57808 Federal Register / Vol. 76, No. 180 / Friday, September 16, 2011 / Rules and Regulations 

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. 

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-forservice 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 


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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, § 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 

§ 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 

§ 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 § 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 § 455.510(c), we 

proposed granting States the flexibility 

to specify the underpayment fee for 

Medicaid RACs. Additionally, we stated 


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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 RACidentified 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, § 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 § 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 § 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 § 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 subregulatory 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. 


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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 § 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 § 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 

(§ 455.506(c)). 

• State reporting of fraud and/or 

abuse, as defined by § 455.2, to its 

MFCU or other appropriate law 

enforcement agency (§ 455.506(d)). 

• State established limit on the 

number and frequency of medical 

records requested by a RAC 

(§ 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 § 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 

(§ 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 (§ 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 (§ 455.508(d)). 

• Mandatory RAC customer service 

measures, including: Providing a tollfree 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 

(§ 455.508(e)(1)); compiling and 

maintaining provider approved 

addresses and points of contact 


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(§ 455.508(e)(2)); mandatory acceptance 

of provider submissions of electronic 

medical records on CD/DVD or via 

facsimile at the providers’ request 

(§ 455.508(e)(3)); and notifying 

providers of overpayment findings 

within 60 calendar days 

(§ 455.508(e)(4)). 

• A three-year maximum claims lookback period (§ 455.508(f)). 

• Timely referral of suspected cases 

of fraud and/or abuse by the Medicaid 

RAC to the State (§ 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 (§ 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 (§ 455.508(a), (b), 

and (c)); State and RAC development of 

an education and outreach program, 

including notification of audit policies 

and protocols (§ 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 tollfree number during normal business 

hours from 8:00 a.m. to 4:30 p.m. in the 

applicable time zone (§ 455.508(e)(1)); 

compiling and maintaining provider 

approved addresses and points of 

contact (§ 455.508(e)(2)); mandatory 

acceptance of provider submissions of 

electronic medical records on CD/DVD 

or via facsimile at the providers’ request 

(§ 455.508(e)(3)); notifying providers of 

overpayment findings within 60 

calendar days (§ 455.508(e)(4)); a 3 year 

maximum claims look-back period 

(§ 455.508(f)); and a State established 

limit on the number and frequency of 

medical records requested by a RAC 

(§ 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 

(§ 455.508(a)), (b), and (c)); State and 

RAC development of an education and 

outreach program, including 

notification of audit policies and 

protocols (§ 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 tollfree number during normal business 

hours from 8:00 a.m. to 4:30 p.m. in the 

applicable time zone (§ 455.508(e)(1)); 

compiling and maintaining provider 

approved addresses and points of 

contact (§ 455.508(e)(2)); mandatory 

acceptance of provider submissions of 

electronic medical records on CD/DVD 

or via facsimile at the providers’ request 

(§ 455.508(e)(3)); notifying providers of 

overpayment findings within 60 

calendar days (§ 455.508(e)(4)); a 3 year 

maximum claims look-back period 

(§ 455.508(f)); and a State established 

limit on the number and frequency of 

medical records requested by a 

Medicaid RAC (§ 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 § 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 


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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 (§ 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 § 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, allState 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 postpayment 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 


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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 § 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 § 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 § 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 (§ 455.508(d)); minimum 

customer service measures, including 

those measures found in the Medicare 

RAC program such as: Providing a tollfree 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 

(§ 455.508(e)(1)); compiling and 

maintaining provider approved 

addresses and points of contact 

(§ 455.508(e)(2)); mandatory acceptance 

of provider submissions of electronic 

medical records on CD/DVD or via 

facsimile at the providers’ request 

(§ 455.508(e)(3)); notifying providers of 

overpayment findings within 60 

calendar days (§ 455.508(e)(4)); a 3 year 

maximum claims look-back period 

(§ 455.508(f)); and a State-established 

limit on the number and frequency of 

medical records requested by a RAC 

(§ 455.506(e)). States may request 

exceptions to § 455.508(f) through the 

SPA process, and RACs may request 

from States, exceptions to § 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 Statespecific 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 


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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 phasein 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, allState 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 

requirements. Several commenters 

suggested that CMS should standardize 

program elements of the Medicare RACs 

into Medicaid RAC programs. Several 

commenters expressed their concerns 

that a variation in Medicaid RAC 

program requirements between 

bordering States would cause an undue 

burden on providers that operate 

nationally or in multiple States. 

Response: Consistent with the 

flexibility afforded States in the design 

and operation of their Medicaid 

programs, we did not prescribe every 

element of the Medicaid RAC program 

in the proposed rule. We received many 

comments encouraging CMS to adopt 

measures in the Medicaid RAC program 

that could operate in alignment with 

Medicare RAC requirements. We 

considered the effect of aligning 

Medicare provisions upon individually 

State-run programs and existing State 

laws and regulations and balanced that 

with the spirit of the statute. 

Accordingly, in the final rule, we are 

requiring certain specific program 

elements that are consistent with the 

program elements established by the 

Medicare RAC program. These program 

elements include the following: 

• Requiring the entity to 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 

§ 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 (§ 455.508(b)); 

• Requiring the entity to hire certified 

coders unless the State determines that 

certified coders are not required for the 

effective review of Medicaid claims 

(§ 455.508(c)); 

• Requiring the development of an 

education and outreach program 

component, including notification to 

providers of audit policies and protocols 

(§ 455.508(d)); 

• Requiring RAC customer service 

measures including: Providing a tollfree customer service telephone number 

in all correspondence sent to providers 


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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 

(§ 455.508(e)(1)); compiling and 

maintaining provider approved 

addresses and points of contact 

(§ 455.508(e)(2)); mandatory acceptance 

of provider submissions of electronic 

medical records on CD/DVD or via 

facsimile at the providers’ request 

(§ 455.508(e)(3)); notifying providers of 

overpayment findings within 

60 calendar days (§ 455.508(e)(4)); 

• 3-year maximum claims look-back 

period (§ 455.508(f)); 

• State established limit on the 

number and frequency of medical 

records requested by a RAC 

(§ 455.506(e)); 

• State coordination of recovery audit 

efforts with other auditing entities 

(§ 455.506(c)); and 

• Return of contingency fees within a 

reasonable timeframe as prescribed by 

the State, if a Medicaid RAC 

determination is overturned at any level 

of appeal (§ 455.510(b)(3)). As noted 

below, States will have flexibility as to 

timing of payment. 

In addition, we strongly encourage 

States to adopt specific program 

elements that are part of the permanent 

Medicare RAC program within the 

flexibility States have to design and 

implement their RAC programs in the 

following areas: 

• Medical necessity reviews; 

• Extrapolation of audit findings; 

• External validation of accuracy of 

RAC findings; and 

• Types of claims audited. 

For contingency fees, States maintain 

the flexibility of paying contingency 

fees either from amounts identified and 

recovered, but not fully adjudicated, or 

after the overpayment was fully 

adjudicated and all appeals available to 

the provider were exhausted. As noted 

above, the RAC will be required to 

return the contingency fee, within a 

reasonable timeframe as prescribed by 

the State that corresponds to the amount 

of the overpayment if an adverse 

determination is overturned at any level 

of appeal. 

Program elements where we will grant 

States complete flexibility regarding the 

design, procurement, administration 

and operation of their RAC programs, 

largely because of the requirements of 

State laws, are as follows: 

• Underpayment methodology; 

• State appeals process; 

• Contingency fee rates (States have 

complete flexibility in the contingency 

fee rates they pay, exclusive of FFP. 

However, we will provide FFP only for 

amounts that do not exceed the thenhighest contingency fee rate paid to 

Medicare RACs); 

• State exclusion of claims; 

• Bundling of procurements; and 

• Coordination of the collection of 

RAC overpayments. 

With regard to the providers serving 

beneficiaries in multiple States that 

expressed concern about the variation 

among Medicaid RAC program 

elements, we believe that a strong 

education and outreach campaign 

developed by the States and RACs and 

required as a part of every Medicaid 

RAC program will help alleviate the 

concerns that were expressed. 

As we described in more detail, in 

sections II. and III.G. of this final rule, 

we are granting States the flexibility to 

design their appeals processes, but 

States are required by section 

1902(a)(42)(B)(ii)(III) of the Act to have 

an adequate process for entities to 

appeal adverse RAC determinations. 

Comment: One commenter suggested 

that Medicaid RAC program goals be 

created based on the error rate 

established by the Payment Error Rate 

Measurement (PERM) program. 

Response: PERM addresses specific 

error measures in the Medicaid 

program. Under section 1902(a)(42)(B)(i) 

of the Act, the Medicaid RACs shall 

identify underpayments and 

overpayments and shall recoup 

overpayments. Thus, there is no 

authority under Federal law for 

Medicaid RAC programs to apply any 

measure except to ensure that States 

make no improper payments to 

providers. 

Comment: One commenter inquired 

whether existing patient identifiers can 

be used so that files can be readily 

retrieved by the provider. 

Response: We do not intend for States 

to deviate from processes that are 

already in place to readily identify 

claims. We encourage States to work 

with their contractors to include the 

necessary fields to effectively identify 

overpayments and/or underpayments. 

Comment: Several commenters stated 

that during the Medicare RAC 

Demonstration, many providers 

experienced inappropriate and arbitrary 

RAC denials. These commenters 

indicated that the RAC neither informed 

providers of the types of issues they 

were auditing, nor did they provide a 

rationale for adverse determinations. 

Additionally, commenters reported 

RACs audited claims using the wrong 

payment codes and audited claims from 

several years ago. According to 

commenters, this led to provider 

appeals, 64 percent of which were 

decided in the favor of the provider. 

Response: As stated previously, we 

are applying numerous lessons learned 

from the Medicare RAC demonstration. 

We are requiring in this final rule that 

each Medicaid RAC 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 

§ 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. We finalize this provision at 

§ 455.508(b). We are also requiring 

Medicaid RACs in this final rule 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 § 455.508(c). Finally, we are 

requiring that there be a 3 year 

maximum claims look-back period. We 

finalize this provision at § 455.508(f). 

Comment: One commenter inquired 

whether Medicaid RACs are required to 

comply with the reopening regulation 

located at § 405.980 similar to Medicare 

RACs, which requires a RAC to have 

good cause before it reopens a claim. 

Response: Section 405.980 applies to 

administrative appeals under the 

Medicare program. States have different 

administrative appeal processes from 

the Medicare program. Accordingly, we 

did not require States to comply with 

the reopening regulation as set forth in 

the Medicare RAC program. As stated 

previously, States will retain the 

flexibility to design, procure, operate, 

and administer their RAC programs in 

accordance with State laws, regulations, 

and policies. 

Comment: One commenter suggested 

that patients not receive a letter 

regarding a Medicaid RAC audit until 

the appeal process has ended and a 

determination is final, similar to the 

Medicare program. 

Response: The Medicaid RAC 

program is designed to review claims 

submitted by providers of items and 

services or other individuals furnishing 

items and services for which payment 

has been made under section 1902(a) of 

the Act. Accordingly, States have the 

flexibility to decide the issue of patient 

notification of final claims resolution. 

Comment: Several commenters stated 

that the best way to reduce common 

billing and coding mistakes is through 

targeted education and outreach, rather 

than onerous audits performed by 

outside contractors with incentives to 

deny claims. These commenters 

asserted that education and outreach 


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efforts are insufficient across the 

Medicare and Medicaid programs. 

Response: We agree that targeted 

education and outreach is one way of 

reducing common billing and coding 

mistakes. Accordingly, we have 

finalized at § 455.508(d), that States and 

their RACs are required to develop a 

education and outreach program as part 

of their Medicaid RAC programs. This 

includes, at a minimum, notification of 

audit policies and protocols. 

Comment: Several commenters 

recommended the exclusion of medical 

necessity reviews from the Medicaid 

RAC program. 

Response: We disagree with the 

commenters. Providers are required to 

furnish medically necessary services in 

State Medicaid plans and medical 

necessity reviews by Medicaid RACs are 

permitted to the extent they are 

consistent with State laws and 

regulations. 

Comment: Several commenters 

suggested that if medical necessity 

reviews are permitted in Medicaid RAC 

programs, then CMS should issue key 

oversight provisions in the final rule to 

mitigate incentives for aggressive and/or 

inaccurate medical necessity review 

denials. 

Response: We disagree that we should 

issue oversight provisions regarding 

medical necessity reviews in the 

Medicaid RAC program. Providers are 

required to furnish medically necessary 

services in accordance with State 

Medicaid plans, and thus medical 

necessity reviews by Medicaid RACs are 

permitted to the extent the reviews are 

consistent with State laws and 

regulations. In those cases, we 

encourage States to adopt measures 

reflected in the Medicare RAC program 

sub-regulatory guidance. We intend to 

continue providing technical assistance 

to States that will inform them of best 

practices from the Medicare RAC 

program. Accordingly, we decline to 

issue oversight provisions in the final 

rule regarding medical necessity 

reviews. 

Comment: Several commenters 

recommended that if medical necessity 

reviews are permitted in the Medicaid 

RAC program and an improper payment 

is identified, providers should be 

allowed to re-bill for the lower 

appropriate claim amount. 

Response: If a Medicaid RAC 

identifies an improper payment as a 

result of a medical necessity review, or 

any RAC review, the issue of whether a 

provider is permitted to re-bill a 

corrected claim is governed by State 

law, regulation, and policy which set 

time limits on the submission of 

providers’ claims. 

Comment: One commenter 

recommended increased physician 

involvement in medical necessity 

reviews. 

Response: In the Medicare RAC 

program, no physician involvement is 

required in medical necessity reviews. 

We require that registered nurses (RNs) 

must be utilized, and that the Medicare 

RAC generally, employ a Medical 

Director. Similarly, we have finalized at 

§ 455.508(b), that each RAC 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 

§ 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. In addition, States that elect to 

permit medical necessity reviews in 

their Medicaid RAC programs should 

develop criteria consistent with their 

own State laws and regulations. 

Comment: One commenter 

recommended that CMS establish 

reporting mechanisms to monitor 

contractor accuracy when reviewing 

claims for medical necessity in the 

Medicaid RAC program. 

Response: If States elect to include 

medical necessity reviews in their 

Medicaid RAC program, we encourage 

the States to monitor the reviews for 

accuracy. We have finalized § 455.502(c) 

and § 455.514(b) which require State 

reporting. Additionally, we will issue 

sub-regulatory guidance, generally, on 

reporting and performance metrics for 

Medicaid RACs. 

Comment: One commenter 

recommended that CMS should 

establish appropriate guidelines for 

Medicaid RAC medical necessity 

reviews, and require the RACs to have 

qualified personnel with both the 

clinical and regulatory experience to 

review medical necessity review claims. 

Response: We disagree that CMS 

should establish guidelines for medical 

necessity reviews conducted by 

Medicaid RACs. States must follow the 

guidance that is provided in State 

Medicaid plans, State law, regulation, 

and policy. In the final rule at 

§ 455.508(b), however, we are requiring 

that each RAC 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 § 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. 

Comment: Several commenters 

suggested that Medicaid RACs should 

conduct sample medical necessity 

audits to support the data identifying 

the pattern of errors that will be targeted 

through the audits. 

Response: As previously stated, if 

States elect to include medical necessity 

reviews in their Medicaid RAC 

programs, we encourage the States to 

monitor the reviews for accuracy. 

Comment: Several commenters 

recommended that final validation of 

medical necessity review denials should 

be signed off by a physician. 

Response: In the Medicare RAC 

program, a physician’s approval is not 

required in the validation of a medical 

necessity review denial. States have the 

flexibility to determine the parameters 

for medical necessity reviews. 

Therefore, we are not requiring final 

validation of medical necessity review 

by a physician. 

Comment: Several commenters 

recommended that the RACs be required 

to submit a rationale for each medical 

necessity review to the SMA for review 

and approval. 

Response: Similar to the Medicare 

RAC program in which the agency 

formed a ‘‘New Issue Review Board’’ 

which approves audit issues prior to 

widespread review, we encourage the 

formation of State review teams for 

Medicaid RACs that can approve new 

audit issues prior to review. We will 

provide technical assistance to States 

who decide to include medical 

necessity reviews in their Medicaid 

RAC programs. 

