Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
M   R A
EDICARE  ECOVERY  UDIT 
 
C CMS
ONTRACTORS AND  S 
A T A
CTIONS  O  DDRESS 
I P , 
MPROPER  AYMENTS  
R P
EFERRALS OF  OTENTIAL 
F , P
RAUD  AND  ERFORMANCE 
 
Daniel R. Levinson   
Inspector General  
 
August 2013 
OEI-04-11-00680   
   
EXECUTIVE SUMMARY:  MEDICARE RECOVERY AUDIT CONTRACTORS 
AND CMSS ACTIONS TO ADDRESS IMPROPER PAYMENTS, REFERRALS 
OF POTENTIAL FRAUD, AND PERFORMANCE, OEI-04-11-00680 
 
WHY WE DID THIS STUDY 
Recovery Audit Contractors (RAC) are designed to protect Medicare by identifying 
improper payments and referring potential fraud to the Centers for Medicare & Medicaid 
Services (CMS). Prior Government Accountability Office work has identified problems  
with CMSs actions to address improper payment vulnerabilities, and prior Office of 
Inspector General (OIG) work has identified problems with CMSs actions to address 
referrals of potential fraud. Further, OIG has identified vulnerabilities in CMSs 
oversight of its contractors. Given the critical role of identifying improper payments, 
effective oversight of RAC performance is important.   
 
HOW WE DID THIS STUDY  
We collected RAC Data Warehouse (i.e., electronic database) files from CMS and data 
from RACs to determine their activities to identify improper payments and refer potential 
fraud in fiscal years (FYs) 2010 and 2011. We  also collected data from CMS regarding 
activities to address vulnerabilities (i.e., improper payments exceeding $500,000 that 
result from a specific issue) and referrals of potential fraud.  Finally, we collected RAC 
performance evaluations and performance evaluation metrics from CMS and determined 
the extent that RAC performance evaluations addressed these metrics.  We also compared 
performance evaluation metrics to contract requirements to determine the extent that 
these metrics addressed contract requirements.                                                                                                   
 
WHAT WE FOUND 
In FYs 2010 and 2011, RACs identified half of all claims they reviewed as having 
resulted in improper payments totaling $1.3 billion.  CMS took corrective actions to 
address the majority of vulnerabilities it identified in FYs 2010 and 2011; however, it did 
not evaluate the effectiveness of these actions.  As a result, high amounts of improper 
payment may continue.  Additionally, CMS did not take action to address the six referrals 
of potential fraud that it received from RACs.  Finally, CMSs performance evaluations 
did not include metrics to evaluate RACs  performance on all contract requirements. 
 
WHAT WE RECOMMEND  
We recommend that CMS (1) take action, as appropriate, on vulnerabilities that are 
pending corrective action and evaluate the effectiveness of implemented corrective 
actions; (2) ensure that RACs refer all appropriate cases of potential fraud; (3) review and 
take appropriate, timely action on RAC referrals of potential fraud; and (4) develop 
additional performance evaluation metrics to improve RAC performance and ensure that 
RACs are evaluated on all contract requirements.  CMS concurred with our first, second, 
and fourth recommendations.  CMS did not indicate whether it concurred with our third 
recommendation but noted that it has reviewed the six RAC referrals of potential fraud in 
our review. 
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................6 

Findings......................................................................................................10 

In FYs 2010 and 2011, RACs identified half of all claims they 

reviewed as having resulted in improper payments totaling 

$1.3 billion.................................................................10 

CMS took corrective action to address the majority of 
vulnerabilities it identified in FYs 2010 and 2011; however, it  
did not evaluate the effectiveness of these corrective actions......12 
CMS did not take action to address the six referrals of potential 

fraud that it received from RACs in FYs 2010 and 

2011.................. ........................................................................14 

CMSs performance evaluations did not include metrics to  

evaluate RACs performance on all contract 

requirements...............................................................16 

Conclusion and Recommendations ............................................................17 

Agency Comments and Office of Inspector General Response .............19 

Appendix....................................................................................................21 

A: Number and Percentage of Appealed Overpayment 

Identifications by Claim  Type in Fiscal Years 2010 and 

2011.............................. ........................................................21 

B: Map of Medicare Recovery  Audit Contractor Regions ............22 

C: Agency Comments  ...................................................................23 

Acknowledgments......................................................................................27 

 
   
   
OBJECTIVES 
To determine the extent that: 
1. 	  Recovery Audit Contractors (RAC) identified improper payments; 
2. 	  the Centers for Medicare & Medicaid Services (CMS) took corrective 
actions to address vulnerabilities; 
3. 	  RACs referred potential fraud to CMS and CMS took action on these 
referrals; and 
4. 	  CMS evaluated RACs on all performance requirements. 
BACKGROUND 
The Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 mandated the establishment of a RAC demonstration project to 
determine effectiveness in (1) identifying improper payments 
(underpayments and overpayments) and (2) recouping overpayments in 
Medicare Parts A and B.1   The demonstration project occurred in six States 
from March 2005 to March 2008.2  During the demonstration project, 
RACs identified over $1.03 billion in improper payments.3  Of these 
improper payments, $992.7 million were overpayments and $37.8 million 
were underpayments. 
The Tax Relief and Health Care Act of 2006 required the Secretary of 
Health and Human Services to establish a national RAC program by 
January 1, 2010.4   To fulfill this requirement, CMS awarded competitive 
contracts to four contractors to perform recovery audit functions in four 
separate geographical regions. All four RAC regions were operational by 
October 2009.  See Appendix B for a map of States in each RAC region.    
 
1 The Medicare  Prescription Drug, Improvement, and Modernization Act of  2003, 
P.L. 108-173, Title III,  306; CMS, The Medicare Recovery Audit Contractor Program:  
An Evaluation of  the 3-Year Demonstration. Accessed at http://www.cms.gov/Research-
Statistics-Data-and-Systems/Monitoring-Programs/recovery-audit-
program/downloads/RACEvaluationReport.pdf on  August 22, 2012.   
2 These six States were Arizona, California, Florida, Massachusetts, New York, and 
South Carolina.   
3 CMS, The Medicare Recovery Audit Contractor Program:  An Evaluation of the 3-Year 
Demonstration. Accessed at http://www.cms.gov/Research-Statistics-Data-and-
Systems/Monitoring-Programs/recovery-audit-
program/downloads/RACEvaluationReport.pdf on  August 22, 2012.   
4 The Tax Relief and Health Care  Act of  2006, P.L. 109-432, Division B,   302(h); Social 
Security Act,  1893(h); CMS, Implementation of  Recovery Auditing at  The Centers for 
Medicare  & Medicaid Services.  August 2011.  Accessed at 
https://www.cms.gov/Recovery-Audit Program/Downloads/FY2010ReportCongress.pdf  
on August 22,  2012.    
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  1 
(OEI-04-11-00680)  
   
