with provisions protecting both parties' 
interests. Thus, the agency would agree to pay the RAC according to the 
contractual agreement. As a general rule, contingency fee contractors 
should be aware of the financial risk of working on a contingency fee 
basis. In addition, States have an incentive to collect overpayments as 
soon as possible. Moreover, the RAC can recoup overpayments directly 
from providers if its contract with the State is structured to permit 
RAC collection of overpayments.
    Comment: One commenter expressed concern that the proposed rule 
does not reflect the potential savings associated with the correction 
of repeated provider billing errors. Thus, the current rule does not 
incentivize a RAC to help a State stop systemic overpayments as that 
would eliminate the RAC's contingency fee. This commenter suggested 
that HHS consider some method to reward a RAC for identifying and 
reporting solutions to a State which would end overpayments that occur 
from system error or other administrative problems on an ongoing basis.
    Response: While we encourage States to work with their RACs to 
identify potential State vulnerabilities or other similar problem 
areas, a RAC reward for the activities is outside the scope of the 
proposed and final rules. Generally, a Medicaid RAC is required to 
review post-payment claims for the purpose of identifying and 
collecting overpayments as well as identifying underpayments. Sections 
1902(a)(42)(B)(i) and (ii)(I)(aa) of the Act require RACs to be 
compensated on a contingency fee basis for the identification and 
recovery of overpayments, to the extent it is consistent with State 
law. The statute does not require Medicaid RACs to identify State 
administrative issues. We encourage States to evaluate identified 
overpayments to determine if trends are apparent and whether solutions 
can be developed to address noted vulnerabilities.
    Comment: Several commenters indicated that the final rule should 
require CMS, State Medicaid agencies (SMAs), and RACs to use program 
``fixes'' to educate providers as well as implement payment system 
changes to avoid billing mistakes before they are made.
    Response: We agree and have included, in this final rule, a 
requirement for States and their RACs to develop an education and 
outreach program at Sec.  455.508(d), including notification to 
providers of audit policies and protocols. We believe that States 
should implement additional process improvements to their payment 
systems to the extent possible. Those improvements should not 
substitute for program integrity initiatives or programs to ensure that 
proper payments are made to providers.
    Comment: One commenter suggested that CMS place oversight of the 
State Medicaid RAC programs and Medicare RAC contractors within the CMS 
CPI. Based on its core function and experience base, CPI is uniquely 
positioned to oversee the Medicare and Medicaid RACs because its duties 
are to perform Medicare and Medicaid program integrity activities.
    Response: While we appreciate the commenter's suggestion, the 
Medicaid RACs will be procured, administered and operated by the States 
according to State laws and regulations. Additionally, there will be no 
privity of contract between CMS and the Medicaid RACs. We recently 
provided support and technical assistance to the States in the form of 
sub-regulatory guidance, all-State call forums, webinars, and a video 
entitled ``Medicaid RACs: Are You Ready?'' We will continue to provide 
technical support and assistance to States after publication of this 
final rule. The appropriate CMS component to oversee the Medicare RAC 
program is outside the scope of this final rule.
    Comment: One commenter indicated that it was fundamentally opposed 
to contingency fees in Medicare and Medicaid auditing. According to the 
commenter, this type of behavior has the overwhelming tendency to push 
auditors ``to take a chance'' and inappropriately deny claims.
    Response: We understand the concerns of the commenter. However, the 
statute requires Medicaid RACs to be paid on a contingency fee basis 
for the identification and recovery of overpayments. Contingency fee 
contracting is a type of payment methodology that has been a standard 
practice accepted among private healthcare payers for more than 20 
years. In the final rule, we clarified that Medicaid RACs will only 
review post-payment claims for overpayments and underpayments. 
Accordingly, the Medicaid RACs will not deny claims.
    Comment: One commenter expressed concern that the proposed rule 
does not indicate that CMS is aware of abuses to providers. As support, 
the commenter cited anecdotes experienced by providers during the 
Medicare RAC Demonstration period. According to the commenter, CMS was 
advised of the ``horrific costs incurred by providers in fighting 
denials, particularly in California, and the extremely high percentage 
of denials overturned * * * but tremendous cost had been incurred and 
the damage was done in terms of reputation, reallocation of resources, 
etc.''
    Response: We disagree with the comment. While we are aware of 
issues in California, we are not aware of explicit ``abuses to 
providers.'' We have attempted to address the concerns of providers and 
incorporate the lessons learned from the Medicare RAC Demonstration 
period into the permanent Medicare RAC program, including, but not 
limited to, requiring