Comment: One commenter 

recommended that the SMA be required 

to share training materials with 

providers that are used by Medicaid 

RACs to conduct a medical necessity 

review. 

Response: Although we will not 

require States to share Medicaid RAC 

training materials with providers, we 

encourage States and SMAs, consistent 

with their laws, regulations, and 

policies, to make every effort to ensure 

transparency in the Medicaid RAC 

program. Additionally, we have 

finalized § 455.508(d), which requires 

an education and outreach component 

in every Medicaid RAC program 

including, at a minimum, notification to 

providers of audit policies and 

protocols. 

Comment: One commenter 

recommended that CMS exclude 

medical necessity reviews in States 

where prior authorization programs 


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require medical necessity reviews prior 

to payment approval. 

Response: To the extent that medical 

necessity reviews are consistent with 

Medicaid State Plans, State laws or 

regulations, medical necessity reviews 

are permitted. Accordingly, we did not 

adopt the commenter’s 

recommendation. 

Comment: One commenter suggested 

that CMS and SMAs use RAC audit 

findings to educate providers and 

implement payment system fixes to 

avoid billing mistakes before they are 

made. 

Response: We agree with the 

comment. If Medicaid RACs identify 

program vulnerabilities as a result of 

their findings, we encourage RACs to 

share this information with States so 

that they can implement corrective 

action, such as pre-payment edits or 

other similar system fixes. States can 

also use RAC findings to develop 

provider education in an attempt to 

prevent billing errors. 

Comment: Several commenters 

expressed concern that all staff 

conducting automated or complex 

reviews must demonstrate knowledge of 

the State’s published Medicaid 

guidelines and coding criteria for the 

dates and types of services. 

Response: We believe that States 

should make the relevant Medicaid 

coverage guidelines and coding criteria 

available as part of the procurement 

process. This can be done in detail 

within the request for proposal or by 

providing the necessary links where 

guidelines and criteria are located for 

the various program types. 

Comment: A commenter requested 

that the Medicaid RAC Statement of 

Work (SOW) exclude Evaluation and 

Management (E & M) Services from RAC 

review. 

Response: States that contract with a 

RAC engage the RAC for the purpose of 

reviewing claims submitted by 

providers for items or services for which 

payment has been made under the 

Medicaid program. We expect that 

E & M Services, that is, those services 

provided by physicians and nonphysician practitioners to evaluate 

patients and manage their care, will be 

included within the scope of Medicaid 

RAC review. 

Comment: A commenter suggested 

having an internal State agency staff 

member review claims before auditing 

by the Medicaid RAC. 

Response: We do not oppose States 

setting up processes to ensure the 

validity of claims before a determination 

is made as to whether a claim is an 

overpayment or underpayment. Because 

of the uniqueness of each State 

Medicaid program, the States should 

have the flexibility to design their 

Medicaid RAC programs specific to 

their individual program needs. 

Comment: One commenter strongly 

recommended hiring professionally 

trained and certified coders, who have 

the appropriate skill sets that would 

facilitate improved reviews and reduce 

duplicative work in reviewing records 

correctly. 

Response: We agree with the 

commenter. Accordingly, we have 

included § 455.508(c) in this final rule 

which requires Medicaid RACs to hire 

certified coders unless the State 

determines that certified coders are not 

required for the effective review of 

Medicaid claims. 

Comment: Several commenters 

suggested that the final rule require each 

Medicaid RAC to have a minimum of 

1.0 FTE physician Medical Director who 

is currently licensed; has relevant work 

experience in the health insurance 

industry; has extensive knowledge of 

Medicaid coverage and payment rules; 

and has appropriate clinical experience 

practicing medicine. Other commenters 

suggested that CMS not require 

Medicaid RACs to hire physician 

Medical Directors, but require that the 

appropriate level of medical expertise 

be staffed by the RAC to review medical 

records. The commenters also suggested 

that the medical personnel not have a 

record of adverse disciplinary actions. 

Response: We agree with those 

commenters who suggested that the 

Medicaid RACs should each hire a 

Medical Director who is a Doctor of 

Medicine or a Doctor of Osteopathy and 

has relevant work and educational 

experience. Accordingly, we have 

finalized at § 455.508(b) that each 

Medicaid RAC 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 § 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. 

We also require Medicaid RACs at 

§ 455.508(a) to employ personnel who 

are trained medical professionals, as 

defined by the State, in good standing 

with the relevant State licensing 

authorities, where applicable, to review 

Medicaid claims. 

Comment: One commenter requested 

that CMS consider clarifying the 

language in the final rule to include 

State policies and provider handbooks, 

where Medicaid RACs would review 

post-payment claims for overpayments 

and underpayments consistent with 

State laws and regulations. 

Response: States have a certain 

amount of flexibility to design their 

Medicaid RAC program according to 

their needs. We believe that States’ 

current practices regarding the 

processing of claims, including the use 

of policies and provider handbooks, 

should not differ in the Medicaid RAC 

program. Accordingly, each State 

should provide its RAC with all 

available resources to help facilitate 

claim review. 

Comment: One commenter requested 

that CMS clarify the types of technical 

abilities that an entity wishing to 

perform as a Medicaid RAC must 

demonstrate, as referenced in proposed 

§ 455.508 of the regulation, and 

incorporate other examples of technical 

abilities in addition to, trained medical 

professionals in the final rule. 

Response: We expect that RACs will 

have the ability to review claims 

submitted by providers of items and 

services for which payment has been 

made under section 1902(a) of the Act 

as required by § 455.506(a). We have 

finalized § 455.508(a), which requires 

RACs to employ trained medical 

professionals, as defined by the State, to 

review Medicaid claims. These trained 

medical professionals could include, for 

example, nurses or physical therapists. 

States have the discretion to determine 

the types of medical professionals they 

require based upon their individual 

Medicaid RAC program needs. 

Comment: One commenter requested 

that CMS recognize that not all recovery 

efforts require trained medical 

professionals; their experience with 

claims review includes the significant 

input of non-medical trained 

professionals, including CPAs, coding 

professionals, investigators, and 

accountants who are able to identify 

inappropriate payments that arise out of 

non-clinical issues. 

Response: We appreciate the 

comment and recognize that the review 

of claims could involve a variety of 

disciplines to ensure the identification 

of inappropriate payments. However, 

we have finalized at § 455.508(a), (b), 

and (c) that Medicaid RACs must hire 

trained medical professionals, as 

defined by the State, to review Medicaid 

claims, each RAC 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 § 455.516, 

from requiring its RAC to hire a 


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minimum of 1.0 FTE Contractor Medical 

Director by submitting to CMS a written 

request for CMS review and approval. In 

addition, the Medicaid RAC must hire 

certified coders (unless the State 

determines that certified coders are not 

required for the effective review of 

Medicaid claims). 

Comment: A commenter suggested 

that CMS use the Medicare definition of 

‘‘good cause’’ found in our regulation at 

§ 405.986 as a floor in its final 

regulation for the Medicaid RAC 

program. This commenter also 

suggested that providers should have 

the right to challenge a lack of good 

cause to review a claim by the Medicaid 

RACs. Another commenter requested 

that CMS require Medicaid RACs to 

document good cause for claim review. 

Response: RACs are required to 

review Medicaid claims. States will 

have the flexibility to establish 

requirements regarding the 

documentation of good cause to review 

a claim. Additionally, States may 

consider establishing requirements 

regarding the documentation of good 

cause to review a claim if they do not 

already have this requirement. In 

addition to those program elements 

specifically required, we encourage 

States to replicate the Medicare 

practices that would be beneficial to 

their Medicaid RAC programs, 

including, without limitation, 

documentation of good cause. However, 

we will not require States to document 

good cause because that requirement 

applies to the Medicare administrative 

appeals process. Each State has already 

assured CMS via the State Plan 

amendment process that it has in place 

an administrative appeals infrastructure 

whereby a provider may avail itself of 

its due process rights to appeal an 

adverse Medicaid RAC determination. 

States, therefore, must follow their own 

administrative appeals processes, which 

may or may not require documentation 

of good cause. 

Comment: One commenter requested 

that CMS institute an issue approval 

process similar to the process now 

provided in the Medicare RAC program. 

Response: In general, issues reviewed 

by the Medicare RACs are approved by 

CMS prior to widespread review. CMS 

uses a New Issue Review Board to 

provide oversight in conjunction with 

issues that are reviewed by the Medicare 

RACs. States may opt to establish an 

issue review board similar to the 

Medicare RAC program in which they 

consider topics for audit review. States 

will have the flexibility to determine the 

issues that are relevant to their 

respective Medicaid programs which 

will be subject to Medicaid RAC review. 

Comment: One commenter suggested 

that CMS require Medicaid RACs to 

hold ‘‘meet and greet’’ forums. 

Response: We recognize that each 

State has different considerations and 

must tailor its Medicaid RAC activities 

to the uniqueness of its own State. 

Accordingly, we will not require 

Medicaid RACs to hold ‘‘meet and 

greet’’ forums. However, we believe that 

States should promote transparency in 

their respective RAC programs. A ‘‘meet 

and greet’’ forum is an example of one 

way a State can promote transparency in 

its RAC program by allowing providers 

to interact with the contractor’s 

personnel. 

Comment: Several commenters asked 

that CMS require the following 

customer service measures that will 

assist providers in ensuring the timely 

submission of sufficient documentation 

to support the services billed and 

generally increase the efficiency of the 

process: 

1. Implement timeframes for RAC 

determinations and notification of the 

same. 

2. Require RACs to obtain correct 

provider addresses and points of 

contact. 

3. Require RACs to give extensions to 

providers if RAC provider notices are 

sent to a wrong address or other 

extenuating circumstances. 

4. Require RACs to maintain websites 

and post audit issues. 

5. Require RACs to maintain provider 

portals of customer service information. 

6. Require RACs to provide a toll-free 

phone number in case of questions. 

7. Require RACs to respond to 

providers in a timely manner. 

8. Require RACs to give providers a 

rationale for denials. 

9. Require RACs to send 

correspondence to providers in clearly 

marked envelopes. 

10. Implement deadlines for 

submission of medical records and 

clearly indicate those deadlines in an 

Additional Documentation Request 

(ADR) letter and indicate in that letter 

the suggested documentation that will 

assist RACs in adjudicating the claim. 

11. Initiate contact with the provider 

who is the focus of the audit before 

issuing an overpayment determination 

for failure to submit documentation. 

12. Accept provider submission of 

medical records on CD/DVD or via 

facsimile. 

Response: After consideration of these 

numerous comments, we are requiring 

at § 455.508(e), that Medicaid RACs 

provide minimum customer service 

measures including: Providing a tollfree 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(§ 455.508(e)(1)); compiling and 

maintaining provider approved 

addresses and points of 

contact(§ 455.508(e)(2)); mandatory 

acceptance of provider submissions of 

electronic medical records on CD/DVD 

or via facsimile at the providers’ request 

(§ 455.508(e)(3)); notifying providers of 

overpayment findings within 

60 calendar days (§ 455.508(e)(4)). States 

should also rely upon internal processes 

and procedures for notification 

requirements and identify specific 

timeframes for required responses 

between the Medicaid RAC and 

providers, if possible. 

Comment: Several commenters asked 

that the proposed rule require each 

Medicaid RAC to include a toll-free 

customer service telephone number in 

all correspondence sent to providers. 

Response: We agree and have 

finalized at § 455.508(e) the requirement 

that Medicaid RACs must provide 

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 

(§ 455.508(e)(1)). 

Comment: One commenter asked if 

the notification of findings of 

overpayments or underpayments would 

include information on how 

overpayments may be repaid/offset, 

time limits for repayment without 

interest, and information on timeliness 

of additional payments and methods of 

additional payments. 

Response: We have finalized at 

§ 455.508(e)(4), that RACs must notify 

providers of overpayment findings 

within 60 calendar days. Also, at 

§ 455.510(c)(3), we require States to 

notify providers of underpayments that 

are identified by the RACs. Each State 

will have the discretion to determine 

any additional information that it wants 

to include in provider notifications. 

Comment: One commenter asked 

CMS to require States and their RACs to 

give advance notice to providers of 

audit focus areas in preparation for 

reviews, as occurs in the Medicare RAC 

program. 

Response: States have a certain degree 

of flexibility to design their Medicaid 

RAC programs to fit their individual 

needs. We believe that States should 

promote transparency in their RAC 

programs. States requiring RACs to give 

advanced notice to providers of audit 

areas in preparation of a review is an 


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example of how States can facilitate 

transparency. 

Comment: One commenter asked 

CMS to require States to be transparent 

with regard to their coding/billing rules 

and guidelines as well as the screening 

guidelines that are used for making 

medical necessity determinations. 

Response: We encourage States to 

make coding/billing rules and 

guidelines available to the extent 

possible to promote transparency. 

Comment: Some commenters 

recommended that CMS develop a 

Medicaid RAC national SOW, similar to 

the Medicare RAC program. 

Response: We disagree with the 

comment. The proposed Medicaid RAC 

program will not be one national 

program, like Medicare; rather it will be 

more than 50 State-specific programs. In 

this context, it would be nearly 

impossible to standardize the SOW for 

the Medicaid RAC program, as Medicare 

does. We have previously stated that as 

a result of comments, we have 

reconsidered the proposal to allow 

States complete flexibility regarding 

most aspects of their RAC programs, and 

have finalized at § 455.506 and 

§ 455.508 certain requirements for States 

and their RACs to better align with 

Medicare RACs. With regard to 

Medicaid RAC program elements where 

we encourage States to adopt those 

measures that were incorporated into 

the permanent Medicare RAC program, 

we will continue to provide technical 

assistance after the publication of the 

final rule. 

Comment: Several commenters 

expressed concern about allowing the 

RAC to develop or apply its own 

coverage, payment, or billing policies. 

Response: States establish Medicaid 

coverage, payment and billing policies. 

The contract established with the RAC 

should address how the RAC will audit 

claims based on those established 

policies. Whether or not RACs develop 

or apply their own coverage, payment or 

billing policies is a contract issue 

resolved between States and their RACs. 

Comment: Commenters expressed 

concern that small and solo practice 

physicians are already overwhelmed as 

a result of requests for records by other 

audit programs. Other commenters 

suggested that CMS require the RACs to 

assume the cost of copying and mailing, 

as well as allow for the electronic 

submission of records. 

Response: We agree with the 

commenters with regard to limiting the 

number of medical records that may be 

requested by a Medicaid RAC. 

Accordingly, we have finalized at 

§ 455.506(e) that States must set limits 

on the number and frequency of medical 

records to be reviewed by the RACs, 

subject to requests for exceptions from 

RACs. With regard to the costs of 

copying and mailing, as well as the 

electronic submission of records, we 

require at § 455.508(e)(3) mandatory 

acceptance of provider submissions of 

electronic medical records on CD/DVD 

or via facsimile at the provider’s 

request. 

Comment: One commenter requested 

guidance regarding the parameters 

associated with potential conflicts of 

interests that may develop as a result of 

the same contractor performing services 

on behalf of providers, for example, 

coding and billing as well as seeking to 

perform RAC audits of these same 

providers in which they acted as 

consultants. 

Response: We indicated in the 

proposed rule that States should be 

cognizant of the potential for conflicts of 

interest, and should take steps to 

identify and prevent conflicts of 

interest. These conflicts of interest may 

arise among contractors or their 

subcontractors that perform audit 

related services for providers and then 

seek to perform audit recovery services 

on behalf of the State. 

Comment: One commenter requested 

that the Medicaid RAC obtain approval 

from CMS to audit new issues and to 

post CMS-approved issues on the 

Medicaid RAC’s website prior to the 

claims review similar to the current 

Medicare RAC process. 

Response: The Medicaid RAC 

program differs from the Medicare RAC 

program in that it is a State-run 

program. Accordingly, specific areas of 

RAC review should be determined by 

the State in conjunction with its RAC. 

We recognize that there could be issues 

that are unique to a particular State in 

terms of areas that should be the focus 

of an audit. Therefore, we believe States 

are in the best position to make this 

determination. 

Comment: One commenter requested 

that CMS clarify whether RAC contracts 

must be for a period of 5 years, similar 

to the term for Medicare RAC contracts. 

Response: As stated earlier, States 

will have the flexibility to set periods of 

performance in their respective 

Medicaid RAC contracts that fit their 

program needs and are consistent with 

State law. 