   
Unlike other Medicare contractors, RACs are mandated to be paid on a 
contingency-fee basis.5  Contingency fees are calculated as a percentage of  
improper payments that are recovered (overpayments) or returned 
(underpayments) to providers.6  RACs do not receive these fees until 
improper payments are recovered or returned (i.e., the payments are 
contingent on the recovery or return). 
RAC Claims Review Process 
RACs primary responsibility is to identify improper payments from  
Medicare Part A and B claims that have been paid by claims processing 
contractors.7  RACs analyze claims and review those most likely to 
contain improper payments.8  RACs may also request and analyze 
provider claim documentation to ensure services provided were reasonable 
and necessary.  Improper payments may include:  (1) payment for items or 
services that do not meet Medicares coverage and medical necessity 
criteria, (2) payment for items that are incorrectly coded, and (3) payment 
for services where the documentation submitted did not support the 
ordered service. 
Recovered and Returned Improper Payments. When RACs identify 
improper payments, they notify the claims processing contractor of the 
applicable claims.  The claims processing contractor adjusts the claims to 
reflect the proper payment amounts.9  If the improper payment is an 
overpayment, the claims processing contractor sends a demand letter to 
the provider to recover the improper payment.10   The demand letter 
includes the overpayment amount, the reason for the overpayment, and 
payment instructions.  If the improper payment is an underpayment, the 
 
5 Tax Relief and  Health Care  Act of  2006, P.L. 109-432, Division B,   302(h)(1). 
6 In FY  2011, RACs received 9 to 17.5  percent in contingency fee payments, depending 
on the type of the claim with the improper payment.  CMS, Recovery Auditing in the  
Medicare and  Medicaid Programs for Fiscal Year 2011.  Accessed at 
http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-
Programs/Recovery-Audit-Program/Downloads/FY2011-Report-To-Congress.pdf on  
February 8,  2013.  
7 The Patient Protection  and  Affordable Care  Act, P.L. 111-148,  6411, expanded the 
RAC program  to identify improper payments in Medicare Part D, Medicare Advantage, 
and Medicaid claims.  CMS awarded the Medicare Part D RAC contract to ACLR 
Strategic Business Solutions in  2011, and this RAC  began recouping improper payments  
on CMSs behalf in  FY 2013.  CMS is in the process of implementing a Medicare 
Advantage RAC.  Additionally, approximately 40 States have awarded Medicaid RAC  
contracts. 
8 CMS, Recovery Audit Program Final  Statement of  Work. Accessed at 
https://www.cms.gov/Recovery-Audit-Program/Downloads/090111RACFinSOW.pdf on  
August 22, 2012.   
9 CMS, Medicare Financial Management Manual, Pub.  No. 100-06,  ch. 4,  100.5.   
10 Prior to  2012, RACs sent demand letters to providers.   
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  2 
(OEI-04-11-00680)  
   
   
claims processing contractor notifies the provider and pays the provider 
the underpaid amount. 
RAC-identified improper payments are recorded in the RAC Data 
Warehouse (i.e., electronic database) and monitored by CMS.11  When  
RACs identify improper payments that result from a specific issue (e.g., 
incorrect coding of diagnoses and procedure codes), that issue is classified 
as a vulnerability.12   The CMS Division of Recovery Audit Operations 
provides further guidance that defines a vulnerability as a specific issue 
associated with more than $500,000 in improper payments.13   When CMS 
identifies a vulnerability, it may develop a corresponding corrective 
action, such as conducting provider education or implementing 
computerized edits (i.e., system processes) to prevent future improper 
payments. 
CMS also uses the RAC Data Warehouse to prevent RACs from reviewing 
claims that have already been reviewed or that are under review by other 
CMS contractors or law enforcement. 14   To do this, CMS contractors and 
law enforcement access the RAC Data Warehouse and exclude or suppress 
applicable claims from RAC review.  Excluded claims include those that 
have already been reviewed by other CMS contractors.  Suppressed claims  
include those that are currently under investigation by law enforcement or 
are under fraud/benefit integrity review by CMS contractors.15    
Provider Appeals.  Providers may appeal RAC-identified overpayments.  
Once a provider requests an appeal, overpayment recoupment must stop 
until a final determination has been made.16  There are five progressive  
levels in the appeals process.17 RACs do not receive contingency fees for 
overpayments that are appealed and ruled in the providers favor (i.e., 
overturned appeals) at any of the five levels.  CMS tracks appeals 
information in the RAC Data Warehouse. 
 
11 CMS, Recovery Audit Program Final  Statement of  Work. Accessed at 
https://www.cms.gov/Recovery-Audit-Program/Downloads/090111RACFinSOW.pdf on  
August 22, 2012.   

12 CMS, Standard  Operating Protocol:  Vulnerability Tracking Corrective Action 
 
Process, February 7, 2011. 

13 CMS communicated this  guidance to OIG during meetings in  2012.
  
14 Other contractors may include claims processing contractors or program integrity 
 
contractors. 
 
15 CMS, Medicare Financial Management Manual, Pub.  No. 100-06,  ch. 4,  100.4. 
 
16 Social Security Act,    1893(f)(2).  This applies to overpayments that are  appealed
  
within 30 days of  the date of  the demand  letter. 

17 The five appeals levels include (1) redetermination made by a claims processing
  
contractor, (2) reconsideration made by a Qualified Independent Contractor (QIC),
  
(3) Administrative Law Judge hearing, (4) appeals council review, (5) Federal District 
Court review.  CMS contracts with  QICs to process second-level appeals, or  
reconsiderations. 
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RAC Referrals of Potential Fraud. RACs primary responsibility is to 
review claims for improper payments.  However, if RACs encounter 
potential fraud, they are required to refer the provider to CMS.18  RACs 
may continue to review claims that they have referred for potential fraud 
unless law enforcement or other CMS contractors instruct RACs to stop 
their reviews. Additionally, if improper payments are identified on claims  
included in fraud referrals, RACs receive contingency fees unless they are 
instructed to stop their review of these claims.  RACs also refer external 
notifications (e.g., complaints from provider employees or beneficiaries) 
of potentially fraudulent providers to CMS.   
CMS Actions on Vulnerabilities and Referrals of Potential 
Fraud 
A 2011 CMS policy tasks various CMS components with responsibility 
for addressing vulnerabilities and referrals of potential fraud.19    
CMS Corrective Actions on Vulnerabilities. The CMS Division of Data 
Analysis, in collaboration with the CMS Division of Recovery Audit 
Operations, monitors improper payment amounts.  CMS classifies any 
specific issue resulting in more than $500,000 in improper payments as a 
vulnerability, or major finding.  These vulnerabilities receive high 
priority for corrective action; however, CMS determines which 
vulnerabilities it should address on the basis of several factors, such as 
improper payment amount and geographic scope (e.g., whether the 
vulnerability spans multiple RAC regions).20, 21, 22    Vulnerabilities and 
applicable corrective actions are recorded in the Improper Payment 
Prevention Plan. Additionally, the Division of Data Analysis is 
responsible for evaluating corrective actions and determining their 
effectiveness in reducing improper payments.23  Specifically, CMS does 
 