[[Page 57815]]

the Medicare RAC to document their ``good cause'' for reviewing a claim 
and requiring each Medicare RAC to hire a minimum of 1.0 Full Time 
Equivalent (FTE) physician Medical Director to oversee the program. In 
addition, we have attempted to incorporate those lessons learned in the 
Medicare RAC program to the development of the Medicaid RAC program.
    Comment: One commenter expressed disappointment that the proposed 
rule does not contain best practices from the Medicare RAC 
Demonstration and recommends that CMS reconsider its proposed Medicaid 
RAC program policies in the final rule.
    Response: We agree with the spirit of the comment. As a result of 
numerous comments from stakeholders, we are making modifications to the 
proposed Medicaid RAC program in this final rule. For example, we are 
requiring in this final rule that each Medicaid RAC hire a minimum of 
1.0 FTE Contractor Medical Director who is a Doctor of Medicine or 
Doctor of Osteopathy. A State may request an exception, in accordance 
with Sec.  455.516, from requiring its RAC to hire a minimum of 1.0 FTE 
Contractor Medical Director by submitting written justification and 
receiving approval from CMS. We finalize this provision at Sec.  
455.508(b). We are also requiring Medicaid RACs to hire certified 
coders unless the State determines that certified coders are not 
required for the effective review of Medicaid claims. We finalize this 
provision at Sec.  455.508(c). Additionally, we are requiring State and 
RAC development of an education and outreach program for providers, 
including notification of audit policies and protocols (Sec.  
455.508(d)); minimum customer service measures, including those 
measures found in the Medicare RAC program such as: Providing a toll-
free customer service telephone number in all correspondence sent to 
providers and staffing the toll-free number during normal business 
hours from 8:00 a.m. to 4:30 p.m. in the applicable time zone (Sec.  
455.508(e)(1)); compiling and maintaining provider approved addresses 
and points of contact (Sec.  455.508(e)(2)); mandatory acceptance of 
provider submissions of electronic medical records on CD/DVD or via 
facsimile at the providers' request (Sec.  455.508(e)(3)); notifying 
providers of overpayment findings within 60 calendar days (Sec.  
455.508(e)(4)); a 3 year maximum claims look-back period (Sec.  
455.508(f)); and a State-established limit on the number and frequency 
of medical records requested by a RAC (Sec.  455.506(e)). States may 
request exceptions to Sec.  455.508(f) through the SPA process, and 
RACs may request from States, exceptions to Sec.  455.506(e).
    Comment: One commenter recommended that States should implement the 
RAC program, through the use of ``regional RACs'' to minimize provider 
burden and to maximize consistency and efficiency.
    Response: We agree that regional Medicaid RACs can be an innovative 
strategy for States to share resources. There is nothing in the statute 
that would preclude a group of States from joining together to contract 
with a Medicaid RAC. There has been some State interest in forming/
procuring a regional RAC. We encourage their efforts. However, we will 
not mandate that States adopt this strategy.
    Comment: One commenter asserted that requiring close oversight of 
the RAC program will be challenging due to budget constraints.
    Response: We understand the commenter's concerns. However, the 
Medicaid RACs are part of a significant initiative to reduce improper 
payments and recoup the overpayments that have occurred.
    Comment: One commenter requested that CMS provide ``extremely tight 
monitoring'' of Medicaid RAC review, auditing behavior and denial 
patterns if CMS interprets section 6411 of the Affordable Care Act to 
mandate contingency fees regarding the identification and recoupment of 
overpayments.
    Response: Section 1902(a)(42)(B)(ii)(II)(aa) of the Act mandates 
that RACs be paid on a contingency fee basis for the identification and 
recoupment of overpayments. We will oversee State implementation of 
Medicaid RAC programs to ensure compliance with the Act and these 
regulations, but do not anticipate the need to, as the commenter 
suggests, engage in ``extremely tight monitoring'' at this point. 
States have attested through their SPAs that they will implement a 
Medicaid RAC program consistent with this final rule (unless a State 
has been granted an exception).
    Comment: Several commenters suggested that ``[t]he audit should 
include all of Medicaid, and not be restricted to narrow areas. This 
will ensure the maximum benefit of program recoveries and preventive 
actions on the broadest scope possible.''
    Response: We believe that States should have the ability to direct 
the audit targets, but that, so long as consistent with State 
direction, the RACs should have the ability to audit the entire 
Medicaid program.
    Comment: Several commenters questioned CMS' authority to require 
States to continue existing program integrity efforts. Most of these 
commenters recommended that CMS exempt States that have Medicaid 
Integrity Programs or similar audit programs from the requirement to 
establish RAC programs. These commenters argued that there is no 
statutory authority for CMS to compel States to maintain levels of 
funding and activity for a duplicate program, and questioned the 
assertion that States have no option to choose to either be audited by 
a Federal MIC or establish a Medicaid RAC program. Several commenters 
also expressed concern that the continuation of existing program 
integrity efforts greatly reduces flexibility and creates duplicative 
audits and review processes which may ultimately impact provider 
participation and access to care. Finally, one commenter recommended 
that CMS remove the requirement to continue existing program integrity 
activities completely.
    Response: Continuation of existing program integrity activities is 
important to ensure a comprehensive State program integrity program 
that includes more than a claims auditing program, such as the Medicaid 
RAC program. Other critical components of a Medicaid integrity program 
include Surveillance and Utilization Review (SUR) unit activities, MMIS 
system monitoring, and fraud prevention and detection activities, 
including coordination with law enforcement.
    We disagree that the Medicaid RAC program is duplicative of the 
Federal national audit program, in which Federal MICs conduct audits of 
Medicaid providers. In particular, while RACs are an efficient way to 
identify payment errors, they are not the most effective approach to 
identify or prevent fraudulent practices. Federal MICs can focus on 
audit issues that may be less advantageous for a contingency-fee based 
contractor. In addition, fraudulent schemes may not lead to overpayment 
recoveries, which provide the source of RAC fees. Moreover, Medicaid 
RAC programs are poised to address State-specific issues stemming from 
the individual characteristics of each State's Medicaid program (for 
example, special payment structures under a Medicaid demonstration) and 
will focus on the needs and vulnerabilities associated with a 
particular State. In contrast, Federal MICs are poised to address 
vulnerabilities on a regional and national basis. These regional and 
national trends would likely go undetected by an individual Medicaid