Comment: One commenter requested 

that CMS require States to use a 

validation contractor to independently 

examine Medicaid RAC vulnerability 

and claim determinations, and to issue 

annual accuracy scores. 

Response: While we will not require 

States to engage a validation contractor, 

we believe that States should set targets 

for validation of the accuracy of RAC 

determinations and measure those 

targets accordingly. In addition, we plan 

on developing performance metrics in 

conjunction with the States to assist 

with determining the accuracy of RAC 

reviews. 

Comment: One commenter requested 

that CMS require Medicaid RACs to 

accept electronic documentation 

submission in response to RAC audits. 

Response: As part of the customer 

service measures, we are requiring 

Medicaid RACs at § 455.508(e)(3) to 

accept electronic submissions of 

medical record documentation to 

facilitate provider response in 

connection with RAC audit requests, 

without compromising the security and 

privacy of that data, unless the State 

requests and receives an exception from 

CMS. 

Comment: One commenter suggested 

that CMS include additional provisions 

in the final rule that will serve to protect 

independent community pharmacies 

against abusive auditors and audit 

practices by requiring RACs to accept 

the records of a hospital, physician, or 

other authorized practitioner that are 

made available by the pharmacy to 

validate pharmacy records and 

prescriptions for confirming the 

accuracy of Medicaid claims filed by the 

pharmacy. 

Response: We disagree that it is 

necessary to include additional 

provisions to protect independent 

pharmacies against abusive audit 

practices. States will have the flexibility 

to design their Medicaid RAC programs 

consistent with their laws, regulations, 

and policies. 

Comment: One commenter requested 

that CMS include licensed pharmacists 

or a company representative in the RAC 

auditing process. 

Response: We decline to require 

Medicaid RACs to hire licensed 

pharmacists or company 

representatives. However, States have 

the flexibility to require Medicaid RACs 

to hire licensed pharmacists or company 

representatives if they so choose. We are 

finalizing staffing requirements at 

§ 455.508 (a), (b) and (c). 

Comment: One commenter suggested 

that CMS require Medicaid RACs to 

form panels comprised of practicing 

physicians representing various 

specialties, which can advise RACs on 

medical issues. 

Response: We do not oppose States 

requiring Medicaid RACs to form panels 

of practicing physicians who represent 

various specialties that can advise them 

on medical issues. We encourage States 

to adopt measures that will promote 

transparency and improved 


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communication among States, Medicaid 

agencies, Medicaid RACs, and 

providers. 

Comment: One commenter suggested 

that CMS require each Medicaid RAC 

auditor to be trained on Medicaid 

payment and coverage policy relating to 

all target areas approved by the State, 

billing and re-billing protocols, and the 

Medicaid appeals process. Each RAC 

auditor should also be required to 

demonstrate proficiency in these areas 

prior to conducting audits. 

Response: We understand the 

concerns of the commenter regarding 

the need to have highly trained 

personnel. At § 455.508(a), we require 

that Medicaid RACs hire trained 

medical professionals, as defined by the 

State, to review Medicaid claims. 

Comment: One commenter urged 

CMS to designate a percentage of 

recovered program dollars to improve 

education, increase pre-payment claim 

edits to eliminate payment of duplicate 

claims and those obviously submitted in 

error (for example, age-specific services 

provided to a patient outside the 

designated age range), and to provide 

continuous outreach with information 

on newly discovered and commonly 

occurring billing errors in both the 

Medicare and Medicaid programs. 

Response: We agree with the 

commenter that education and outreach 

is a necessary element to Medicaid RAC 

programs. Accordingly, we include in 

this final rule at § 455.508(d), the 

requirement that States and RACs 

develop an education and outreach 

program, including notification to 

providers of audit policies and 

protocols. We will not require States to 

designate a percentage of recovered 

program dollars to improve education 

and increase pre-payment claim edits. 

Comment: A commenter 

recommended that CMS consider relief 

in the presence of a disaster, whether 

widespread or in an individual location, 

in the way of an extension of the 

deadline for receipt of records or refund, 

acceptance of reconstructed records or 

exemption from review for records that 

were completely destroyed, and/or 

delay of reviews for up to 6 months. 

Response: States should already have 

policies and procedures in place for 

handling unanticipated events when 

they occur, including provisions for 

requests of records. 

Comment: Several commenters 

requested CMS to exclude payments 

made to disproportionate share 

hospitals (DSH) or special hospital 

payments from the scope of Medicaid 

RAC review in the final rule. 

Response: We do not believe that DSH 

payments or special hospital payments 

should be excluded in the final rule. 

States have the flexibility to determine 

whether those payments should be the 

focus of RAC review. 

Comment: One commenter suggested 

that CMS require States to publish 

Medicaid and Medicare RAC audit 

reports for public viewing. 

Response: We believe that States 

should be as transparent as possible 

with regard to their Medicaid RAC 

programs. While we will not require 

States to publish Medicaid audit 

reports, we encourage States to consider 

making those reports available for 

public viewing. 

D. Definitions 

Comment: One commenter requested 

that CMS offer a definition of 

‘‘overpayment.’’ 

Response: For purposes of the 

Medicaid RAC program, we believe that 

States should define ‘‘overpayment’’ 

consistent with 42 CFR 433.304 which 

defines ‘‘overpayment’’ as ‘‘the amount 

paid by a Medicaid agency to a provider 

which is in excess of the amount that is 

allowable for services furnished under 

section 1902 of the Act and which is 

required to be refunded under section 

1903 of the Act.’’ 

Comment: One commenter indicated 

that the proposed rule does not include 

a definition of ‘‘underpayment.’’ In 

addition, this commenter suggested that 

the definition of underpayment could 

range from: (a) Broad and include a 

service that was never billed by a 

provider, to (b) narrow and reflect an 

error that was made in the 

reimbursement calculation. 

Response: For purposes of the 

Medicaid RAC program, we believe that 

States should define ‘‘underpayment’’ 

consistent with their State law and/or 

plans. In the Medicare RAC program, an 

‘‘underpayment’’ is generally defined as 

an amount paid to a provider or 

supplier for items or services furnished 

to a Medicare beneficiary at a lesser 

amount due and payable under the Act, 

implementing regulations, and policies. 

E. Contingency Fees 

Comment: One commenter inquired 

whether RAC determinations include 

cost-based adjustments or cost-based 

settlements. This commenter also 

wanted to know whether contingency 

fees would be paid to a Medicaid RAC 

for those determinations. 

Response: We understand that certain 

States use cost reports for 

reimbursement of Medicaid claims. 

Accordingly, States need the flexibility 

to structure their RAC programs to 

permit review of cost-based services to 

identify and recover potential 

overpayments as well as identify 

underpayments. Therefore, contingency 

fees are payable to a Medicaid RAC for 

the identification and recovery of 

overpayments from cost-based service 

providers. With regard to whether a 

RAC determination can include costbased settlements, we believe the State 

has the authority to make adjustments to 

a provider’s cost report and/or costbased settlements based upon a RAC 

determination. 

Comment: One commenter indicated 

that the proposed rule fails to require 

RACs to return their contingency fee if 

a denial is overturned at any stage of the 

appeals process. Another commenter 

suggested that allowing States to 

determine at what stage in the Medicaid 

RAC process, post-recovery, that the 

RACs will receive contingency fees 

preserves an unacceptable risk of 

improper incentives which might 

otherwise encourage a Medicaid RAC to 

prematurely or even improperly identify 

and recover funds from a provider. 

Another commenter suggested that 

RACs should be paid upon recovery 

rather than after adjudication. 

Response: With regard to the timing of 

RAC payments, we are finalizing the 

requirement at § 455.510(b)(2) that 

States must have the flexibility to 

determine at what stage of the audit 

process their RACs may receive 

contingency fees for the collection of 

overpayments from Medicaid providers. 

In addition, if the provider appeals the 

overpayment determination and the 

determination is reversed at any level of 

the appeals process, we are also 

requiring Medicaid RACs to return their 

contingency fees within a reasonable 

timeframe as prescribed by the State, as 

reflected in this final rule at 

§ 455.510(b)(3). For example, a State 

should specify in its contract with the 

Medicaid RAC the timeframe in which 

the State expects the RAC to return the 

contingency fee, that is, repayment will 

occur on the next applicable invoice. As 

we indicated in the proposed rule, 

payments to RACs may not be made 

based upon amounts merely identified 

but not recovered or amounts initially 

recovered from providers but that are 

subsequently repaid due to 

determinations made in appeals 

proceedings. Accordingly, if a State 

pays a contingency fee to a RAC based 

upon amounts recovered prior to the 

conclusion of the appeals process that is 

available to a provider, then the RAC 

must return the portion of the 

contingency fee that corresponds to the 

amount of the overpayment that is 

reversed at any level of appeal. We do 

not believe that this improperly 


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incentivizes a RAC to identify and 

recover funds from a provider. 

Comment: One commenter suggested 

that CMS’ illustration regarding the 

timing of payment to the RAC that 

would permit payment to the RAC when 

it recovers an overpayment but would 

subsequently require reimbursement by 

the RAC if the recovery is overturned on 

appeal, is directly contrary to CMS’ 

interpretation of ‘‘payments to 

contractors may not be 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.’’ 

Response: We disagree with the 

comment. The illustration mentioned by 

the commenter is consistent with the 

Act which requires the amount paid to 

a RAC to be from the overpayment 

amount recovered. If a State pays a RAC 

prior to the adjudication of the appeals 

process, then the RAC must refund the 

amount paid by the State within a 

reasonable timeframe as prescribed by 

the State, in connection with the 

overpayment in the event the 

overpayment is reversed at any level of 

appeal. For example, a State should 

specify in its contract with the Medicaid 

RAC the timeframe in which the State 

expects the RAC to return the 

contingency fee, that is, repayment will 

occur on the next applicable invoice. 

Comment: One commenter indicated 

that the cap on contingency fees creates 

an unnecessary administrative burden 

on States with smaller Medicaid 

programs which may not be able to 

attract qualified contractors at the rate 

provided for in the proposed rule. 

Specifically, the commenter stated that 

it is administratively burdensome to pay 

for the excess with State only funds or 

request and receive an exception to the 

cap. Commenters further indicated that 

the market should determine an 

equitable contingency fee rate on a State 

by State basis. Another commenter 

indicated that limiting contingency rates 

will create the unintended consequence 

of limiting recoveries. This commenter 

was concerned that artificial rate caps 

would preclude an auditing firm from 

uncovering complex improper payments 

because it will not be able to do so 

profitably. Alternatively, another 

commenter suggested raising the cap to 

18 percent but CMS should continue to 

have an exception process. Finally, 

other commenters indicated that strict 

limits should be set on the amount of 

contingency fees. 

Response: We believe that the 

contingency fee rates for identifying and 

collecting overpayments should be 

reasonable and determined by each 

State, taking into account factors, for 

example, the level of effort to be 

performed by the RAC and the size of 

the State’s Medicaid population. We 

recognize that each State has different 

considerations and must tailor its 

Medicaid RAC activities to the unique 

factors of its own State. Nevertheless, 

based upon our experience with the 

Medicare RACs, we believe that the 

contingency fee paid to a State Medicaid 

RAC should not be in excess of the 

highest fee paid to a Medicare RAC 

unless the State can provide sufficient 

justification. The Medicaid RAC 

contingency fee limit may be adjusted 

periodically to maintain parity with the 

Medicare RAC contingency fee cap. 

Comment: One commenter requested 

that CMS use guidance as reflected in 

the Medicare RAC SOW to pay 

contingency fees to identify 

underpayments. 

Response: We disagree with the 

commenter. Section 1902(a)(42)(B)(ii)(II) 

of the Act requires States to pay 

Medicaid RACs for the identification of 

underpayments from amounts recovered 

and ‘‘in such amounts as the State may 

specify.’’ Therefore, States have 

discretion to pay RACs for the 

identification of underpayments so long 

as the payments are from amounts 

recovered. In FY 2010, the 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. That is, 

CMS requires at § 455.510(c)(2) that 

States must ‘‘adequately’’ incentivize 

the detection of underpayments 

identified by the RACs. We will 

evaluate individual States’ indicators of 

adequacy, using the Medicare RAC 

benchmark, and will examine the trends 

among the States over several years. 

Comment: One commenter requested 

clarification regarding whether the 

contingency fee percentage may vary 

according to a specific Medicaid RAC 

focus area of review. 

Response: We do not object to a State 

using a tiered structure for contingency 

fee payments to its Medicaid RAC, so 

long as the maximum fee percentage 

does not exceed the highest fee we pay 

to the Medicare RACs. We will not pay 

FFP for amounts paid to RACs above the 

highest fee paid to Medicare RACs, 

unless the State requests and is granted 

an exception to that maximum rate. Any 

tiered structure must also ensure that 

the Medicaid RACs are incentivized to 

identify underpayments as well as 

overpayments. 

Comment: One commenter requested 

clarification of CMS’ expectations with 

regard to fees paid for the identification 

of underpayments when a State lacks 

the legal authority to pay fees for the 

action. This commenter recommended 

that CMS consider including 

alternatives that achieve the goal to 

incentivize the identification of 

underpayments. 

Response: If a State is legally 

prohibited from requiring a RAC to 

identify underpayments, then a State 

may submit to CMS a written request for 

an exception related to this requirement. 

Comment: One commenter opposed 

any exception to an increase in the FFP 

limit as a result of an exception to pay 

a Medicaid RAC a contingency fee that 

is higher than the Medicare RAC 

contingency fee. The commenter 

maintains that the contingency fee 

structure is inappropriate for any RAC 

program because it ‘‘perversely 

incentivizes RACs to engage in bounty 

hunting, which leads to increased 

expenses and administrative burdens for 

providers.’’ In addition, this commenter 

stated that allowing the State to obtain 

exceptions for the maximum FFP is 

needless and exacerbates the predatory 

nature of RAC audits. 

Response: The statute requires 

Medicaid RACs to be paid on a 

contingency basis for the identification 

of overpayments. Thus, States do not 

have an option with regard to the 

method of payment for the 

identification of overpayments for their 

RACs unless State law prohibits the 

arrangement. We also recognize that 

certain States may need an exception to 

the contingency fee cap. For example, 

States with small Medicaid populations 

may need to pay a much larger 

contingency fee rate to attract RAC 

contractors to work in their State. 

Accordingly, under certain 

circumstances, a State may request 

authorization to pay a RAC a higher 

contingency fee than the maximum 

amount for which FFP is paid. 

Therefore, we disagree that exceptions 

to pay a RAC a higher contingency than 

the Medicare RAC contingency fee rate 

of 12.5 percent are never justified. 

Comment: Several commenters 

suggested that the proposed contingency 

fee structure imposes no disincentive on 

RACs for pursuing situations where 

there is little or no solid evidence of an 

overpayment. The commenters 

recommended that payments to RACs 

should: (1) Be made only upon 

conclusion of all provider appeals; and 

(2) not compensate RACs for the time 


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required for appeals to be exhausted. A 

few commenters also suggested that 

RACs should be required to pay a 

penalty to compensate providers for 

claims ultimately determined to be 

unfounded or falsely identified. 

Response: As previously stated, we 

have surveyed States that have RAC-like 

programs which utilize a contingency 

fee payment structure and have not 

learned of any circumstances in which 

RACs were improperly incentivized to 

recover overpayments from Medicaid 

providers. In addition, our evaluation of 

the Medicare RAC program provides a 

basis for contingency payments to RACs 

for the identification and recovery of 

overpayments. Therefore, we will not 

compel States to require RACs to pay a 

penalty to providers for claims 

ultimately determined to be unfounded. 

With regard to the timing of payments 

to RACs, States need the flexibility to 

determine the most appropriate 

payment methodology given the 

uniqueness of its own State. 

Accordingly, States should decide when 

it is most appropriate to pay Medicaid 

RACs for their work. 

Comment: Several commenters 

suggested that because the law provides 

a strong financial incentive for RACs to 

focus on overpayments and not the 

identification of underpayments, CMS 

should require States to apply the same 

contingency fee schedule for 

overpayments to underpayments. One 

commenter stated that the ‘‘small, flat 

fee’’ for underpayments is unacceptable. 

This commenter also suggested that 

CMS should require States to increase 

their underpayment fee when RACS are 

not applying a balanced approach to 

identifying underpayments and 

overpayments. 