18 CMS, Recovery Audit Program Final  Statement of  Work. Accessed at 
https://www.cms.gov/Recovery-Audit-Program/Downloads/090111RACFinSOW.pdf on  
August 22,  2012.  Examples of fraud may include incorrect reporting of diagnoses to  
maximize payments or billing  for services not provided.  CMS, Medicare Program 
Integrity Manual, Pub. No. 100-08, ch.  4,  4.2.1.    
19 CMS, Standard  Operating Protocol:  Vulnerability Tracking Corrective Action  
Process, February 7, 2011. 

20 CMS may determine various corrective actions are appropriate, such as computerized 
 
edits or provider education.   CMS may also determine that no action is necessary. 

21 CMS, Standard  Operating Protocol:  Vulnerability Tracking Corrective Action  
Process, February 7, 2011. 
22  While vulnerabilities may span multiple regions, CMS calculates improper payment 
amounts identified by individual RAC  regions only  when determining whether they meet  
the Division  of Recovery Audit Operations vulnerability threshold.  Government  
Accountability Office (GAO), Greater Prepayment Control Efforts Could Increase 
Savings  and Better Ensure Proper Payment, GAO-13-102, November 2012.  
23 CMS, Standard  Operating Protocol:  Vulnerability Tracking Corrective Action  
Process, February 7, 2011. 
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not consider corrective actions closed until it has conducted analyses to 
determine their effectiveness.24  
CMS Actions on RAC Referrals of Potential Fraud. The CMS Project 
Officer tracks the submission of RAC referrals of potential fraud and 
forwards them to the CMS Center for Program Integrity (CPI) for 
potential action. 25  Action may include referring the provider to program  
integrity contractors or law enforcement.  CMS also provides training to 
RACs to help them identify potentially fraudulent claims or providers.   
CMS Activities To Evaluate RAC Performance  
The Federal Acquisition Regulation mandates that CMS evaluate 
contractor performance.26 These evaluations enable CMS to provide 
feedback to contractors regarding their performance and determine 
whether to renew a companys contract.  CMS may reduce contractor 
workloads or take other necessary action, such as reducing payments to 
contractors, if it determines that contractors are not meeting their 
performance requirements.   
RAC Annual Performance Evaluations. CMS conducts RAC annual 
performance evaluations at intervals of no less than 12 months after the 
contract award date. RACs are assessed on the basis of performance 
evaluation metrics within categories established in the Contractor 
Performance  Assessment Reporting System (CPARS) policy guide. 
These categories include: (1) Business Relations, (2) Quality of Product 
or Service, (3) Schedule/Timeliness, (4) Management of Key Personnel, 
and (5) Utilization of Small Business.  For each category, CMS provides a 
narrative describing RAC performance against performance evaluation 
metrics and assigns a rating.27  However, CMS does not provide an overall 
performance rating, such as the average of all category ratings.   
 
24 Ibid. 

25 CMS merged the Medicaid and Medicare program integrity groups under one 

management structure in  2010 to create CPI. CMS, CPI Key Antifraud Activities. 

Accessed at http://www.cms.gov/Medicare-Medicaid-Coordination/Fraud-
Prevention/MedicaidIntegrityProgram/downloads/cpiinitiatives.pdf on  October 12, 2012. 

26 48 CFR   42.1502(a). 

27 RACs may receive five possible ratings for individual categories in the annual report.  

These include:  (1) unsatisfactory, (2) marginal, (3)  satisfactory, (4) very good, and  
(5) excellent.    
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  5 
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CMS records completed performance reports in CPARS for RACs to 
access and view.28  After reports have been recorded in CPARS, RACs 
have 30 days to review and respond if they disagree with the ratings that 
CMS has given them.   
Related Work 
In 2010, GAO reported that CMS lacked an effective process to address 
vulnerabilities identified during the 3-year RAC demonstration project 
(20052008).29  GAO also determined that by January 2010, CMS had not 
addressed approximately 60 percent of improper payment vulnerabilities 
identified during the demonstration project.  GAO recommended that 
CMS implement a process to decide on the appropriate response to 
address vulnerabilities. GAO also recommended that the agency act 
promptly to address vulnerabilities.  CMS concurred with both of these 
recommendations.  
OIG has also identified vulnerabilities in CMSs oversight of its 
contractors. Given the critical role of identifying improper payments, 
effective oversight of these contractors performance is important.  In 
2010, the Office of Inspector General (OIG) reported that RACs referred 
two cases of potential fraud to CMS during the demonstration project.30   
However, CMS stated that it did not receive any referrals of potential 
fraud during this time.  The report also indicated that RACs had not 
received formal training and guidance from CMS to help them identify 
fraud. OIG recommended that CMS require RACs to receive mandatory 
training on the identification and referral of fraud.  CMS concurred with 
this recommendation. 
METHODOLOGY 
We collected RAC Data Warehouse files from CMS and data from RACs  
to determine activities performed to identify improper payments and refer 
 