[[Page 57816]]

RAC. Accordingly, the national audit program is complementary to a 
State Medicaid RAC program.
    We are not exempting States that have Medicaid integrity programs 
from establishing a Medicaid RAC program. Although there is no specific 
requirement in the Affordable Care Act regarding the continuation of 
program integrity efforts, the Congress directed CMS to promulgate 
regulations to carry out section 6411 of the Affordable Care Act with 
full awareness of the various program integrity initiatives for which 
it had given previous authority and that are currently in place in 
States. Congress did not relax any of those previously authorized 
program integrity activities in the Affordable Care Act. We take this 
to mean that Congress intended this policy to supplement previously 
authorized program integrity activities at both the State and Federal 
levels. We also believe that States should play a significant role in 
coordinating the audit activities of their respective integrity 
programs, RACs, and any other auditing entities under contract with the 
State. We are very concerned about provider participation and 
beneficiary access to care as well as minimizing the potential for 
multiple audits of the same provider. However, States should not 
supplant existing State program integrity initiatives with a Medicaid 
RAC program because of the fundamentally different and complementary 
approaches of the two audit programs.

B. Implementation Date

    Comment: Several commenters expressed concern that ``States must 
fully implement their Medicaid RAC programs by April 1, 2011.'' While 
some commenters recommended specific alternative implementation dates 
ranging between July 1, 2011 and January 1, 2012, the majority of the 
commenters asserted that April 1, 2011, did not allow States enough 
time to complete the procurement process, or allow States that require 
legislative authority to obtain approval for contracting with RACs. One 
commenter requested clarification as to the meaning of ``fully 
implement'' by April 1, 2011. Another commenter suggested voluntary 
implementation, on the part of States, from the present date until 
January 1, 2012.
    Response: Although we proposed an implementation date of April 1, 
2011, the date was contingent upon the rule being finalized. We 
recognize the need to provide a reasonable period of time between 
publication of the final rule and the date for required implementation 
of the Medicaid RAC program to ensure States' compliance with the final 
rule. Accordingly, absent an exception, States will be required to 
implement their RAC programs by January 1, 2012.
    Comment: One commenter asked if there will be a penalty if a State 
does not implement a RAC program.
    Response: When a State elects to participate in the Medicaid 
program, it is required to comply with its State Plan, as well as the 
requirements imposed by the Act and applicable Federal regulations. 
Section 1902(a)(42)(B)(i) of the Act requires States to implement RAC 
programs, which is consistent with States' commitment to promote 
program integrity. Additionally, States are required by section 
1903(a)(7) of the Act to administer funding necessary for the proper 
and efficient administration of the State Plan or waiver of the plan. 
If the Secretary deems that a Medicaid RAC program is necessary to 
ensure the integrity and the efficiency of a State's Medicaid program, 
a State's failure to implement the program may violate section 
1903(a)(7) of the Act. A potential consequence of a State's failure to 
implement a RAC program is the loss of FFP. If a State is unable to 
implement a RAC program, then that State should request from CMS an 
exception either from a specific Medicaid RAC program requirement(s) or 
a complete exception from implementing the RAC program. However, as 
stated in the proposed rule, we will grant complete exceptions from the 
Medicaid RAC program or exceptions to RAC requirements only rarely and 
only under the most compelling of circumstances.
    Comment: One commenter recommended that CMS adopt a phase-in 
strategy similar to the Medicare program to ensure that the provider 
community can actively participate in outreach programs.
    Response: We provided early guidance for States with regard to the 
creation and implementation of a Medicaid RAC program. States already 
have the ability to request delayed implementation of RAC programs 
through the Medicaid SPA process. Additionally, we provided support and 
technical assistance to the States in the form of sub-regulatory 
guidance, all-State call forums, webinars and an informative video 
entitled ``Medicaid RACs: Are You Ready?'' We fully anticipate 
continuing to provide technical assistance after the publication of the 
final rule. Therefore, we are not adopting a global phase-in strategy.

C. Program Requirements

    Comment: Numerous commenters inquired about the overall program 
approach of the Medicaid RAC program. One commenter indicated that it 
interpreted the Affordable Care Act to read that Medicaid RACs should 
be established in the same manner as CMS currently contracts with 
Medicare RACs, and with the same program