Response: With regard to 

underpayments, we have proposed that 

a State may choose to pay its RAC a 

contingency fee for the identification of 

underpayments, similar to Medicare 

RACs, or a State may opt to establish a 

set fee or some other structure for the 

identification of underpayments. We 

believe that States should have the 

flexibility to determine the best 

payment structure consistent with their 

State Plans. We also included language 

in the final rule at § 455.10(c)(2) 

indicating that States must adequately 

incentivize their RACs to identify 

underpayments. In FY 2010, 82 percent 

of all Medicare 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. We will 

evaluate individual States’ indicators of 

adequacy, using the Medicare RAC 

benchmark, and will examine the trends 

among the States over several years. 

Comment: One commenter suggested 

that CMS clarify that underpayments 

discovered through RAC audits are only 

payable if claims are filed by the 

provider within prescribed timeframes. 

Response: Generally, RACs are 

required to review post-payment claims. 

If a Medicaid claim is not timely filed 

by a provider, then it would seem that 

the claim is not payable. Accordingly, 

these claims should not be subject to 

RAC review. If a RAC identifies an 

underpayment and the time for re-filing 

a claim has passed in accordance with 

State law, we believe the State has the 

discretion to determine whether the 

provider may re-file the claims with the 

correct information. 

Comment: One State commenter 

indicated that the proposed rule does 

not state that underpayments must be 

reimbursed. This commenter stated that 

providers are responsible for reviewing 

their remittance advice to determine if 

they were paid correctly. Further, any 

adjustments must be made within 

specific timeframes. This commenter 

stated that requiring States to reimburse 

providers for underpayments outside of 

existing timeliness rules is not 

appropriate. 

Response: The Act mandates that 

RACs be compensated for the 

identification of underpayments to 

providers. While the statute is silent 

regarding the remittance of 

underpayments to providers as a result 

of RAC identification of the 

underpayments, we are concerned about 

provider participation in the Medicaid 

program as well as States making proper 

payments to providers. Accordingly, we 

believe that States should compensate 

all providers for any identified 

underpayments to the extent possible 

and consistent with State law. States 

must notify providers of underpayments 

that are identified by their Medicaid 

RACs. We have included this 

requirement in this final rule at 

§ 455.510(c)(3). 

Comment: One commenter 

appreciated the flexibility extended to 

States regarding the fees paid to RACs 

for the identification of underpayments. 

The commenter, however, disagreed 

with CMS’ approach with regard to the 

possibility of additional rulemaking 

should CMS deem it necessary as a 

result of future CMS review of data, 

indicating that RACs are not 

appropriately incentivized to identify 

underpayments. This commenter 

believes any further Federal regulation 

of underpayment identification will 

create an undue burden on the States 

and requested that it be removed from 

consideration. 

Response: We appreciate the 

comment. However, the burden of 

potential future rulemaking is outside 

the scope of this final rule. 

Nevertheless, further rulemaking may be 

necessary to achieve the statutory 

mandate for Medicaid RACs to identify 

underpayments. Accordingly, we have 

maintained this language in this final 

rule. 

Comment: Several commenters 

suggested that CMS should require 

SMAs to: (1) Monitor the volume of 

underpayment audits conducted by the 

RACs; (2) increase the underpayment 

fee if a RAC is not applying a balanced 

approach to identifying underpayments 

and overpayments; and (3) include 

information on the general methods 

used to identify Medicaid 

underpayments in the RAC annual 

report as well as the steps taken to 

ensure a balance between 

underpayment and overpayment review. 

Another commenter recommended that 

the Medicaid RAC be required to submit 

annual reports that include information 

on methods used to identify 

underpayments, the number of 

underpayments identified, and any 

steps taken to ensure that 

underpayments are addressed. 

Response: As stated in the proposed 

rule, we expect to monitor the 

methodologies and amounts paid by 

States to Medicaid RACs to identify 

underpayments. We may consider 

future rulemaking depending on the 

data we review regarding RAC incentive 

to pursue underpayments. At this time, 

we are not requiring States to submit 

annual reports. However, we plan to 

issue sub-regulatory guidance on future 

reporting requirements. Accordingly, we 

will consider the commenters’ 

suggestions regarding the data elements 

for an annual report. At this time, we 

will not require States to increase the 

fee paid to RACs for the detection of 

underpayments. 

Comment: One commenter requested 

clarification as to whether States can 

choose to issue payments only to certain 

providers based upon underpayments 

that are identified by the RAC versus 

identified underpayments of all 

providers. This commenter also 

mistakenly asserted that Medicaid RACs 

are only paid for dollars recovered on 

overpayments and suggested that RACs 

also be paid for the identification of 

underpayments. 

Response: States are required to pay 

RACs for the identification of 

overpayments as well as the 

identification of underpayments. 


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Although the statute is silent regarding 

actual payments to providers as a result 

of RAC identification of underpayments, 

we believe that States should 

compensate all providers for any 

identified underpayments consistent 

with State law. 

Comment: One commenter suggested 

that Medicaid RACs should be required 

to identify underpayment 

determinations and ensure that the 

underpayments are remitted to 

providers in a timely fashion. In 

addition, this commenter suggested that 

the States and/or CMS should ensure 

that Medicaid RACs have the system 

capability to identify underpayments 

before they begin auditing claims. 

Response: The Act requires States to 

establish programs to contract with a 

Medicaid RAC for the purpose of, in 

relevant part, identifying 

underpayments. Accordingly, the task of 

identifying underpayments should be 

included in the SOW that is part of the 

contract between a State and its RAC. 

Therefore, we will assume that a State 

has verified that its RAC has the 

capability to identify underpayments 

even before a RAC has begun auditing 

claims. With regard to remittance of 

underpayments, it is the State that is 

responsible for the payment, not the 

RAC. The RAC is required to identify, 

not remit, an underpayment. Although 

we recognize that the State has 

discretion with regard to timing of the 

remittance of underpayments, we 

encourage States to remit identified 

underpayments to providers within a 

reasonable timeframe. 

Comment: One commenter pointed 

out that the proposed rule indicates that 

‘‘CMS contracts with Medicare RACs to 

identify and recover overpayments from 

Medicare providers, and to identify and 

pay underpayments to Medicare 

providers.’’ (Emphasis added). This 

commenter requested that CMS clarify 

this statement given that he has not 

found any other reference to RACs 

making payments to Medicare providers 

for identified underpayments. 

Response: We agree with the 

commenter. Medicare RACs do not pay 

underpayments to Medicare providers. 

The Medicare program pays 

underpayments to providers. 

Comment: One commenter disagrees 

with CMS’ proposed approach to 

publishing the maximum Medicaid RAC 

contingency fee consistent with the 

schedule of publishing the maximum 

Medicare RAC contingency fee every 5 

years. The next update is scheduled for 

2013. Specifically, the commenter stated 

that because fee structures can change 

over the life of a contract, CMS should 

publish any modifications to the 

Medicare RAC payment methodology 

and contingency rates within 30 days of 

the modification as opposed to the 

existing 5-year schedule. In addition, 

another commenter suggested not 

requiring the States to conform to the 

Medicare timetable because Medicaid 

RACs will be tailored to each State’s 

needs and States need the ability to set 

rates and increases that are not 

restricted by Medicare requirements. 

Response: While we proposed to 

publish the maximum Medicaid RAC 

contingency fee consistent with the 

highest Medicare RAC fee, a State is not 

precluded from increasing the rate paid 

to its RAC outside of that schedule if 

necessary. To the extent that a State 

needs to increase the rate paid to its 

RAC before the expiration of the 

scheduled 5-year Medicare RAC 

contingency fee, the State can submit a 

SPA describing that an increase is 

required to reflect whether the State is 

paying the amount above the Medicare 

rate with State-only funds, or is 

requesting matching FFP. 

Comment: One commenter suggested 

removing the contingency fee cap 

because it will allow States to pursue 

individualized RAC programs that align 

the fees with the complexity and scale 

of the workload and allow smaller 

States to garner a larger field of bidders 

from which to choose. Another 

commenter indicated that States need 

the flexibility to establish contingency 

fees separately from Medicare due to the 

difficulty States will have in reacting to 

the changes associated with the 

implementation of a RAC program in 

light of various State budgeting and 

contracting/procurement constraints. In 

addition, a commenter suggested that 

States need the ability to set rates and 

increases that are not restricted by 

Medicare requirements because the 

Medicaid RAC program needs to be 

tailored to each State’s needs. Therefore, 

commenters suggested not requiring the 

States to conform to the higher Medicare 

contingency fee rate cap. 

Response: Based upon our experience 

with the Medicare RACs, we believe 

that the contingency fee paid to a State 

Medicaid RAC should not be in excess 

of the highest fee paid to a Medicare 

RAC unless the State can provide 

sufficient justification. We recognize 

that States with small Medicaid 

populations may need to pay a much 

larger contingency fee rate to attract the 

RAC contractors to work in their State. 

For example, if a State receives a 

proposal from a prospective contractor 

for a contingency fee that is higher than 

the maximum contingency fee set by 

CMS for Medicare RACs but it 

accurately reflects the scope of work to 

be performed in that particular State, 

then the State should submit a request 

for an exception to CMS for 

consideration. 

Comment: One commenter believes 

that the Affordable Care Act does not 

specifically mandate that a State 

Medicaid RAC contingency fee be 

linked to the Medicare RAC maximum 

contingency fee. One commenter stated 

that the contingency fee cap is not in the 

best interests of the Federal 

Government, the State or the taxpayer, 

and is not consistent with the law. 

Commenters suggested letting the 

competitive procurement process define 

the contingency fee percentage limit for 

Medicaid, as was done for the Medicare 

RAC program at its inception. One 

commenter requested that State 

contingency-based recovery contracts 

competitively procured at a higher 

percentage rate be ‘‘grandfathered’’ in at 

those higher rates with a State 

commitment to transition to the lower 

percentage limit with the next 

procurement cycle. 

Response: Section 1902(a)(42)(B)(i) of 

the Act requires States to ‘‘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) [of the 

Act], subject to such exceptions or 

requirements as the Secretary may 

require . * * *’’ Although the Act does 

not specifically set the State Medicaid 

RAC contingency fee, we believe that 

the contingency fee paid to a State 

Medicaid RAC should not be in excess 

of the highest fee paid to a Medicare 

RAC unless the State can provide 

sufficient justification that it is 

consistent with the statute. If a State 

cannot procure a contractor at the 12.5 

percent rate, then a State can request an 

exception from CMS. For those States 

that may already have a RAC-like 

program in place in which the 

contingency fee is higher than the 

Medicare rate, we will work with these 

States to establish an acceptable 

resolution, which may or may not 

include ‘‘grandfathering’’ in the higher 

rate. 

Comment: One commenter requested 

clarification with regard to the process 

associated with State requests for 

approval to pay a RAC a contingency fee 

that is higher than the 12.5 percent cap 

set by CMS. This commenter questioned 

how CMS will assure nationwide 

consistency on contingency rate 

approval decisions if States have to 

submit their requests for approval to the 

appropriate CMS Regional Office(s). 

Other commenters wanted clarification 

regarding the general exception process. 


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Response: Generally, State requests 

for approval for exceptions from the 

requirements of the RAC program, 

including higher contingency fees, are 

made using the SPA process and are 

determined by the Secretary, through 

delegated authority provided to CMS. 

CMS, through partnerships between 

CPI, the Center for Medicaid, CHIP and 

Survey & Certification (CMCS), and 

individual CMS Regional Offices, 

reviews and considers requests for 

exceptions. CMS strives to ensure 

consistency to the extent possible with 

regard to responses to State exception 

requests. We will review all relevant 

facts and circumstances surrounding 

requests for an exception. If a State’s 

request for a higher contingency fee is 

denied, the decision is appealable to the 

Departmental Appeals Board. State 

commenters with additional questions 

regarding the process associated with 

exceptions to the RAC program, 

including questions about the SPA 

process, should contact their CMS 

Regional Office. 

Comment: One commenter expressed 

concern that CMS will be injecting itself 

into a State’s decision-making process 

on a Federal mandate by denying a 

State’s request for using a higher 

contingency rate and the associated 

FFP. 

Response: Generally, when a State 

completes a new State Plan preprint 

page or SPA because of changes in its 

Medicaid program, it must be approved 

by CMS in order for the State to receive 

Federal matching funds. This holds true 

for the majority of changes to a 

Medicaid program when FFP is at issue, 

not just with regard to the Medicaid 

RAC program. We have the authority to 

approve a SPA when FFP is at issue. If 

we deny a SPA or elements thereof, then 

the State has the right to appeal the 

decision. 

Comment: One commenter 

recommended that States be given the 

flexibility to deploy the most 

appropriate procurement process for 

their individual State so long as they are 

within the legal confines of State and 

Federal procurements laws and 

regulations, including bundling 

Medicaid RAC procurements with other 

services or combining multiple States 

with one RAC vendor. Another 

commenter requested that the bundling 

of RAC services with other recovery 

services—such as a TPL contractor— 

should not be permitted because it will 

limit competition by excluding the most 

qualified Medicaid RAC firms. This 

commenter suggested that TPL 

contractors may not have the skill set to 

effectively handle complex reviews. 

Response: We expect that all States 

will procure a RAC contractor. If a State 

feels that its unique situation may 

preclude it from meeting this 

expectation, a State must submit a 

request for an exception to CMS. 

However, if a State is interested in 

‘‘bundling’’ its RAC procurement with 

other services performed by an existing 

contractor, then the State must execute 

a separate task order outlining the 

requirements of the RAC program with 

the existing contractor. If a number of 

States are interested in combining 

resources and utilize one contractor for 

their respective RAC programs, we do 

not object if there are no conflicts of 

interest and the arrangement comports 

with Federal and State law. 

Comment: One commenter suggested 

that States should be permitted to apply 

for an exception from the RAC program 

to the extent that a State is unable to 

attract and acquire a RAC vendor. 

Response: States are required to 

procure a RAC contractor. To the extent 

that a State is having difficulty 

procuring that contractor, then that 

State should contact CMS to discuss a 

potential resolution, which may include 

additional time to procure a qualified 

contractor. It is unlikely that we will 

grant an exception from the entire RAC 

program as a result of a State needing 

additional time to procure a RAC 

vendor. 

Comment: One commenter requested 

public access to the payment rates 

furnished to Medicaid RACs, similar to 

the public availability of Medicare RAC 

payment rates. 

Response: We decline to require 

States to publicly post their Medicaid 

RAC payment rates. However, we 

encourage States to make this 

information available to the extent 

possible to promote transparency. 

Comment: One commenter requested 

that CMS allow States to engage in 

contractual agreements with RACs that 

limit RAC reimbursements to an amount 

less than the total amount recovered, 

but to grant States flexibility in meeting 

this requirement. This would include 

allowing States to recover from the 

provider both the amount of the 

overpayment and the contingency fee 

when overpayments have been 

identified. 

Response: Section 1902(a)(42)(B)(i) of 

the Act mandates that payments made 

to RACs ‘‘shall be made to such 

contractor only from amounts 

recovered’’ and that the payments ‘‘shall 

be made on a contingent basis.’’ 

Allowing States to recover the 

contingency fee for the RAC from the 

provider is inconsistent with the 

language in the statute. To the extent 

that State law prohibits it from 

complying with the statute, then the 

State should submit a request for an 

exception to CMS for consideration. 

Comment: One commenter indicated 

that a large number of pharmacy claims 

being audited include those claims that 

are questionable due to administrative 

or clerical errors. This commenter 

suggested that providers should only be 

expected to pay the part of the claim 

that is determined to be an 

overpayment, not the ‘‘clean’’ portion of 

the claim or those resulting portions of 

the claim that are the result of technical 

or administrative errors. 

Response: Medicaid RACs are 

statutorily mandated to audit Medicaid 

claims for the purpose of identifying 

and recouping overpayments as well as 

identifying underpayments. We would 

expect a provider to return any 

identified overpayment to the State 

Medicaid program. To the extent there 

are additional errors associated with the 

claim that do not relate to the RAC’s 

required purpose, the issue is outside 

the scope of the proposed rule. 

Comment: One commenter requested 

clarification about the following 

statement in the proposed rule: ‘‘States 

must ensure that they do not pay in total 

RAC fees more than the total amount of 

overpayments collected.’’ Specifically, 

the commenter inquired whether this is 

in the aggregate across all audits during 

a particular time period or if it applies 

to one particular audit. 