28 RACs may view only reports  specific to their performance and may not review reports 
from other regions and/or contractors.   Additionally, CPARS helps the Government  
provide current and accurate data on contractor performance for use in source selections  
through the Past Performance Informational Retrieval System (PPIRS).  For instance, 
completed performance assessments in PPIRS are used as a resource in awarding 
contracts and  orders to contractors that consistently provide quality, timely products and  
services that adhere to contractual requirements.  Department of  Defense,  Contractor 
Performance Assessment Reporting System Policy Guide. Accessed at 
http://www.cpars.csd.disa.mil/cparsfiles/pdfs/DoD-CPARS-Guide.pdf  on November 14, 
2012.  CMS performance evaluations are retained in CPARS.  The Department of  
Defense is responsible for managing this system.  
29 GAO,  Medicare Recovery Audit Contracting:  Weaknesses Remain in Addressing  
Vulnerabilities to  Improper Payments, Although  Improvements Made to Contractor  
Oversight, GAO-10-143,  March 2010.   
30 OIG,  Recovery Audit Contractors Fraud Referrals, OEI-03-09-00130, February 2010. 
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potential fraud in FYs 2010 and 2011.  We collected data from CMS 
regarding activities to address vulnerabilities resulting from  
RAC-identified improper payments and referrals of potential fraud.  We  
also collected RAC performance evaluations and performance evaluation 
metrics from CMS.  Both RACs and CMS submitted documentation to  
support their responses and we followed up with them, as appropriate.  All 
four RACs were operational during our timeframe and were included in 
our review.       
RAC Identification of Improper Payments  
RAC Identification of Improper Payments. We collected RAC Data 
Warehouse files in June 2012 and calculated the number and dollar 
amount of improper payments that RACs identified and the amounts that 
were recovered from or returned to providers in FYs 2010 and 2011.  We  
analyzed claims within the RAC Data  Warehouse to determine (1) the 
percentage of improper payment amounts recovered from or returned to 
providers in each State and RAC region, (2) the provider types with the 
largest dollar amounts of recovered or returned improper payments, and 
(3) the reasons (e.g., coding or billing mistakes) for the recovered or 
returned improper payments.  We  did not determine the accuracy of 
RACs improper payment determinations, nor did we assess the burden 
RACs placed on providers for requesting claim documentation (e.g., 
medical records).  
We also collected from CMS the number of claims that RACs reviewed  
and the overpayment identifications that providers appealed in FYs 2010 
and 2011. However, we did not analyze the accuracy of appeals 
determinations (e.g., overturned in the providers favor).   Finally, we 
analyzed claims within the RAC Data  Warehouse files to determine 
whether providers received improper payments for billing potentially 
fraudulent claims.  As is our typical process, we will forward to OIGs 
Office of Investigations (OI) any potential fraud that we identified so that 
OI may determine the appropriate course of action.  
CMS Actions on Vulnerabilities and RAC Referrals of Potential 
Fraud 
CMS Corrective Actions on Vulnerabilities. In May and June 2012, we 
collected all vulnerabilities that CMS identified in FYs 2010 and 2011.31   
We calculated the amount of improper payments associated with these 
vulnerabilities and determined the action that CMS took to address them.32   
 
31 These data were provided to  OIG in the Improper Payment Prevention  Plan.  CMS may 
identify vulnerabilities resulting from region-specific or national issues. 

32 To make this  determination, we asked CMS to  describe and provide documentation 

regarding the actions it had taken to address vulnerabilities during  our time frame.  
 
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We considered a corrective action to have been taken if CMS had taken 
steps to address the vulnerability,  such as sending technical direction 
letters to contractors or putting computerized edits into place to prevent 
improper payments.33  Additionally, if CMS indicated that no action was 
necessary to address the vulnerability, we considered this a corrective 
action. For example, if CMS determined that no action was necessary 
because a forthcoming policy would address the vulnerability.  However,  
we did not consider a corrective action to be taken if CMS had only 
reviewed or discussed the vulnerability.      
We asked CMS to specify the dates that it took corrective actions.  If CMS 
had not taken corrective actions, we followed up to determine why.  We  
then calculated the length of time between CMSs identifying a 
vulnerability and taking corrective action on it.34  In addition, we collected 
data from CMS that documented whether it had evaluated the 
effectiveness of corrective actions.  Using these data, we identified the 
number of corrective actions for which CMS had evaluated effectiveness.  
We considered a corrective action to have been evaluated for effectiveness 
if CMS provided documentation that it had determined whether the 
corrective action had reduced improper payments or affected provider 
billing patterns. Finally, we collected any documents that described 
CMSs processes or criteria for evaluating corrective actions. 
CMS Actions on Referrals of Potential Fraud. We collected 
documentation of referrals of potential fraud that CMS received from  
RACs in FYs 2010 and 2011.  For each referral, we collected the referral 
date, provider identification number, name of the RAC that sent the 
referral, reason for the referral, and resulting CMS actions (e.g., whether 
CMS referred the provider to CPI for further review).  We requested 
information from CMS from October to November 2012 to determine 
whether and how it had addressed these referrals.    
We also asked CMS to provide the dates that it or other agencies (e.g., 
Department of Justice) provided training to RACs on fraud identification 
and the referral process. We collected documentation, such as slides or 
handouts, from these sets of training. 
 
33 Technical direction letters provide additional details and guidance to contractors about  
tasks required  of them.  Contractors incorporate edits in their claims processing systems 
to verify and validate claims  data by  detecting errors or potential errors.  Edits also verify 
that certain  data are consistent and appropriate.  CMS, Medicare Administrative 
Contractor  Workload Implementation Handbook (Legacy-to-MAC), ch. 4,   4.10.3.2.  
Accessed at http://www.cms.gov/Medicare/Medicare-
Contracting/MedicareContractingReform/Downloads/Handbooks/Legacy2MACImp.pdf  
on  February 3, 2012.   

34  We  used the date that vulnerabilities were added to the Improper Payment Prevention 
 
Plan as the date CMS identified them.  

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RAC Performance Evaluations 
In April and May 2012, we collected the records for the annual RAC 
performance evaluations that CMS conducted in 2010 and 2011 and the 
performance evaluation metrics that CMS used.35  We compared these 
items to determine the extent that RAC performance evaluations addressed  
performance evaluation metrics.  We also compared RAC performance 
evaluation metrics to RAC contract requirements to determine the extent 
that performance evaluation metrics addressed contract requirements. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
   
 
35 Performance periods are from February to February each year. 
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  9 
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FINDINGS 
In FYs 2010 and 2011, RACs identified half of all claims 
they reviewed as having resulted in improper 
payments totaling $1.3 billion 
In FYs 2010 and 2011, RACs reviewed 2.6 million claims from 
approximately 292,000 providers.36 During this period, RACs identified 
approximately 1.3 million claims with improper payments (50 percent) 
that totaled nearly $1.3 billion.37  Of this amount, $903 million was 
recovered from or returned to providers in FYs 2010 and 2011.38,  39   
Approximately $768 of the $903 million was recovered from providers 
($53 million in FY 2010 and $715 million in FY 2011).  The remaining 
$135 million was returned to providers ($15 million in FY 2010 and  
$120 million in FY 2011).      
Over half (57 percent) of all recovered or returned improper payments 
resulted from medical services being delivered in inappropriate facilities 
(32 percent) or providers billing incorrect codes on Medicare claims  
(25 percent).40  Improper payments also resulted from other sources, such 
as providers billing Medicare for services for deceased beneficiaries.  For 
instance, CMS recovered $3 million in improper payments stemming from 
approximately 27,000 claims for services billed for deceased  
 
