CMS Releases Letter to State Medicaid Directors Regarding Medicaid RACs

On October 4, 2010 the Centers for Medicare and Medicaid Services (CMS) published a letter that was sent to state Medicaid directors as part of a series of letters that will provide guidance for the implementation of provisions of the Patient Protection and Affordable Care Act (PPACA), including the expansion of the Recovery Audit Contractor (RAC) program to Medicaid.  States are required to contract with Medicaid RACs consistent with state law and the RACs will be paid through contingency fees.  States will submit a State Plan Amendment (SPA) to CMS through which the State will either attest that it will establish a Medicaid RAC program by December 31, 2010 or indicate that it is seeking an exemption from the requirements.  CMS will permit states to maintain flexibility in the design of the state’s Medicaid RAC program and the number of entities the state will enter into contracts with, so long as the states act within the parameters of the statutory requirements. 

States that seeks to request variances or exceptions from the Medicaid RAC program must submit to CMS a written request from the state’s Medicaid Director to the CMS/Medicaid Integrity Group.  CMS has expressed that it will grant complete Medicaid RAC program exceptions rarely and only under the most compelling of circumstances.

Another important component of the Medicaid RAC program is the contingency fee payment to the contractors.  PPACA requires that Medicaid RACs be paid only from amounts “recovered” on a contingent basis for collecting overpayments and in amounts specified by the State for identifying underpayments.  Although CMS will not dictate the contingency fee rates, the maximum rate will be established.  CMS will publish a notice in the Federal Register, no later than December 31, 2010, to announce the highest Medicare RAC contingency fee rate and this rate will apply to Medicaid RAC contracts with a performance period beginning on or after July 1, 2014.  The contingency fee rates should be reasonable and take into account several factors, including: the level of the effort performed by the RAC, the size of the state’s Medicaid population, the nature of the state’s Medicaid health care delivery system and the number of Medicaid RACs engaged.  The fees paid to Medicaid RACs must include amounts associated with (1) identifying and recovering overpayments and (2) identifying underpayments.  States must maintain an accounting of amounts recovered and paid, and ensure that the total Medicaid RAC fees paid are not more than the total amount of overpayments collected.

States will be required to establish an adequate appeals process for entities that experience adverse decisions made by the Medicaid RACs.  CMS will not require states to establish new administrative review infrastructure to conduct Medicaid RAC appeals, so long as the state has an existing appeals process that can accommodate Medicaid RAC denials.

For more information on the RAC expansion to Medicaid or other provisions of the Health Care Reform Act, please contact a Wachler & Associates attorney at 248-544-0888.