Response: States must track the 

aggregate of claims that are identified as 

overpayments to appropriately calculate 

the contingency fees owed to the RAC. 

States must also account for the costs 

associated with the identification of 

underpayments. States must ensure that 

they do not pay in total RAC fees more 

than the total amount of overpayments 

collected. 

F. Coordination 

Comment: Several commenters 

expressed concern regarding the 

duplication of audits. These 

commenters suggested that CMS should 

prohibit Medicaid RACs from 

conducting audits on claims that are 

already under review by a Medicaid 

Integrity Contractor or other entity in 

the final regulation. Commenters also 

suggested that Medicaid RACs should 

be required to use a RAC data 

warehouse to identify any claims that 

are being reviewed by the RAC or other 

Medicaid audit program. In addition, 

the commenters suggested that the final 

regulation should exclude from RAC 

review, claims in which payment has 

been denied and/or withdrawn. 


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Response: We are concerned about 

minimizing the potential for multiple 

audits of the same provider. We 

recognize the need to minimize the 

burden on providers associated with 

responding to multiple audit requests, 

to the extent possible. States and their 

RACs are statutorily mandated to 

coordinate auditing efforts with those of 

other entities conducting audits of 

providers receiving payments for 

Medicaid claims. We have finalized this 

requirement at § 455.506(c). Under 

certain limited instances, overlapping 

audits may be necessary or otherwise 

unavoidable. For example, if a claim has 

been reviewed by a Medicaid RAC, and 

it suspects fraud, then that claim must 

be referred to law enforcement for 

review. However, in an effort to limit 

duplicate audit activity, we have 

included language in this final rule at 

§ 455.508(g) indicating that Medicaid 

RACs should not audit a claim that has 

already been audited or is currently 

being audited by another entity, 

including the Medicare RACs. However, 

we decline to require States to create or 

use a data warehouse at this time. First, 

we are not aware of the existence of a 

data warehouse containing State 

Medicaid claims data. We are aware that 

States that have existing RAC-like 

programs have systems in place to 

achieve coordination. For example, one 

SMA reviews a list of claims to ensure 

that there are no open audits or 

referrals, whereas another SMA screens 

cases and meets monthly with its MFCU 

in an effort to achieve coordination. 

Second, we are aware that States have 

limited resources and cannot mandate 

the creation of a data warehouse. 

Ultimately, we believe that States need 

the flexibility to determine the best 

method of achieving coordination with 

the resources available to them. With 

regard to the review of denied claims, 

the Act requires Medicaid RACs to 

review Medicaid claims for 

overpayments. Accordingly, we do not 

see the need to change the regulation to 

incorporate denied claims in the final 

rule. With regard to claims that have 

been filed and subsequently withdrawn 

by the provider, we believe that the 

claims, to the extent that no payment 

has been made, should not be the 

subject of RAC review. 

Comment: One commenter suggested 

that CMS should provide centralized 

access to claims data or State policies to 

limit the burden on States. 

Response: There is no centralized 

repository of Medicaid claims data. We 

have and will continue to work with 

States to provide technical assistance to 

help States comply with 

implementation requirements and 

lessen the burden on States. 

Comment: One commenter 

recommended coordination between 

vendors when requesting records from 

hospitals. 

Response: We are aware of the 

potential for overlapping audits of the 

same provider by multiple auditing 

entities and are concerned about 

minimizing the potential for multiple 

audits of the same provider. States have 

the flexibility to achieve coordination 

within a reasonable timeframe. 

Coordination among auditing entities in 

a State is achievable. We have learned 

that States that already have RAC-like 

programs have systems in place to 

coordinate the efforts of auditing 

entities to minimize provider burden. In 

addition, we are working to assist States 

with coordination of their auditing 

efforts with those of other entities. 

Comment: In anticipation of the 

proposed implementation date of April 

1, 2011, one commenter suggested that 

CMS should allow States additional 

time to accomplish certain tasks to 

ensure effective implementation of RAC 

contracts, including coordination of 

audit activity. Specifically, this 

commenter indicated that there must be 

time for careful consideration of how 

duplicate audit activity will be avoided. 

Response: We are aware of the 

potential for overlapping audits of the 

same provider by multiple auditing 

entities and are concerned about 

minimizing the potential for multiple 

audits of the same provider. In response 

to several commenters, we have delayed 

implementation of this final rule until 

January 1, 2012. Therefore, States have 

an opportunity to achieve coordination 

within a reasonable timeframe. 

Coordination among auditing entities in 

a State is achievable. Indeed, we have 

learned that States that already have 

RAC-like programs have systems in 

place to coordinate the efforts of 

auditing entities to minimize provider 

burden. 

Comment: One commenter inquired 

whether RACs are required to 

coordinate their auditing efforts with 

other entities that conduct cost-based 

audits for settlement. 

Response: The statute requires a State 

and any contractors under contract with 

the State to coordinate their recovery 

audit efforts with other contractors or 

entities performing audits of entities 

receiving payments under the State Plan 

or waiver in the State. Accordingly, at 

the direction of the State, a RAC is 

required to coordinate its auditing 

efforts with those of other auditing 

entities, including those performing 

cost-based audits of Medicaid claims. 

Comment: One commenter suggested 

that CMS should include a provision in 

the final rule requiring CMS and the 

State to monitor the coordination efforts 

of States and their RACs to ensure that 

the coordination is taking place. 

Response: We have already surveyed 

the coordination efforts of States that 

have a RAC-like program in place. We 

are very interested in learning about the 

different methods of coordination that 

will be utilized by the States. Although 

we decline to put a monitoring 

requirement in the final rule, we plan to 

do this on an informal basis. In 

addition, as discussed in our responses 

to other comments, we expect the State 

to play a vital role with regard to 

coordination of entities seeking to audit 

providers who receive payments under 

the State Medicaid Plan or waiver in the 

State. We have included language in 

this final rule requiring States to 

coordinate the recovery audit efforts of 

their RACs with other auditing entities 

at § 455.506(c). 

Comment: Several commenters 

suggested that proposed § 455.508 lack 

specificity with regard to oversight of 

RAC eligibility requirements. These 

commenters also expressed concern 

about the administrative burden 

associated with having to respond to 

multiple requests for the same 

documentation from different auditors 

in a given period of time. 

Response: The State, not CMS, 

determines whether its RAC has the 

ability to perform the requirements 

outlined in § 455.508. CMS is not 

involved in the RAC selection process. 

With regard to the coordination of 

audits, we are concerned about 

minimizing the potential for multiple 

audits of the same provider. We 

recognize the need to minimize the 

burden on providers associated with 

responding to multiple audit requests, 

to the extent possible. States and their 

RACs are required to coordinate 

auditing efforts with other entities 

conducting audits of Medicaid claims. 

We finalize this requirement at 

§ 455.506(c). However, we have also 

included language in this final rule at 

§ 455.508(g) indicating that Medicaid 

RACs should not audit claims that have 

already been subject to audit or that are 

currently being audited by another 

entity. We recognize that subsequent 

reviews of claims by other auditing 

entities may be necessary or otherwise 

unavoidable. Finally, we hope to 

develop a system to facilitate State 

coordination among auditing entities. 

Comment: One commenter suggested 

that once a claim has been reviewed by 

an auditing entity, that claim should not 

be subject to review by another auditing 


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entity. For example, if a claim is 

selected for review by a Medicaid RAC 

contractor and the claim has previously 

been reviewed by a State’s internal audit 

department or fraud unit, then the claim 

should be exempt from any RAC review. 

Similarly, if a RAC reviews a claim, 

then a State internal audit department 

should not subsequently review that 

claim or include it in a universe of 

claims that are part of any audit 

extrapolation. 

Response: Generally, if a claim is 

already subject to review and an 

overpayment is collected as a result of 

the audit process, then the claim should 

not be subsequently reviewed by 

another auditing entity for the same 

purpose. We have included language in 

the final rule at § 455.508(g). However, 

there are circumstances in which claims 

may be the subject of multiple reviews, 

including, but not limited to, potential 

fraud. Accordingly, the claims at issue 

may be subject to subsequent review. 

Comment: One commenter agreed 

with CMS’ approach to allow States the 

flexibility to coordinate the collection of 

overpayments identified by the RAC 

rather than the RAC itself collecting the 

overpayment. The commenter currently 

collects the overpayments from 

providers and requested CMS approval 

to continue to collect the overpayments. 

Response: We appreciate the 

commenter’s support and inquiry. 

Generally, States utilize the SPA process 

to seek our approval regarding any 

change to their Medicaid programs. 

States interested in the changes should 

contact CMS directly with regard to its 

SPA. 

Comment: One commenter 

recommended that CMS allow States to 

contract with RACs to only identify 

overpayments and underpayments and 

not require the collection of any 

identified overpayments. 

Response: RACs are not required to 

collect identified overpayments. We 

specified in the proposed rule at 

§ 455.506(b) that States have the 

discretion to coordinate the recoupment 

of overpayments with their RACs. We 

recognized that States may not be able 

to delegate the collection of 

overpayments to contractors and, 

therefore, granted States the flexibility 

of coordinating the collection of 

overpayments. We are finalizing 

§ 455.506(b) as proposed. 

Comment: One commenter requested 

guidance from CMS with regard to the 

role of Medicare RACs and Medicaid 

RACs in reviewing claims for dually 

eligible beneficiaries, those enrolled in 

both the Medicare and Medicaid 

programs. 

Response: Medicaid RACs are not 

prohibited from reviewing claims for 

dually eligible beneficiaries. However, 

to the extent possible we want to 

minimize provider burden and if the 

claims were already reviewed by a 

Medicare RAC, then the Medicaid RAC 

should not review the claims. We note 

that there is little financial incentive for 

Medicaid RACs to review claims 

involving dually eligible beneficiaries 

since Medicare is the primary payer on 

claims for dual eligibles. Additionally, 

many States already use TPL contractors 

to identify overpayments involving 

eligibility issues. 

Comment: One commenter suggested 

that States should have the flexibility to 

coordinate with other State and Federal 

agencies performing audits of providers 

who receive payment in connection 

with services furnished to Medicaid 

beneficiaries. Other commenters 

suggested coordination between 

auditing companies when requesting 

records from hospitals. 

Response: States and their RACs are 

required to coordinate their auditing 

efforts with other entities that perform 

audits of providers that receive 

payments under the State Medicaid 

Plan. We believe that States have a 

significant role in coordinating the 

auditing efforts of their respective 

integrity programs, RACs, and any other 

auditing entities under contract with the 

State as well as any Federal agency 

seeking to audit a State’s Medicaid 

providers. To the extent a State plays an 

active role in coordinating the efforts of 

the various entities seeking to review 

Medicaid claims, we believe that this 

will help to minimize the potential for 

multiple requests for records from 

different auditing entities. 

Comment: One commenter requested 

that CMS delay implementation of the 

final rule until coordination issues are 

resolved. 

Response: We disagree with the 

comment. Implementation of the final 

rule is not contingent on coordination of 

auditing entities. As previously 

discussed, we are very concerned about 

minimizing provider burden associated 

with responding to multiple audits and 

are working to develop a system for 

States to help facilitate coordination. 

Additionally, we note that the new 

effective date for the rule will be 

January 1, 2012, due in part, to the 

additional time it will take for States to 

be prepared for implementation. 

Comment: One commenter inquired 

whether States are required to exclude 

Payment Error Rate Measurement 

(PERM) claims from Medicaid RAC 

review. 

Response: Section 1902(a)(42)(B)(i) of 

the Act mandates that States and their 

RACs coordinate their ‘‘recovery audit 

efforts with other contractors or entities 

performing audits of entities receiving 

payments under the State plan or waiver 

in the State * * * .’’ The Act requires 

the State and its RAC to coordinate with 

the PERM contractor. PERM uses a 

random sample of claims to develop the 

error rates. Accordingly, if certain 

claims have already been audited by the 

PERM contractor, then the State, to the 

extent possible, should not subject the 

same claims to a subsequent audit by its 

Medicaid RAC. However, we recognize 

that the PERM contractor may in fact 

include claims in its sample that were 

previously audited by the Medicaid 

RAC since the PERM is measuring the 

error rate of payments that do not meet 

statutory, regulatory or administrative 

requirements. 

Comment: One commenter who 

participated in the CMS Webinar 

‘‘Contract Template: Statements of 

Work,’’ in which coordination with 

other entities such as CMS and OGC 

was discussed, inquired about the 

meaning of ‘‘OGC’’ and what the State 

is supposed to coordinate with those 

entities. 

Response: ‘‘OGC’’ is an acronym for 

the Office of the General Counsel, which 

is the legal advisor to the Department of 

Health and Human Services. 

Coordination with OGC is not 

necessary, as OGC does not conduct 

audits of Medicaid claims. With regard 

to coordination, States and their RACs 

are required to coordinate their auditing 

efforts with other entities that perform 

audits of providers that receive 

payments under the State Medicaid 

plan. We believe that States have a 

significant role in coordinating the 

auditing efforts of their respective 

integrity programs, RACs, and any other 

auditing entities under contract with the 

State as well as any Federal agency that 

is conducting potential fraud reviews or 

seeking to review State Medicaid 

providers. 

Comment: One commenter asked if an 

Audit Medicaid Integrity Contractor 

already requested records from a 

provider for certain claims but did not 

complete the review at CMS direction, 

whether the claims should be 

suppressed from review by a Medicaid 

RAC. 

Response: Generally, if there were no 

audit findings associated with the 

review of certain claims, then the claims 

may be subject to additional review 

unless the State determines that there is 

no basis for the audit of the claims. 

Comment: One commenter noted that 

allowing States to contract with more 


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than one RAC poses the risk of 

duplicate audits of the same provider. 

This commenter, therefore, suggested 

that the proposed rule should be 

modified to ensure that when a State 

contracts with more than one RAC, the 

State and its RACs should be required 

to coordinate their efforts to prevent 

duplication of audits. 

Response: We agree with the 

comment and are making this change in 

this final rule at § 455.506(c). 

Comment: Several commenters 

recommended that States be allowed to 

manage the reporting and referral of 

potential fraud to law enforcement. 

They proposed that RACs would report 

suspected fraud to States and the States 

would then refer it to the appropriate 

law enforcement entities such as the 

‘‘MFCUs, SMA, Federal OIG and local 

law enforcement.’’ The States would be 

able to provide a more comprehensive 

referral to law enforcement by providing 

information on past interaction with or 

conduct by the provider in question. 

They indicated that State coordination 

of fraud and/or abuse is consistent with 

Federal and State laws and regulations. 

Response: We agree that States are in 

the best position to know of potentially 

fraudulent activities by providers in 

their States. Accordingly, we have 

specified in this final rule at 

§ 455.506(d) that States, not RACs, have 

the responsibility to make referrals of 

suspected fraud to the MFCU or other 

appropriate law enforcement agency. 

Comment: Several commenters 

requested that CMS reconsider the 

scope of work and/or expertise of the 

Medicaid RAC to distinguish fraud or 

criminal activity from erroneous billing. 

These commenters believe that 

suspicion of fraud and criminal activity 

should be referred for further 

investigation by other MICs with 

expertise to determine whether or not a 

referral to law enforcement is 

appropriate. 

Response: We understand the 

concerns of commenters. We believe 

that States should determine whether 

there is a sufficient basis for a fraud 

referral to their State MFCUs or other 

appropriate law enforcement agency. 

Accordingly, we are making this change 

in this final rule at § 455.506(d). 

Comment: One commenter indicated 

that CMS’ proposed standard of 

‘‘reasonable grounds’’ concerning law 

enforcement referrals in proposed 

§ 455.508 of the regulation, is subject to 

variable interpretation and could result 

in inappropriate referrals. This 

commenter stated that CMS must clearly 

define the term ‘‘reasonable grounds’’ 

and include examples of same. 

Response: Based upon the comments 

received, we have changed the 

responsibility of making fraud referrals 

to law enforcement from the Medicaid 

RACs to the States. We have reflected 

this change in this final rule at 

§ 455.506(d). We believe that this is 

consistent with existing Federal 

regulations that govern State referrals of 

fraud and abuse, as defined by § 455.2, 

to the appropriate law enforcement 

agency as well as require the State to 

adhere to certain fraud referral 

standards. In addition, we have 

removed the language regarding 

‘‘reasonable grounds’’ from this final 

rule. We have also included in this final 

rule at § 455.508(h) that Medicaid RACs 

must refer suspected cases of fraud and/ 

or abuse to the State in a timely manner. 