36 There were a total of  2,608,481 claims from 292,265  unique providers. 
37 There were a total of 1,289,056 claims  with  $1,261,328,388 in identified improper 
payments.  However, some of these identified improper payments ultimately may not  
have  been recovered from  or returned  to providers for various reasons, such  as  CMS 
determining that the RAC made an incorrect improper payment determination.    
38 The average recovered overpayment amount in FYs 2010  and 2011 was $507.  
Recovered overpayments during this time ranged from less than $1 to over $156,000.  
The average returned underpayment amount  in FYs 2010 and 2011  was $2,171.     
Returned  underpayments during this time ranged from less than $1 to approximately  
$407,000.  RACs typically do not forward any claims to the claims processing contractor 
for adjustment if the overpayment amount is less than  $10  or the underpayment amount  is  
less than $1.  Recovered and returned amounts below these thresholds may have been due  
to various reasons, such as partial improper payment amounts being collected.  
39 Our reported recovered and returned amount ($903 million) differs from CMSs 
reported amount by approximately $127 million.   In 2011 and 2013, CMS released its 
annual reports  to Congress, as required by section 1893(h) of  the Social Security Act.  
These reports stated that RACs recovered or returned improper payments of  
approximately $1.03  billion in FYs 2010 and  2011.  Our amount  differs because we 
analyzed recovered or returned improper payments that we  could reliably match to  
improper payments identified in  FYs 2010  and 2011.   
40 An example of medical services being delivered in an inappropriate facility could 
include providing services to  a beneficiary in an inpatient setting when the beneficiarys  
medical record indicated that these services should  have been provided in  a different, less  
intensive and less costly setting.  An example of a provider billing  for incorrect codes on 
a Medicare claim could include billing incorrect diagnosis codes. 
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beneficiaries.41  These improper payments represented less than one-half of 
one percent of total improper payments recovered or returned in FYs 2010 
and 2011.   
Two provider types accounted for 93 percent of all recovered 
or returned improper payments, and approximately one 
quarter of improper payments were for providers in two States  
Claims from two provider types accounted for 93 percent of all recovered 
or returned improper payments: inpatient hospitals (88 percent) and 
physicians or nonphysician practitioners (5 percent).42   Additionally, the 
five providers with the largest improper payment amounts were hospitals.  
Improper payments for these hospitals were $18.4 million in FYs 2010 
and 2011, which was approximately 2 percent of total improper payments.  
Approximately 87 percent of these improper payments resulted from  
medical services being delivered in inappropriate facilities.43  Further,  
approximately one quarter (23 percent) of all recovered or returned 
improper payments were for providers in California, with $156 million in 
such payments, and in New York, with $49 million in such payments.44   
Providers did not appeal RACs  decisions for approximately 
94 percent of claims identified with overpayments, but of those 
that were appealed, almost half were overturned 
In FYs 2010 and 2011, RACs identified approximately 1.1 million claims  
with overpayments.  During this time, providers appealed 65,198  
(6 percent) of these overpayments. Of those appealed, nearly half 
(44 percent) were overturned in the providers favor.  
Previous OIG work on overpayments appeals found that 56 percent of all 
those appealed, not just those identified by RACs, were overturned at the 
Administrative Law Judge level in FY 2010.45, 46   This overall percentage is 
 
41 Approximately $75,000 was recovered in FY  2010 and the remaining $2.9 million in  
FY 2011.  These payments may represent potentially fraudulent billing that RACs could  
refer to CMS for action.  
42 Nonphysician  practitioners include  nurse practitioners, physician assistants, or certified  
nurses. 
 
43 This could include  providing services to a beneficiary in an  inpatient setting  when the 

beneficiarys medical record indicated that these services should have  been provided  in a 

different, less intensive, and less costly setting. 

44 California had the largest  number of Medicare Part A and B beneficiaries of any State 

in 2010, while New York  had  the fourth largest.  CMS, Medicare Enrollment Data by  

State and Age as of  July  2010. Accessed at http://www.cms.gov/Research-Statistics-
Data-and-Systems/Statistics-Trends-and-
Reports/MedicareEnrpts/Downloads/Sageall10.pdf. 

45 OIG,  Improvements Are Needed at the Administrative Law Judge Level of Medicare 
Appeals, OEI-02-10-00340, November 2012. 

46 Overpayments were appealed by providers, beneficiaries, and State Medicaid agencies.  

Additionally, this  percentage  includes only appeals that  were fully overturned.
    
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  11 
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generally consistent with the percentage of RAC-identified overpayments 
appeals that were overturned in the providers favor that we found when 
conducting this evaluation. This may indicate that the high Medicare 
overpayment appeal overturn rate is not limited to RACs.   
Overturned overpayments in FYs 2010 and 2011 represented 3 percent of 
total claims identified as having overpayments in FYs 2010 and 2011, and 
accounted for approximately $40 million.  See Table 1 for the number and 
percentage of appealed overpayment identifications in each RAC region 
for FYs 2010 and 2011.  See Appendix A  for the number and percentage of 
appealed overpayment identifications in FYs 2010 and 2011, by claim  
type. See Appendix B for a map of RAC regions and the States in each 
region. 
Table 1: Number and Percentage of Appealed Overpayment Identifications in FYs 2010 
and 2011  
Percentage of  
Appealed  
Number of    Percentage of  
Number of   Number of   Percentage of   Overpayment  
Appealed   Appealed  
RAC   Claims  Overpayment   Overpayment   Identifications 
Overpayment   Overpayment  
Region  Identified With  Identifications  Identifications  Overturned  
Identifications  Identifications  
Overpayments   Appealed*  Appealed   out of Claims 
Overturned   Overturned  
Identified With 
Overpayments  
A  131,037   3,588   3%   955  27%   1%  
B  110,468   15,726   14%   6,303   40%   6%  
C  335,338   9,928   3%   3,612   36%   1%  
D  490,168   35,956   7%   17,945   50%   4% 
     Total   1,067,011   65,198   6%   28,815   44%   3%  
Source:  OIG analysis of CMS appeals data, 2012. 

*Because the outcomes could not be linked to  specific RAC regions, these numbers exclude 3,968 unspecified appeals that were 

adjudicated by Administrative Law Judges. 