We expect States to provide clear 

definitions of timely referrals in its 

contract with the RAC or other 

applicable guidance. 

Comment: One commenter 

recommended that CMS adopt the 

recommendations in the OIG Medicare 

RAC Referral Report. That report 

outlined a number of recommendations 

including requiring Medicare RACs to 

receive mandatory training on the 

identification and referral of fraud. 

Response: We disagree with the 

commenter. In the permanent Medicare 

RAC program, we provided RACs with 

a presentation about fraud in Medicare, 

the definition of fraud, and examples of 

potential Medicare fraud. The OIG 

stated in its report that because 

Medicare RACs do not receive their 

contingency fee for cases they refer and 

are determined to be fraud, there may be 

a disincentive for RACs to refer to cases 

of potential fraud. Medicaid RACs are a 

State operated program, whereas the 

Medicare RACs are a national program. 

Accordingly, the responsibility of 

making fraud referrals should belong to 

the State instead of the Medicaid RAC, 

as initially proposed. We have finalized 

this change at § 455.506(d). 

Comment: One commenter requested 

the removal of the requirement of 

immediate referral for suspicion of fraud 

to law enforcement from the final rule. 

The commenter suggested the 

requirement exceeds the authority of the 

statute. The commenter continued that 

he/she did not believe that the 

determination of what may constitute 

reasonable grounds for referral is within 

the purview of Medicaid RACs, or that 

RACs should be required to make the 

referrals. 

Response: We agree that the Medicaid 

RACs should not have the responsibility 

to make fraud referrals and that the 

responsibility belongs to the State. 

Accordingly, we have made the change 

in this final rule by adding new 

subparagraph § 455.506(d). In addition, 

we have included in this final rule at 

§ 455.508(h) that the Medicaid RAC 

must refer suspected cases of fraud and/ 

or abuse to the State in a timely manner, 

as defined by the State. We expect 

States to provide clear definitions of 

timely referrals in the contract with its 

RAC or other applicable guidance. 

Comment: One commenter requested 

clarification on how States and 

Medicaid RACs will be notified of 

efforts initiated by the OIG or criminal 

investigations to facilitate coordination 

of efforts. The commenter expressed 

concern that routine RAC activities such 

as record requests may alert providers 

and subsequently jeopardize 

investigations. 

Response: We have finalized that 

States are required to make referrals of 

suspected fraud and/or abuse to the 

MFCU or other appropriate law 

enforcement agency at § 455.506(d). We 

believe the States play a significant role 

with regard to coordination generally, 

and should share information regarding 

investigative activities or other auditing 

efforts in the States with their RACs to 

the extent possible. However, nothing in 

this final rule requires the Office of 

Inspector General or other law 

enforcement authorities to disclose 

investigative information to Medicaid 

RACs. 

G. Appeals Process 

Comment: One commenter asked 

about the error rate associated with the 

RACs finding improper payments that 

ultimately are reversed on appeal. 

Another commenter asked about the 

frequency with which an organization 

believes a RAC has made an error but 

does not want to go through the appeal 

process. 

Response: We presume that the 

commenter was inquiring about data 

from the Medicare RAC program. In the 

Medicare RAC program, we have 

contracted with a validation contractor 

that does an accuracy review for CMS. 

That contractor reviews a sample of 

claims each month (overpayments and 

no findings) to determine if the 

Medicare RAC was making accurate 

decisions. In the Medicare RAC 

Demonstration, only 8.2% of all claims 

with an improper payment were 

overturned on appeal. We do not have 

specific data with regard to providers 

that decline to appeal Medicare RAC 

determinations or that believe that a 

RAC determination was made in error. 

Comment: One commenter asked who 

bears the cost of the appeal if an adverse 

Medicaid RAC determination is 

appealed. Specifically, the commenter 


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inquired as to whether the State would 

be able to claim FFP for the cost of the 

appeal if the appeal reversed the RAC 

determination. The commenter also 

wanted to know if the determination is 

upheld, whether the provider could 

include the costs in its cost report. 

Response: The cost of a State’s appeal 

would be an allowable administrative 

cost under the State’s Cost Allocation 

Plan. If a State is establishing a new 

appeals process for RAC determinations, 

the State may have to amend its Cost 

Allocation Plan to cover the new 

appeals process. A provider’s appeal 

costs are administrative costs that are 

not allowable under Medicaid. 

Comment: One commenter asked how 

long the appeal process would take an 

organization to go through. 

Response: We are not mandating a 

single appeals process that all States 

must use for RAC appeals, therefore the 

length of time for a provider’s appeal in 

a given State will differ, based on the 

nature of the State’s appeals process and 

the issues on appeal. However, under 

section 1902(a)(42)(B)(ii)(III) of the Act, 

all States must have an appeals process 

in place for providers to appeal adverse 

RAC determinations. 

Comment: A few commenters asked 

whether they must seek CMS approval 

if they intend to use their existing 

appeals process, or if the requirement to 

submit to CMS a proposal describing the 

appeals process which must be 

approved prior to implementation of the 

RAC programs applied only when the 

State intended to establish a separate 

RAC appeals process or when the State 

did not currently have an appeals 

process in place. 

Response: The proposed rule 

provided States with 2 options for their 

appeals process from which States may 

choose as they deem appropriate: (1) 

Either take advantage of an existing 

appeals process, or (2) establish a 

separate appeals process for RAC 

determinations. The proposed rule also 

required States to submit a proposal 

describing the appeals process, which 

we would approve prior to the State 

implementing its RAC program. In this 

final rule, we now clarify that we will 

only require a description and prior 

approval of any new RAC appeals 

process that a State will use, not any 

existing appeals process. 

Comment: One commenter 

encouraged CMS to prohibit any ability 

for States to establish a new appeals 

process. The commenter believed a new 

appeals process would be problematic 

for those providers that have entities in 

more than one State, as each would 

have to comply with more than one 

process to submit appeals on a timely 

basis. 

Response: We are not mandating a 

single appeals process that all States 

must use for RAC appeals. Given that 

each State has provided us with 

assurances through the SPA process that 

it will comply with the statutory 

requirement to provide an adequate 

appeals process for entities to appeal 

adverse RAC determinations, it would 

be unreasonably burdensome on the 

States for us to impose a single appeals 

process for RAC appeals. We are not 

prohibiting States from establishing a 

new appeals process for RAC appeals. 

States will have the flexibility to 

determine what form of appeals process 

best suits their respective RAC 

programs. We are aware that responding 

to multiple States’ processes could be a 

challenge for providers that are enrolled 

in multiple States’ Medicaid programs. 

However, the providers would have 

been involved with the RACs’ 

overpayment determination processes 

and should have received notice of 

appeals timeframes. 

Comment: One commenter noted that 

the language of the preamble to the 

proposed rule refers to ‘‘ensuring 

providers adequate due process rights’’ 

while the proposed regulation at 

§ 455.512 only provides for general 

appeal rights with no mention of due 

process. The commenter recommends 

strengthening the rule by changing 

§ 455.512 to read ‘‘States shall provide 

appeal rights that ensure adequate due 

process under State law or 

administrative procedures to Medicaid 

providers that seek review of an adverse 

Medicaid RAC determination.’’ 

Response: We appreciate the 

commenter’s concerns, however we note 

that section 1902(a)(42)(B)(ii)(III) of the 

Act only refers to ‘‘an adequate process 

for entities to appeal any adverse 

determination.’’ To allow the States 

maximum flexibility and to 

accommodate differences in State laws 

regarding due process, we are not 

prescribing specific requirements for an 

appeals process for adverse RAC 

determinations. Instead, consistent with 

the statutory language, we are requiring 

States to provide an adequate appeals 

process. Therefore, we decline to revise 

§ 455.512 in accordance with the 

commenter’s request. 

Comment: A commenter asked 

whether the RAC program contractor 

activities may include legal defense of 

an appealed overpayment 

determination, or, in other words, 

whether the State may contractually 

obligate the RAC to defend its findings 

in the administrative appeal. The 

commenter also asked whether the State 

specific requirements must be 

articulated in the SPA. 

Response: When designing their RAC 

programs, States have the discretion to 

require their RACs by contract to appear 

in the State’s administrative or judicial 

appeals hearings to defend the RACs’ 

overpayment findings. The Medicaid 

SPA does not require a detailed 

description of the State’s RAC program. 

However, in this final rule, we are 

finalizing at § 455.502(c) the 

requirement that the State report to CMS 

elements describing the effectiveness of 

the State’s RAC program, including, but 

not limited to, general program 

descriptors (for example, contract 

periods of performance, contractors’ 

names) and metrics (for example, 

number of audits conducted, recovery 

amounts, number of cases referred for 

potential fraud). CMS will provide sub 

regulatory guidance to States related to 

performance metrics, State reporting 

requirements and other milestones 

contained in the RAC program. 

Comment: A commenter asked CMS 

to add clarifying language in 42 CFR 

part 455 subpart F that the SMA and not 

the RAC is the final arbiter of whether 

an overpayment or underpayment has 

been discovered. 

Response: When an overpayment is 

discovered it is governed by § 433.316 of 

the regulation. To the extent that an 

overpayment discovered in the course of 

a RAC audit is not the result of fraud, 

it would be subject to § 433.316(c). The 

issue is not which party is the final 

arbiter of the overpayment, but which 

party has taken the action that results in 

the overpayment being discovered. The 

party that discovered the overpayment 

would depend upon the process 

established in the State’s RAC contract 

and which action occurs first in time: 

From whom communications with 

providers are initiated, that is SMA or 

the RAC, and whether the RAC initiates 

recoupment proceedings. 

Comment: One commenter requested 

that CMS reconsider its position that 

States could share a part of recovery 

from a civil or criminal fraud 

proceeding with a RAC. The commenter 

was concerned that CMS might 

unintentionally create strong incentives 

(through the prospect for multiple 

damages) that RACs would presume 

potential fraud where unfounded. The 

commenter suggested that even without 

an incentive under the Medicare RAC 

demonstration, RACs often inaccurately 

determined the existence of 

overpayments, with 64 percent of 

contested cases overturned on appeal, 

and cited the June 2010, ‘‘CMS Update 

to the RAC Demonstration Report.’’ 


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Response: We proposed that nothing 

would preclude a State from agreeing to 

pay a RAC a contingency fee from funds 

recovered and returned to the State as 

the State share of an overpayment (or 

restitution) at the close of the civil or 

criminal proceeding. It would be within 

the State’s discretion to design a RAC 

program that paid a contingency fee to 

a RAC on this basis, that is, if the RAC 

contributed to the recovery and the 

recovery was fully adjudicated. We are 

sensitive to the potential for creating an 

incentive for contingency fees for fraud 

recoveries. However, given that a fully 

adjudicated fraud recovery could take 

several years, we believe the potential 

pay-off for the RAC would be 

outweighed by the delay in the 

payment. We recognize that the 

Medicare RAC Demonstration program 

experienced a moderate overturn rate 

and are hopeful that States will be able 

to design programs that take the 

Medicare RAC experience, including 

overturn rate, into consideration to 

reduce the burden on the providers and 

State Medicaid programs. 

Comment: One commenter urges CMS 

to modify the proposed rule to permit 

only the second option that CMS 

proposed for structuring payments to 

RACs in which a State pays a RAC only 

when the recovery amount is fully 

adjudicated and all appeals available to 

the provider have been concluded. 

Adoption of the second option, the 

commenter argues, is not only 

consistent with the expressed 

interpretation of the statute by CMS, it 

is also sound policy, as it would 

incentivize Medicaid RACs to conduct 

their audits with greater care to avoid 

errors that would generate appeals. The 

commenter believes the first option in 

which a State pays a RAC when the 

RAC recovers an overpayment and the 

State requires reimbursement by the 

RAC if the recovery is overturned on 

appeal is inconsistent with the language 

of section 1902(a)(42)(B)(ii)(I) of the Act, 

which requires that payment must be 

made only from amounts recovered. 

Response: As we stated in the 

proposed rule, we interpret the statute 

to mean that (a) payments may not 

exceed the total amounts recovered, and 

(b) payments may not be 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. Therefore, under 

(a), because the payment is a 

contingency fee it is relative to the 

amounts recovered; and under (b), the 

identified amounts must be recovered 

for the contingency fee to be paid to the 

RAC, or the contingency fee must be 

recouped from the RAC if a recovered 

overpayment is found at any level of 

appeal to not have been overpaid by the 

provider. While some RACs may find 

the second contingency fee option to be 

a disincentive to committing errors 

when performing audits, we think that 

a delay of as long as two years to be paid 

the contingency fee would act as a 

disincentive to contracting with the 

States at all. We are permitting the 

States the most flexibility in designing 

their RAC programs, which includes the 

timing of payment to their RACs. 

Comment: One commenter noted that 

the level of provider appeals related to 

RAC determinations could, according to 

the commenter, ‘‘drive substantial 

program costs.’’ The commenter asked 

for clarification as to whether the 

expenses related to the additional 

appeals will be subtracted from the 

Federal share to be refunded. 

Response: As stated above, a State’s 

appeal costs would be an allowable 

administrative cost under the State’s 

Cost Allocation Plan. A provider’s 

appeal costs are administrative costs 

that are not allowable under Medicaid. 

Comment: Several commenters 

recommended a discussion period 

between RACs and the providers prior 

to the commencement of the right to 

appeal to avoid inaccurate 

determinations of overpayments. During 

the discussion period, the providers 

could provide RACs with information 

necessary to make an accurate 

determination. The commenters noted 

that when the discussion period was 

implemented in the Medicare RAC 

program, providers and RACs avoided 

the time and expense of going through 

the appeals process. The commenters 

suggested that SMAs would participate 

when issues arose regarding RACs’ 

interpretation of the State Plan and 

other Medicaid payment policies. One 

commenter recommended a discussion 

period of 25 days. Another commenter 

suggested that CMS and the States 

should monitor how Medicaid RACs 

observe the discussion period so that it 

is not treated as a mere formality but, 

rather, a meaningful opportunity for the 

parties to address any errors in the 

determination. 

Response: We appreciate the 

commenters’ suggestions and are 

cognizant of the lessons we might learn 

from the Medicare RAC program, as 

well as other audit programs. Providers 

that submit additional information to 

auditors during the discussion or 

comment period may avoid subsequent 

appeals or they may find that the 

auditor’s findings will stand. Section 

1902(a)(42)(B) of the Act establishes a 

State RAC program, which we are 

interpreting to grant States the 

flexibility to design programs, 

consistent with their State laws and that 

meet the needs of their States. We will 

not mandate that States use discussion 

periods, either at all or of any specified 

duration. However, we encourage States 

to require a discussion or comment 

period prior to a RAC’s audit becoming 

final, as is commonplace in audits. If a 

State chooses to implement a discussion 

or comment period in its RAC program, 

we recommend but do not require that 

the State monitor the RAC’s compliance 

with that discussion or comment period 

requirement. 

Comment: Several commenters 

suggested that we should require each 

State to prescribe a clear appeals 

process that is robust and provides for 

multiple levels of appeal. Some 

commenters urged us to prescribe 

specific requirements for Medicaid 

appeals. 

Response: We are not mandating a 

single appeals process that all States 

must use for RAC appeals nor dictating 

the manner of the appeals processes that 

the States must implement for RAC 

appeals. In the event that, through the 

SPA process, a State proposed a process 

that did not provide entities with an 

adequate opportunity to appeal adverse 

RAC determinations, we would engage 

in discussions with the State about its 

appeals process until the State was able 

to provide assurances that its appeals 

process was compliant with section 

1902(A)(42)(B)(ii)(III) of the Act. Given 

that each State has provided us with 

assurances that it will comply with the 

statutory requirement to provide an 

adequate appeals process for entities to 

appeal adverse RAC determinations, it 

would be unreasonably burdensome on 

the States for us to impose a single 

appeals process for RAC appeals. 

Comment: Several commenters 

objected that our proposed rule failed to 

prevent RACs from recouping funds 

associated with denials under appeal. 

The commenters also objected that the 

proposal failed to require RACs to 

return their contingency fee if a denial 

is overturned at any stage of the appeals 

process. The commenters believe that 

CMS’ silence on these important issues 

in the proposed rule will result in 

overzealous and inappropriate denials 

on the part of the Medicaid RACs, and 

urge that RACs must not be able to 

recoup funds until the appeals process 

is exhausted and must not receive their 

contingency fee in cases where the 

denial is overturned. 

Response: We proposed 2 payment 

options to provide States with the most 

flexibility in designing their RAC 

programs: (1) States may pay RACs from 


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amounts identified and recovered, but 

not fully adjudicated, but the RAC 

would be required to return any 

contingency fee that corresponded to 

the amount of an overpayment 

overturned on appeal; or, (2) States 

could pay the RAC after the 

overpayment was fully adjudicated, that 

is after the exhaustion of all appeals 

available to the provider. We disagree 

that we failed to require RACs to return 

their contingency fee if a denial is 

overturned during the appeals process. 

In the first option as we described it in 

our proposal, the RAC would be 

required to return any portion of the 

contingency fee that corresponded to 

the amount of the overpayment 

overturned at any level of appeal. 

The commenters are concerned that 

the opportunity for a contingency fee 

will act as an incentive to the RACs to 

find overpayments, even if those are 

later overturned on appeal and the 

RACs must return the contingency fee. 

We believe that the possibility of a 

contingency fee being overturned would 

be outweighed by the likelihood that the 

State would not be able to attract a RAC 

for its RAC program, were the State 

limited to payment of the contingency 

fee after exhaustion of appeals. The 

appeals process can take years and a 

RAC would go unpaid for all its cases 

in the initial years while providers 

exhausted their appeal rights. 

Comment: Several commenters noted 

that the proposed rule does not require 

the Medicaid RAC to provide any data 

on the number of claims appealed and 

the number of denials overturned 

during the appeals process. The 

commenters recommend that these data 

be captured on a timely basis and urge 

that the data be used to hold RACs 

accountable for inappropriate denials. 

The commenters also urge that 

information on appeal turnover rates be 

shared with the public. Two of the 

commenters also suggested that RACs 

with a turnover rate of 25 percent or 

greater per year should be subject to a 

monetary penalty. 

Response: Whether States should 

require RACs to provide any data on the 

number of claims appealed or the 

number of denials overturned during 

the appeals process, or any penalty to be 

assessed for high appeal turnover rates 

is within the discretion of the States 

when designing their RAC programs. 

Whether to release Medicaid RAC 

appeal turnover rates is subject to each 

State’s laws and rules. We proposed that 

the States provide us with elements 

describing the effectiveness of the RAC 

programs, including general program 

descriptors (contract periods of 

performance, contractors’ names, etc.) 

and program metrics (number of audits 

conducted, recovery amounts, number 

of cases referred for potential fraud, 

etc.). We will issue sub-regulatory 

guidance to the States regarding the data 

to be provided. 

Comment: One commenter suggested 

that CMS set minimum appeal rights 

that all States must incorporate into 

their appeals processes. The commenter 

suggested that a standardized Medicaid 

RAC appeals process include the 

following minimum elements: 

1. A clearly defined appeals process 

describing the providers’ rights and 

responsibilities, including the right to 

submit documentary evidence and to be 

heard in person. 

2. A minimum discussion period, 

such as 120 days, to rebut the RAC 

response. 

3. A multi-tiered appeals process 

which provides for an independent 

review. 

4. A process by which recoupment is 

delayed until the appeals process is 

finished or has reached a certain stage. 

5. A description of how interest will 

be applied to overpayment 

determinations. 

6. Timeframes regarding appeal 

deadlines, providing supporting 

documentation, and issuing review 

decisions. 

7. Detailed decisions describing the 

basis for upholding the overpayment 

determination and informing the 

provider of further appeal rights and 

deadlines. 

8. Agreements between the State, the 

Medicaid RAC, and any other entities 

involved in the Medicaid RAC process 

to ensure the timely and accurate flow 

of information. 

9. Penalties for noncompliance with 

time frames that should apply to both 

the provider and the entity adjudicating 

the RAC appeal. 

Response: States will have the 

flexibility to design their RAC programs, 

including the content of and signatories 

to agreements regarding the States’ RAC 

programs, as well as whether there will 

be a discussion or comment period, and 

what interest will apply to 

overpayments. We are finalizing that 

States have two options to pay 

contingency fees to RACs: States may 

pay RACs from amounts identified and 

recovered, but not fully adjudicated, but 

the RAC would be required to return 

any contingency fee that corresponded 

to the amount of an overpayment 

overturned at any level of appeal within 

a reasonable timeframe as prescribed by 

the State; alternatively, the State may 

pay the RAC after the overpayment is 

fully adjudicated, that is after the 

exhaustion of all appeals available to 

the provider. We leave the States with 

the flexibility to select the option that 

works better for their programs. 

Comment: One commenter suggested 

specific recommendations that if the 

current State appeals process is at the 

Administrative Law Judge level only, 

CMS should impose requirements on 

the States to implement a tiered appeals 

process to allow review by an 

independent, non-government entity as 

a first or second level of appeal. In 

addition, CMS should require 

establishment of timeframes both for 

providers to submit their appeals, prior 

to recoupment, and for those entities 

reviewing the appeals to conclude their 

work and report the outcome to the 

providers. 

Response: We are neither mandating a 

single appeals process that all States 

must use for RAC appeals, nor are we 

dictating the manner of the appeals 

processes that the States must 

implement for RAC appeals, including 

details as timeframes for any part of the 

appeals process. 

Comment: One commenter 

appreciated our proposed requirement 

that State Medicaid RACs must use 

trained medical professionals, and that 

the RAC programs must have an 

adequate appeals process and 

coordinate with other auditors and law 

enforcement. 

Response: We appreciate the 

comment. We are finalizing the 

following requirements: States must 

require their RACs to employ trained 

medical professionals, as defined by the 

State, to review Medicaid claims at 

§ 455.508(a); States must provide appeal 

rights under State law or administrative 

procedures to Medicaid providers that 

seek review of an adverse Medicaid 

RAC determination at § 455.512; and 

that States must make referrals of 

suspected fraud and/or abuse to the 

MFCU or other appropriate law 

enforcement agency at § 455.506(d). 

Comment: One commenter 

recommended that we develop a robust 

and consistent infrastructure to support 

the Medicaid RAC appeals process, 

including publishing information about 

the process online, to reduce confusion 

and ambiguity experienced by 

providers. 

Response: While we are sensitive to 

the challenges of multiple States’ audits 

and appeals for providers serving in 

multiple States’ Medicaid programs, we 

have no plans at this time to establish 

or implement any online data repository 

regarding State Medicaid RAC appeals 

processes. 

Comment: One commenter 

encouraged States to utilize their 

existing appeals processes rather than to 


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establish new Medicaid RAC appeals 

processes that would require a learning 

curve. The commenter also encouraged 

CMS to establish timeframes for the 

RACs to respond to providers during the 

appeals processes. The commenter 

believed that the RACs should be held 

accountable in their response period to 

ensure timeliness in addressing denials. 

Response: The States have the 

flexibility either to take advantage of an 

existing appeals process or to establish 

a separate appeals process for RAC 

determinations. It is within the States’ 

discretion which option they choose. 

We are not dictating the manner of the 

appeals processes, including timeframes 

for RAC responses during the appeals 

process. 

Comment: One commenter noted that 

Medicare RACs demonstrated a lack of 

sufficient review of claims, 

understanding, and due diligence to 

take the appropriate amount of time and 

ensure their information is accurate 

before submitting a denial letter to the 

provider. Therefore, the commenter 

suggested that CMS hold RACs 

accountable and require them to 

conduct due diligence, ensuring 

accurate and timely denial letters are 

submitted to providers under audit. 

Response: We are applying the 

lessons we have learned in the Medicare 

RAC program; however, the States have 

a certain degree of flexibility to design 

their RAC programs, including the 

development of RAC audit protocols 

and the content of its findings. 

However, we agree with the commenter 

that the RAC should timely notify 

providers of its overpayment findings. 

We have finalized at § 455.508(e)(4) that 

RACs must notify providers of its 

overpayment findings within 60 

calendar days. 

Comment: One commenter suggested 

that patients not receive a letter 

regarding an audit until the appeals 

process has ended and the 

determination is final. The commenter 

also recommended that CMS publish 

written policies and procedures of all 

processes to promote consistency and 

provider knowledge, as well as proper 

understanding of these processes. 

Response: In the course of routine 

Medicaid provider audits, Medicaid 

beneficiaries are contacted to verify 

receipt of services. Accordingly, we 

decline to restrict SMAs in the ordinary 

conduct of audits. Additionally, 

Medicaid RACs are individually State 

operated, administered and procured 

programs. Therefore, CMS will not 

publish written policies and procedures 

about State processes. 

Comment: A few commenters 

supported our proposed approach to 

allow States to use existing appeals 

structures. 

Response: We appreciate the 

commenters’ support. 

Comment: One commenter had 

several recommendations for the audit 

and appeals process regarding notices to 

providers during the audit; notifications 

of findings of overpayments or 

underpayments; time limits for 

repayment; and information on the right 

to rebut the findings and the right to 

appeal. The commenter specifically 

recommended that the notice to 

providers should explain the right to 

appeal, specific requirements for 

appealing, and the effect of an appeal on 

the timing of repayment or offset and 

applicable interest; and that contact 

information should be provided for both 

rebuttal and appeal inquiries. 

Response: Each State has a certain 

degree of flexibility with regard to the 

design of its RAC program, including 

whether to use an existing appeals 

process or to establish an alternate 

appeals process for RAC determinations. 

We are not mandating those details as 

part of the content of the RAC’s 

findings. However, we believe that the 

RAC should timely notify providers of 

its overpayment findings. We have 

finalized at § 455.508(e)(4) that RACs 

must notify providers of its 

overpayment findings within 60 

calendar days. 

Comment: One commenter requested 

that CMS require the Medicaid RAC 

process mirror the Medicare RAC 

program to alleviate the stress of 

managing audits in multiple States and 

ensure the process is more seamless for 

providers. The commenter also 

requested that CMS require an 

independent decision maker such as an 

Administrative Law Judge at some level 

of the appeal process to protect 

providers and the Medicaid program, 

providing oversight and an unbiased 

opinion. 

Response: We are sensitive to the 

challenge that audits in multiple States 

can present to providers that serve 

multiple States’ Medicaid programs. 

Nevertheless, we are neither mandating 

a single appeals process that all States 

must use for RAC appeals, nor are we 

dictating the manner of the appeals 

processes that the States must 

implement for RAC appeals, including 

who will be the decision makers in their 

appeals processes. Given that each State 

has provided us with assurances 

through the SPA process that it will 

comply with the statutory requirement 

to provide an adequate appeals process 

for entities to appeal adverse RAC 

determinations, it would be 

unreasonably burdensome on the States 

for us to impose a single appeals process 

for RAC appeals. 

Comment: One commenter 

recommended that CMS conduct a 

thorough review of State appeals 

processes and establish some level of 

consistency across States, and include 

provisions that will require adequate 

documentation of those processes 

including establishing time frames in 

which documentation should be 

provided by RACs to providers who are 

interested in filing an appeal. The 

commenter also recommended that CMS 

include provisions that would require 

States to keep appeal processes 

independent of RAC activities. The 

commenter was concerned that because 

RAC fees are based on the amount of the 

overpayment collected, RACs have an 

added incentive to avoid potential 

provider appeals. The commenter 

suggested that all appeals processes 

should be done by the State and not the 

RAC or other entities that may have an 

interest in the outcome of the appeal. 

Response: Each State has a certain 

degree of flexibility in the design of its 

RAC program, and we are not 

mandating a single appeals process that 

all States must use for RAC appeals, nor 

are we dictating the manner of the 

appeals processes, including timeframes 

for providing documentation to 

providers for filing an appeal and how 

the appeals process would be 

structured. We are requiring that the 

States operate a RAC program that meets 

the requirements of the statute, 

including providing an adequate 

appeals process: section 

1902(a)(42)(B)(ii)(III) of the Act requires 

an adequate appeals process for 

providers to appeal any adverse 

Medicaid RAC determinations. While 

we appreciate the commenter’s concerns 

that RAC activities be separate from the 

appeals process, we are not mandating 

the structure of each State’s RAC 

program. 

Comment: One commenter 

recommended clarification of the rule 

describing providers’ rights to appeal 

and that we require peer review of 

overpayments. 

Response: Each State has a certain 

degree of flexibility to design its RAC 

program, including whether to use an 

existing appeals process or to establish 

an alternate appeals process for RAC 

determinations and how the appeals 

process will function in that State. 

While we are requiring that States 

require their RACs to employ trained 

medical professionals, as defined by the 

State, to review medical claims, it is 

within the States’ discretion to 

determine whether to use medical 

professionals to review Medicaid RACs’ 


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findings prior to the recoupment of 

overpayments. 

Comment: One commenter 

recommended that due to an already 

overburdened system, we should 

require the establishment of a concrete 

timeframe for the record requests, the 

actual audit, and the appeals process. 

Response: We are sensitive to the 

demands of audits on States’ and 

providers’ time. However, States have 

the flexibility with regard to the design 

of its Medicaid RAC appeals processes. 

Therefore, we are not mandating those 

details as timeframes for records 

requests, the duration of the audit, or 

the appeals process. 

Comment: One commenter noted that 

the State would have a disincentive to 

establish a vigorous, unbiased appeals 

process because it is required to return 

the Federal share under § 433.312 even 

if the State is unable to recover the 

overpayment from the provider. 

Response: Under section 1903(d)(2)(C) 

of the Act and § 433.312, the State will 

have a year to attempt to recover an 

overpayment from a provider, except in 

cases of fraud where the time period 

may be longer. Then, the State must 

return the Federal share regardless of 

whether it does in fact recover the 

overpayment. However, if a 

determination is overturned on appeal, 

the State can request a refund of the 

Federal share through processes 

outlined in § 433.320. Thus, we disagree 

with the commenter that there is a 

disincentive for States to establish a 

vigorous, unbiased appeals process. 

States are required under section 

1902(a)(42)(B)(ii)(III) of the Act to 

establish an adequate process for 

providers to appeal adverse RAC 

determinations. We are confident that 

States will afford providers vigorous 

and unbiased appeals processes. 

Comment: One commenter suggested 

that CMS review each State’s appeals 

process to determine its reasonableness. 

The commenter recommended that 

timeframes for filing appeals and 

making decisions on the appeals should 

allow providers to more easily keep 

track of all the levels of reconsideration 

and review as well as timely filing dates 

for all the appeal levels. CMS should 

very closely monitor the different 

appeals systems and remain alert to the 

concerns of providers if 

unreasonableness, inconsistency and 

unnecessary complexity overwhelm 

provider efforts to be compliant. 

Response: Each State has the 

flexibility to design its Medicaid RAC 

appeals process, including whether to 

use an existing appeals process or to 

establish an alternate appeals process 

for RAC determinations. While we are 

requiring States to submit a description 

and obtain prior approval of any new 

RAC appeals process that a State will 

use (not any existing appeals process), 

we are not dictating the manner of the 

appeals process that the States must 

implement for RAC appeals. 

H. Payment—General/Federal Share/ 

Administrative Match 

Comment: One commenter asserted 

that CMS should require States to 

implement automatic positive payment 

adjustments to providers through the 

‘‘X12 835 transaction process.’’ 

Response: This comment is outside of 

the scope of the proposed regulation. 

Therefore, we decline to accept this 

suggestion. 

Comment: One commenter asked for 

clarification regarding what activities 

are eligible for administrative matching. 

Response: Section 1903(a) of the Act 

directs payment of FFP, at different 

matching rates, for amounts ‘‘found 

necessary by the Secretary for the 

proper and efficient administration of 

the State plan.’’ The Secretary is the 

final arbiter of which activities fall 

under this definition. Claims held under 

this authority must be directly related to 

the administration of the Medicaid 

program. 

Comment: A few commenters 

requested and/or recommended an 

enhanced FFP rate for implementing the 

Medicaid RAC program. Other 

commenters recommended an enhanced 

FFP match of 90 percent, and one 

commenter recommended a rate of 75 

percent. 