 
CMS took corrective action to address the majority of 
vulnerabilities it identified in FYs 2010 and 2011; 
however, it did not evaluate the effectiveness of these 
corrective actions 
CMS classifies any specific issue resulting in more than $500,000 in 
improper payments as a vulnerability.  In FYs 2010 and 2011, CMS 
identified 46 vulnerabilities that resulted in improper payments.  The 
majority of these vulnerabilities (26 of 46) were for improper payments 
under Medicare Part B. Examples included providers billing add-on codes 
without primary codes or indicating the incorrect place of service on 
claims for services performed in ambulatory surgical centers or outpatient 
hospitals. The remaining vulnerabilities (20 of 46) were for improper 
payments under Medicare Part A or in the area of durable medical 
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  12 
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equipment (DME), such as DME suppliers and physicians billing 
separately for bundled services or billing services or supplies for deceased 
beneficiaries.47  By June 2012, these vulnerabilities had resulted in 
improper payments of approximately $1.9 billion. 
CMS took action to address 28 vulnerabilities that resulted in 
$1.86 of the $1.9 billion in improper payments 
When CMS identifies a vulnerability, it may develop a corresponding 
corrective action to prevent future improper payments.  By June 2012, 
CMS took corrective action to address the majority (28 of 46) of 
vulnerabilities identified in FYs 2010 and 2011.  These corrective actions 
addressed almost all ($1.86 billion of $1.9 billion) improper payments that 
resulted from identified vulnerabilities.  Corrective actions included 
contractor technical direction letters, computerized edits, and mailing 
quarterly provider education letters.  We did not find that CMS determined 
any of the vulnerabilities required no action in order to address them. 
CMS did not take action to address 18 vulnerabilities that 
resulted in $31 million in improper payments 
As of June 2012, CMS had not taken corrective action on the remaining 
18 of 46 vulnerabilities identified in FYs 2010 and 2011.  These 
vulnerabilities resulted in $31 million in improper payments.  As of June 
2012, these 18 vulnerabilities were pending corrective action an average 
of 375 days, with 2 pending over 700 days. 
CMS reported different reasons for not taking corrective actions on 18 of 
46 vulnerabilities. For instance, one vulnerability resulted from 
underpayments made to multiple providers.  CMS stated in June 2012 that 
it considered this vulnerability to be a low priority and planned to take 
corrective action after addressing higher priority vulnerabilities.  CMS 
also reported that it had determined the appropriate corrective action for 8 
of these 18 vulnerabilities but that actions were not scheduled to begin 
until late 2012.  CMS had not determined corrective actions for the 
remaining 9 vulnerabilities because  corrective actions were on hold or 
CMS planned to discuss potential actions at a later date.  See Table 2 for 
the June 2012 status of vulnerabilities identified in FYs 2010 and 2011, by 
claim type. 
 
 
 
47 The DME benefit is covered under Medicare Part B;  however,  we analyzed DME 
vulnerabilities separately from Part B vulnerabilities because CMS records DME claims  
in separate data files and  separates DME vulnerabilities from other Part B  vulnerabilities. 
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  13 
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Table 2: June 2012 Status of Vulnerabilities Identified in FYs 2010 and 2011, by  
Claim Type  
Status of Vulnerabilities  
Claim  Corrective Actions Taken   Corrective Actions Not Taken 
Type   Number of  
Vulnerabilities  
  Number of   Dollar Amount  Number of   Dollar Amount 
of Improper  of Improper 
Vulnerabilities  Vulnerabilities  
Payments  Payments  
DME  15  12  $56,032,825   3  $981,565  
Part A  5  4  $1,735,100,796   1  $3,031,926 
Part B  26  12  $72,962,567   14  $26,916,228 
     Total   46  28  $1,864,096,188   18  $30,929,719 
       
 
        Source:  OIG  analysis of CMS vulnerability data, 2012. 
CMS did not evaluate the effectiveness of implemented 

corrective actions 

CMS policy states that it is responsible for evaluating corrective actions 
and determining their effectiveness in reducing improper payments.  
Specifically, CMS does not consider corrective actions closed until it has  
conducted analyses to determine their effectiveness.48 By June 2012, CMS 
had not evaluated the effectiveness of corrective actions it took to address 
28 of 46 vulnerabilities totaling $1.86 billion in improper payments.  CMS 
reported that it had not evaluated corrective actions because of lack of 
resources and the difficulty in determining causal relationships between 
corrective actions and reductions in improper payments.  CMS also 
reported that some corrective actions should be in place for several years 
before it evaluates them.  For instance, for computerized edits, CMS 
generally waits 12 years to evaluate effectiveness.  However, if CMS 
does not evaluate corrective actions, it cannot determine whether its 
corrective actions are effectively addressing vulnerabilities, which may 
result in continued high amounts of improper payments.   
CMS did not take action to address the six referrals of 
potential fraud that it received from RACs in FYs 2010 
and 2011 
RACs primary responsibility is to review claims for improper payments, 
but if RACs  encounter potentially fraudulent claims, they are required to 
 
48 CMS, Standard  Operating Protocol:  Vulnerability Tracking Corrective Action  
Process, February 7, 2011. 
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refer the providers that submitted the claims to CMS.49  RACs may 
continue to review claims that they have referred for potential fraud unless 
law enforcement or other CMS contractors instruct RACs to stop their 
reviews. 
In FYs 2010 and 2011, three of four RACs referred a total of six providers 
to CMS for potential fraud. RACs referred all six providers on the basis 
of external notifications (e.g., complaints from providers employees of 
falsifying medical documentation or billing for supplies that were never 
provided).50  Region B made three of the six referrals of potential fraud 
and Regions A and D made the remaining three referrals.51 In contrast, the 
Region C RAC did not submit any fraud referrals to CMS in FYs 2010 or 
2011.  This RAC initially identified two providers engaged in potentially 
fraudulent activity; however, it determined that these providers were 
already under investigation and requested that applicable claims be 
suppressed in the RAC Data Warehouse.52    
CMS indicated that it received the six referrals of potential fraud from  
RACs. However, by November 2012 it had not taken action (e.g., CPI 
review) to address them.53    
Additionally,  in response to a previous OIG report, in FY 2010 CMS 
provided RACs with two sets of training that directly addressed fraud 
identification and referral.54, 55  One focused on examples of fraudulent 
schemes and billing practices, while the other covered the referral process 
 
49 All claims that RACs  review  have been  screened to ensure  they are not associated with 
ongoing reviews of  potential  fraud or  ongoing  investigations.   

50 None of these referrals resulted from RACs identifying improper payments for 

potentially fraudulent billing,  such as providers billing  for services after a beneficiarys 

death. 

51 Region  A made two referrals and Region D made one referral in  FYs 2010 and 2011. 

52 According to the Region C RAC,  one of these providers allegedly added information to 
 
medical records after services were provided.  The other provider had been asked by the 

RAC  to return overpayments but  the RAC  had no  record of  their being returned.  
 
Further, the provideralthough claiming to  have returned the overpaymentshad no
  
documentation to  give the RAC. 
 
53 OI has investigated three of these providers for potential fraud.  One investigation  was 

opened in 2011 and another in  2012.  Neither investigation  resulted in  further actions, and 

both are now closed.  The third provider was under investigation during  our review
  
timeframe and remains under  investigation.   According to OI, two  of the three provider 

investigations  were initiated from hotline complaints and the other from a contractor 

referral. 
 
54 Training was conducted by other agencies, such as the OIG or Department of Justice; 
OIG, Recovery Audit Contractors Fraud Referrals, OEI-03-09-00130, February 2010. 
55 CMS provided two additional sets of training in  FY 2010 that did not cover referral or 
identification of fraud.  These  sets of training covered the False Claims Act and 
affirmative civil enforcement.  
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  15 
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for potential fraud. However, CMS did not provide related training to 
RACs in FY 2011. 
CMSs performance evaluations did not include 
metrics to evaluate RACs performance on all contract 
requirements 
In 2010 and 2011, CMS evaluated RACs on all metrics in their 
performance evaluations.  However,  CMSs performance evaluations did 
not include metrics to evaluate RACs performance on all contract 
requirements.  Specifically, CMS did not evaluate RACs on the extent that 
they identified improper payments.  Further, four of the eight performance 
evaluations that we reviewed did not describe RACs ability, accuracy, or 
effectiveness in identifying improper payments.  The other four 
performance evaluations we reviewed described RAC identification of 
improper payments to varying degrees; however, these descriptions were 
not linked to performance evaluation metrics.  Finally, there were no 
performance evaluation metrics related to referring potential fraud to 
CMS, such as timeliness or documentation requirements, or related to 
whether RACs had systems in place to refer potential fraud to CMS on the 
basis of identified improper payments. 
 
 
   
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CONCLUSION AND RECOMMENDATIONS 
RACs are designed to protect Medicare by identifying improper payments 
and referring potential fraud to CMS.  Prior Government Accountability 
Office work has identified problems with CMSs actions to address 
improper payment vulnerabilities, and prior OIG work has identified 
problems with CMSs actions to address referrals of potential fraud.  
Further, OIG has identified vulnerabilities in CMSs oversight of its 
contractors. Given the critical role of identifying improper payments, 
effective oversight of RAC performance is important.   
In FYs 2010 and 2011, RACs identified half of all claims they reviewed as 
having resulted in improper payments totaling $1.3 billion.  CMS took 
corrective action to address the majority of vulnerabilities it identified in 
FYs 2010 and 2011; however, it did not evaluate the effectiveness of these 
actions, which may result in continued high amounts of improper 
payments.  Additionally, CMS did not take action to address the six 
referrals of potential fraud that it received from RACs during this 
timeframe.  Finally, CMSs performance evaluations did not include 
metrics to evaluate RACs performance on all contract requirements.   
Therefore, we recommend that CMS: 
Take Action, as Appropriate, on Vulnerabilities That Are 
Pending Corrective Action and Evaluate the Effectiveness of 
Implemented Corrective Actions  
CMS should assess vulnerabilities that are pending corrective action and 
address them, as appropriate. CMS should also develop timeframes for 
addressing vulnerabilities to ensure  that they are resolved in a timely 
manner.  Finally, while CMS has taken corrective actions on 28 of 
46 vulnerabilities identified in FYs 2010 and 2011, it has not determined 
the effectiveness of these actions.  CMS should evaluate whether these 
implemented corrective actions are effectively reducing improper 
payments.   
Ensure That RACs Refer All Appropriate Cases of Potential 
Fraud 
CMS should ensure that RACs refer all appropriate cases of potential 
fraud. To do this, CMS should identify specific examples of fraud that, if 
RACs encounter, they should refer to program integrity contractors.  CMS 
should update these examples as needed to stay current with emerging 
fraud trends. CMS should also facilitate increased collaboration between 
RACs, CMS, and program integrity contractors.  For instance, CMS 
should coordinate regular meetings between program integrity contractors 
and RACs to share information about fraudulent coding or billing schemes 
in their respective regions and to keep RACs aware of emerging fraud 
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  17 
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schemes.  Additionally, CMS should provide regular (e.g., annual) training  
to RACs to help them refer potential fraud, as appropriate. 
Review and Take Appropriate, Timely  Action on RAC Referrals 
of Potential Fraud 
CMS did not provide documentation that it took action on six RAC 
referrals of potential fraud. If CMS has not already done so, it should 
review these referrals to determine whether additional actions (e.g., 
referrals to program integrity contractors) are necessary.   
Develop Additional Performance Evaluation Metrics To  
Improve RAC Performance and Ensure That RACs  Are 
Evaluated on Contract Requirements 
CMS should develop additional performance evaluation metrics to 
improve RAC performance and ensure that RACs are evaluated on 
contract requirements (i.e., identifying improper payments).  These 
metrics could include accuracy targets for RAC determinations of 
improper payments or similar measures (e.g., effectiveness ratings).  CMS 
should also include timeliness and other metrics for RAC referrals of 
potential fraud. Although these should not be the only measures of 
contractor performance, these metrics could provide important information 
on contractor performance and improve oversight. 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
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AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
In its comments on the draft report, CMS concurred with our first, second, 
and fourth recommendations but did not indicate whether it concurred 
with our third recommendation.   
CMS concurred with our first recommendation and as of June 2013 
considers the 18 vulnerabilities pending corrective action to be closed.  
CMS also stated that it will explore the feasibility of developing a protocol 
that attempts to quantify the effectiveness of corrective actions using a 
combination of tools, including data analysis, error rate measurement, 
continued identification of overpayments via postpayment review, and 
other factors. 
CMS concurred with our second recommendation and stated that it 
believes increased collaboration between RACs and ZPICs/Program  
Safeguard Contractors (PSCs) is important, and will also ensure that  
RACs continue to concurrently refer all instances of fraud to OIG and 
CMS.56  Further, CMS stated that it has and will continue to provide 
regular training to the RACs on the identification of potential fraud. 
Although CMS did not indicate whether it concurred with our third 
recommendation, it noted that it had reviewed the six RAC referrals of 
potential fraud in our review.  Four of the six referrals were forwarded to 
ZPICs/PSCs to determine whether the providers have conducted potential 
Medicare fraud. One of the other RAC referrals did not include specific 
information to conduct an investigation.  The remaining referral was 
previously received from the Medicare Administrative Contractor.57 On 
the basis of that referral, an investigation was initiated by the PSC and the 
providers billing privileges were subsequently revoked from the Medicare 
program in 2012. 
CMS concurred with our fourth recommendation and stated that 
performance metrics, such as accuracy and appeal targets, are important 
measures and should be part of the regular performance evaluations.  CMS 
has revised the 2012 CPARS evaluations to incorporate metrics on the 
RACs identification of improper payments and accuracy rates.   
 
56 PSCs are responsible for preventing, detecting, and deterring fraud in the  Medicare 
program.  CMS is in the process of replacing PSCs with ZPICs. 
57 Medicare Administrative Contractors are responsible for  making correct, reliable, and 
timely payment of Medicare home health claims.  These contractors should also refer any 
instances of suspected fraud they encounter  during their claims reviews to program  
integrity contractors.  
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  19 
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CMS also provided technical comments.  In response, we made revisions 
to the report where appropriate. 
We ask that, in its final management decision, CMS more clearly indicate 
whether it concurs with each of our recommendations.  For the full text of 
CMSs comments, see Appendix C.   
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APPENDIX A 
Number and Percentage of Appealed Overpayment 
Identifications by Claim Type in Fiscal Years 2010 and 2011 
Percentage of  
Appealed  
Number of    Percentage of  
Recovery   Number of   Number of   Overpayment  
Appealed   Appealed  
Audit   Claim  Claims  Overpayment   Identifications 
Overpayment   Overpayment  
Contractor   Type   Identified With  Identifications  Overturned out  
Identifications  Identifications  
Region  Overpayments   Appealed*  of Claims 
Overturned   Overturned  
Identified With 
Overpayments  
A  Part A  37,570   2,399   336  14%   1% 
  Part B  80,116   521  512  98%   1% 
  DME**  13,351   668  107  16%   1% 
     131,037   3,588   955       27%       1%  
B  Part A  57,473   12,589   5,510   44%   10% 
  Part B  45,255   1,856   766  41%   2% 
  DME  7,740   1,281   27  2%   <1% 
     110,468   15,726   6,303        40%       6%  
C  Part A  78,430   6,723   1,829   27%   2% 
  Part B  118,986   535  210  39%   <1% 
  DME  137,922   2,670   1,573   59%   1% 
     335,338   9,928   3,612        36%       1%  
D  Part A  68,213   10,554   1,319   13%   2% 
  Part B  205,166   18,180   13,082   72%   6% 
  DME  216,789   7,222   3,544   49%   2% 
     490,168   35,956   17,945       50%       4% 
     Total     1,067,011   65,198   28,815   44%   3%  
Source:  Office of  Inspector General analysis of Centers for Medicare & Medicaid Services appeals data, 2012. 

*Because the outcomes could not be linked to  specific RAC regions, these numbers exclude 3,968 unspecified appeals that 

were adjudicated by Administrative Law Judges. 

**Durable medical  equipment. 
   
 
 
 
 
 
 
 
 
 
 
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  21 
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APPENDIX B 
Map of Medicare Recovery Audit Contractor Regions 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recovery Audit Contactor Regions: 
Region A*, Performant Recovery  Inc. of Livermore, California:  Connecticut, 

Delaware, District of Columbia, Maine, Maryland, Massachusetts, 

New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and 

Vermont. 

Region B, CGI Technologies and Solutions Inc. of Fairfax, Virginia: Illinois, 

Indiana, Kentucky, Michigan, Minnesota, Ohio, and Wisconsin. 
 
Region C, Connolly Consulting Associates Inc. of Wilton, Connecticut:   
Alabama, Arkansas, Colorado, Florida, Georgia, Louisiana, Mississippi, 

New Mexico, North Carolina, Oklahoma, Puerto Rico, South Carolina, 

Tennessee, Texas, U.S. Virgin Islands, Virginia, and West Virginia. 

Region D, HealthDataInsights Inc. of Las Vegas, Nevada:  Alaska, American 

Samoa, Arizona, California, Guam, Hawaii, Idaho, Iowa, Kansas, Missouri, 

Montana, Nebraska, Nevada, North Dakota, Northern Mariana Islands, Oregon, 

South Dakota, Utah, Washington, and Wyoming. 

 
*Before August 2012, the company name was Diversified Collection Services, 

Inc., of Livermore, California. 

 
 
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  22 
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  APPENDIX C 
Agency Comments 
(.J
':ls"-Vll't,s 
DEPAR"IMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid Services 
Admi11istrator 
Washington, DC 20201 
JUN  1 Z 2013
DATE: 
TO: 	 Daniel R. Levinson 

Inspecior General 

FROM: 	 MlMi)yn 'ravemrer 

Administrator 

SUBJECT: 	Office of .Inspector General (OIG) Draft Report: Medicare Recovery Audit 
Contractors and CMS's Actions to Address Improper Payments, Referrals of 
Potential Fraud, and Performance (OEl-04-11-00680) 
Thank you for the opportunity to review and comment on OIG's draft report referenced above. 
The Centers for Medicare & Medicaid Services (CMS) appreciates the time and resources OIG 
has invested to review this issue. The OlG's audit focused on the corrective actions the CMS 
took to address Recovery Audit Contractor (RAC)-identified payment vulnerabilities and the 
actions the CMS took concerning RAC referrals of potential fraud.  Lastly, OIG reviewed the 
extent that the RACs' performance evaluations addressed performance metrics and contract 
requirements. 
By virtue ofCMS'~ oversight ofRACs, we continually strive to reduce the appeal rate to 
decrease provider burden and administrative costs. The majority of Recovery Auditor 
overpayment determinations are not appealed.  Claims that are appealed can be overturned for a 
number of reasons. For example. the provider or supplier may present additional documentation 
during the appeal.  All Medicare contractors that review claims, as well as the Qualified 
Independent Contractors and Administrative Law Judges (ALJ), are bound by all laws and 
regulations pertaining to the Medicare and Medicaid programs, National Coverage 
Determinations and CMS rulings.  However, ALJs are not bound by CMS manuals and Local 
Coverage Determinations. While ALJs are required to provide substantial deference to this 
guidance, they are not bound by this guidance and may deviate from it in their decision-making. 
This creates discrepancies between the AU decisions and Medicare contractor decisions but 
does not necessarily mean the Medicare contractor's decision was incorrect. A recent OlG 
report 1 concluded. "most ALJ staff noted that ALJs often decided in favor of appellants when the 
intent, but not the letter, of a Medicare policy was met .'' 
The oversight of the contractors, as well as the collaboration to assess RAC-identified 
vulnerabilities, is vital for the protection ofthe Medicare Trust Fund.  The CMS continuously 
implements corrective actions on potential and known vulnerabilities and has implemented a 
dynamic process for addressing these vulnerabilities. The CMS also values the collaboration 
with program integrity contractors in our continued efforts to combat fraud, waste and abuse. 
'Improvements needed at the Administrative Law Judge Level of Medicare Appeals - November 20!2 
Medicare RACs and CMS's Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  23 
(OEI-04-11-00680)   
   
APPENDIX C (CONTINUED)
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  24 

(OEI-04-11-00680) 
 
   
   
APPENDIX C (CONTINUED)
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  25 

(OEI-04-11-00680) 
 
   
   
APPENDIX C (CONTINUED)
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  26 

(OEI-04-11-00680) 
 
   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Dwayne Grant, Regional 
Inspector General for Evaluation and Inspections in the Atlanta regional 
office, and Jaime Durley, Deputy Regional Inspector General.   
David Samchok served as the lead analyst for this study.  Central office 
staff who provided support include Althea Hosein, Scott Manley, and 
Christine Moritz.  
 
Medicare RACs and CMSs Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance  27 
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Office of Inspector General
http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components: 
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections 
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the  Inspector  General (OCIG) provides general legal services to 
OIG, rendering  advice and opinions on HHS programs  and operations and providing all 
legal support for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.