Response: Because enhanced Federal 

match was not specifically authorized 

by the Affordable Care Act, activities 

associated with the procurement, 

operation and administration of a 

Medicaid RAC do not qualify for 

enhanced Federal match. 

Comment: One commenter requested 

that CMS clarify whether a State’s 

statute allows the State to directly 

receive the overpayment instead of 

delegating the collection responsibility 

to the RAC. 

Response: In the proposed rule, we 

acknowledged the differences among 

the States and territories regarding the 

issue of coordinating with Medicaid 

RACs for the collection of 

overpayments. We stated that the statute 

requires Medicaid RACs to collect 

overpayments, but some States may not 

be legally able to delegate the collection 

of overpayments to contractors. 

Accordingly, we finalize at § 455.506(b) 

that States will have the discretion to 

coordinate the collection of 

overpayments with their Medicaid 

RACs. 

Comment: One commenter suggested 

that there is a need for a standard 

traceable recovery identifier to be used 

from beginning to end to allow for 

reconciliation. 

Response: We recommend that States 

explore efficient and innovative 

processes to detect and/or prevent 

improper payments. However, we do 

not require States to implement uniform 

processing systems for payments to 

providers. 

Comment: One commenter requested 

that CMS clarify the budget and 

accounting standards that States must 

comply with when accounting for 

transactions with Medicaid RACs. 

Response: Estimates of Federal funds 

on overpayments should be included in 

the Form CMS–37 reports, following the 

requirements for reporting of collections 

and overpayments, not collected within 

one year, as required by § 433.312. 

States should already have an 

accounting process in place to record 

overpayments when discovered, as well 

as the Federal share received, and for 

recording collections and reporting 

collections on the Form CMS–64 as they 

occur, and reporting outstanding 

overpayments at the end of the one-year 

period. States should follow those same 

accounting standards and procedures to 

account for Medicaid RAC 

overpayments and collections and the 

required reporting as indicated above, 

although they should be identified as 

RAC overpayments and collections to 

facilitate determination and reporting of 

RAC fees. 

Comment: One commenter requested 

that CMS clarify when CMS expects 

repayment of the Federal share of 

overpayments. The commenter stated 

that CMS should give States up to one 

year to remit the Federal share of the 

funds recovered. Providing States with 

up to one year to remit funds will allow 

States the opportunity to recoup funds 

from future payments. 

Response: Under section 1903(d)(2) of 

the Act, States have up to one year to 

recover overpayments before an 

adjustment is made in the Federal 

payment to the State to account for that 

overpayment. The Federal share of 

collections should be reported when 

received, if collected within the oneyear period. At the end of that period, 

the Federal share of the uncollected 

overpayment amount must be refunded 

to the Federal government. 

Comment: One commenter requested 

clarification regarding proposed 

language provided at sections 

1902(a)(42)(B)(ii)(IV)(bb) and 1903(d) of 

the Act as it applies to amounts 

recovered under the Medicaid RAC 

program. There, the commenter noted 


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that ‘‘[w]e propose that a State must 

refund the Federal share of the net 

amount of overpayment recoveries after 

deducting a RAC’s fee payments.’’ The 

commenter wanted CMS to assure that 

there is no potential conflict with 

interpretation of language from page 75 

FR 69041 of the proposed rule 

discussing repayment of the Federal 

portion. Additionally, the commenter 

wanted clarification that the Federal 

share should be refunded from 

overpayments or amounts actually 

recovered. 

Response: The reporting will identify 

the overpayment recoveries received 

and the RAC fees paid, which will 

ensure that the fees do not exceed the 

recoveries. Additionally, overpayments 

for which the one-year period for 

collection has expired will be reported 

to repay the Federal share. 

The reporting on the recoveries 

(collections) will distinguish between 

recoveries reported within the one-year 

period to collect (refunded on the 

current report) and collections for 

overpayments previously refunded due 

to the expiration of the one-year period 

(not refunded on the current report as 

the amount was previously refunded). 

The Federal share of overpayment 

amounts collected within one year from 

discovery is to be refunded when 

collected (recovered); the Federal share 

of overpayment amounts not collected 

at the end of the one-year period must 

be refunded at that time. 

Comment: One commenter indicated 

that § 433.312 requires States to refund 

the Federal share of overpayments, 

regardless of whether the State actually 

recovers the overpayments from 

providers. This commenter sought 

clarification that there was no conflict 

with other sections of the proposed rule 

which stated that RACs are paid from 

amounts ‘‘actually recovered from the 

provider after all appeals and 

negotiations are finalized, and not on 

amounts identified.’’ 

Response: We do not believe that 

these provisions are in conflict. One 

concept involves the return of FFP to 

the Federal Government, whereas the 

other pertains to the timing of payment 

to a RAC by a State. In the proposed 

rule, we indicated that the requirement 

for States to refund the Federal share of 

overpayments applied to overpayments 

that are identified by the RAC. 

Therefore, if a Medicaid RAC identifies 

an overpayment, the State is required to 

refund the Federal share of the 

overpayment amount if not collected by 

the expiration of the one-year period. 

The State’s obligation to return FFP is 

independent of its obligation to 

compensate a RAC for the work it 

performs. That occurs when an 

overpayment is collected and a 

corresponding contingency fee is paid to 

the RAC. 

Comment: One commenter indicated 

that the initial identification of 

overpayment amounts may be subject to 

change because findings are often 

reversed or revised after additional 

information is obtained, and some 

findings are thrown out through the 

appeals process. If the RAC contractor is 

not paid until overpayments are actually 

recovered, it makes sense that the 

Federal portion of those recovered funds 

would be repaid to the Federal 

government after an appeals process is 

completed. 

Response: The refunding of the 

Federal share is governed by the 

overpayment regulation at § 433.312, as 

discussed above. If the appeals process 

changes the overpayment amount after 

the expiration of the one-year period for 

collection and the State reported that 

overpayment, the overpayment amount 

can then be adjusted on the Form CMS– 

64.9ORAC for reporting RAC 

overpayments that have not been 

collected at the end of the one-year 

period. 

Comment: One commenter 

recommended that the final rule should 

be updated to reflect how recoveries are 

handled via a payment plan. 

Response: If a State provides a 

payment plan which recovers the total 

overpayment within one year from 

discovery, the recoveries are reported as 

received. If the payment plan exceeds 

the one-year period, the recoveries are 

refunded as collected during the oneyear period and then the balance is 

refunded on the overpayments 

schedule. Subsequent recoveries of that 

balance would be reported for the 

purpose of showing that fees paid do 

not exceed recoveries, but would not be 

refunded as it would have already been 

refunded through the reporting on the 

overpayment schedule. 

Comment: One commenter 

recommended that CMS remove 

reference to payment when addressing 

RAC fees in proposed section 

1902(a)(42)(B)(ii)(IV)(bb) of the Act: 

‘‘We propose that a State must refund 

the Federal share of the net amount of 

overpayment recoveries after deducting 

a RAC’s fee payments . * * * In other 

words, a State would take the RAC’s fee 

‘off the top’ before calculating the 

Federal share of the overpayment 

recovery to be returned to CMS.’’ 

Response: We are uncertain what the 

commenter is suggesting regarding 

removing the reference to payment 

when addressing the RAC fee. The 

statute requires that the RAC ‘‘program 

is carried out in accordance with such 

requirements as the Secretary shall 

specify including * * * that section 

1903(d) [of the Act] shall apply to 

amounts recovered under the program.’’ 

In the proposed rule we indicated that 

the ‘‘State would take a RAC’s fee 

payment ‘off the top’ before calculating 

the Federal share of the overpayment 

recovery to be returned to CMS’’. We 

clarify the reporting in this final rule. In 

order to adequately identify recoveries 

and fees paid, States must report both 

the overpayment recoveries and 

associated fees using the same Federal 

share (FMAP rate) that is applicable to 

the overpayments. Similarly, the fees 

paid for identifying underpayments will 

be reported at the same FMAP rate 

appropriate to the payment of that 

underpayment amount, or the current 

FMAP rate if the underpayment is not 

paid. 

Comment: One commenter 

recommended that the reconciliation 

process with historical data should be 

visible to both the RAC and the 

provider. 

Response: States have certain 

flexibilities in which to design, procure, 

administer, and operate their RAC 

programs. While we decline to adopt the 

commenter’s recommendation, we 

encourage States to adopt measures that 

will promote transparency and 

efficiency in the Medicaid RAC 

program. 

Comment: One commenter suggested 

that CMS revise its proposed 

methodology for RAC payment to 

permit State flexibility, allowing States 

the option to claim contingency fees for 

RACs consistent with current 

administrative FFP claiming protocols 

for existing TPL and non-TPL 

overpayment recovery contracts. The 

State believes that requiring States to 

run an accounting process for RAC 

contingency fees that may differ from 

existing non-RAC overpayment recovery 

contingency fee claiming processes is 

administratively burdensome and 

invites opportunity for error. 

Response: In the proposed rule, we 

considered requiring States to treat RAC 

contingency fees at the administrative 

rate of 50 percent. However, we 

determined that the language in the 

legislation supported treating the fees at 

the FMAP rate applicable to the 

recovery. This provides a higher benefit 

for States than treating the fees at the 

administrative rate. 

Comment: One commenter indicated 

that the proposed rule does not specify 

that providers must request 

reimbursement for underpayments. The 

commenter further indicated that 

providers must be responsible and 


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accountable for their claims and the 

State should not be required to make 

payments without the provider 

submitting a claim. 

Response: As previously stated, we 

are concerned about provider 

participation in the Medicaid program 

as well as States making proper 

payments to providers. We believe that 

States should compensate providers for 

identified underpayments, consistent 

with State law. We are requiring States, 

in this final rule at § 455.510(c)(3), to 

inform providers about underpayments 

that are identified by their Medicaid 

RACs. 

Comment: One commenter indicated 

that its Medicaid Management 

Information System (MMIS) only retains 

claims available for adjustment for two 

years. Additionally, it asserted that 

adjudicating claims or adjustments 

outside of the regulated time frames 

creates technical accounting and 

recording problems. 

Response: We understand the 

commenter’s concerns. However, 

consistent with § 433.322, States are 

required to maintain a separate record of 

all overpayment activities for each 

provider in a manner that satisfies the 

retention and access requirements of 45 

CFR part 74, subpart D. However, we are 

finalizing at § 455.508(f) that the 

maximum look-back period for claims 

review is three years. If a State’s MMIS 

system only retains adjustable claims 

data for only two years, a State may 

request an exception from CMS through 

the SPA process. We believe this 

flexibility also enables States to address 

concerns pertaining to adjudication and 

adjustments. 

I. Exceptions 

Comment: Several commenters 

recommended that CMS clarify its 

position on whether Medicaid RACs 

will review Medicaid managed care 

claims. Most, if not all, of these 

commenters recommended that CMS 

provide guidance exempting Medicaid 

managed care claims from review by 

Medicaid RACs, and focus only on feefor-service claims. However, one 

commenter indicated that it interpreted 

the proposed rule to include Medicaid 

managed care claims within the scope of 

Medicaid RAC review. The commenter 

made several recommendations, 

including restating previous 

recommendations for Parts C and D of 

the Medicare program. 

Response: While the proposed rule 

was silent on the issue of whether 

managed care claims would be included 

in the scope of review by the Medicaid 

RACs, we clarify in the final rule that 

States may exclude Medicaid managed 

care claims from review by Medicaid 

RACs. We are finalizing at 

§ 455.506(a)(1) that Medicaid RACs will 

only be required to review fee-forservice claims until that time as a 

permanent Medicare managed care RAC 

program is fully operational or a viable 

State Medicaid model is identified, at 

which point, we may engage in future 

rulemaking with regard to the review of 

managed care claims by Medicaid RACs. 

Comment: One commenter suggested 

that CMS include an exemption for 

Medicaid payments made from the 

‘‘CMMI or other delivery system reform 

programs.’’ 

Response: We appreciate the 

commenter’s suggestion regarding the 

Center for Medicare and Medicaid 

Innovation (CMMI) and other delivery 

reform programs CMS is implementing. 

States have the discretion to exclude 

review of claims that are submitted in 

connection with payment or delivery 

system reform programs until the time 

a viable RAC model is identified. 

Comment: One State recommended 

that CMS’ final rule should exempt 

Medicaid RAC programs in States with 

less than 125,000 enrolled Medicaid 

beneficiaries. Additionally, other 

commenters suggested that States with 

low PERM error rates will experience 

limited recoveries from the RAC 

program. Therefore, the States should be 

exempt from establishing Medicaid RAC 

programs. Another commenter 

requested an exception to proposed 

§ 455.510(b)(3) and § 455.510(b)(4) for 

States with low numbers of Medicaid 

providers and beneficiaries and/or 

expenditures. Finally, one commenter 

expressed its concern about repetitive 

audits leading to diminished provider 

access. The commenter continued that it 

will not be able to attract a RAC for less 

than 12.5 percent, the contingency fee 

cap. 

Response: The Secretary has 

discretionary authority to grant 

exceptions from program requirements 

and complete exemptions from 

establishing a Medicaid RAC program, 

to a State, upon a State’s submission of 

justification for its request. States were 

advised that they may request 

exceptions through the SPA process. We 

emphasize that complete exceptions 

will be granted rarely and under 

exceptional circumstances. States are 

timely notified as to whether their 

requests will be granted prior to the 

expiration of the 90 day clock. 

J. ICR Comments 

Comment: One commenter 

anticipated that the appeals process will 

consume 100–200 hours per case at a 

minimum, rather than the 60 hours that 

we estimated. 

Response: We appreciated the 

comment, but each State’s appeals 

process will vary, as will individual 

cases. Therefore, we have provided 

estimates in our analysis to capture this 

variance. 

Comment: One commenter asked for 

details on the elements that must be 

reported to CMS, and also for 

clarification on how and when the 

elements must be reported. 

Response: Section 455.502(c) of the 

final rule requires States to report to 

CMS certain elements regarding the 

effectiveness of their RAC programs. 

These elements include, but are not 

limited to, general program descriptors 

and program metrics to evaluate the 

effectiveness of their Medicaid RAC 

programs. We are currently developing 

these elements, and will share them 

with States via sub-regulatory guidance. 

Comment: One commenter estimated 

the full reporting requirement to take 

each State 10 through 15 hours per 

month to query, aggregate, and submit 

the data to CMS. 

Response: We understand the burden 

associated with this requirement 

includes the time and effort put forth by 

the State to aggregate data to report on 

the effectiveness of its RAC program. 

K. RIA Comments 

Comment: Several commenters 

disagreed with our assertion in the 

proposed rule that most providers will 

experience limited financial impact 

from the Medicaid RAC program. The 

commenters stated that their member 

organizations have expended significant 

resources responding to RAC requests 

and many have hired additional staff to 

meet the demands of the Medicare RAC 

program. They anticipate that their costs 

will be exacerbated if the Medicaid RAC 

rule is not revised to incorporate 

policies necessary to avoid aggressive 

and overzealous RAC denials. 

Response: CMS has closely examined 

many of the lessons learned from the 

Medicare RAC demonstration in parallel 

with the current provisions of the 

permanent Medicare RAC program, and 

incorporated those best practices into 

this final rule. As a result, we believe 

this will limit the burden and associated 

financial impact on providers. We also 

clarify that Medicaid RACs will conduct 

audits of Medicaid providers for 

overpayments and underpayments, and 

not deny payments. In addition, we 

finalize a number of provisions that 

address providers’ concerns, including 

those related to overzealous RAC 

auditors. For example, at § 455.506(c), 

we finalize that States must coordinate 


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the recovery audit efforts of their RACs 

with other auditing entities. At 

§ 455.506(e), we require States to set 

limits on the number and frequency of 

medical records to be reviewed by the 

RACs, subject to requests for exceptions 

from RACs. At § 455.508 (a), (b) and (c), 

we prescribe mandatory staffing 

requirements for RACs. At § 455.508(d), 

we require States and their RACs to 

develop an education and outreach 

program which includes notification to 

providers of audit policies and 

protocols. At § 455.508(e), we require 

RACs to provide several mandatory 

customer service measures in their 

programs. At § 455.508(f), we prescribe 

a maximum look back period of 3 years 

from the date of the claim. At 

§ 455.508(g), we prohibit RACs from 

auditing claims that have already been 

audited or that are currently being 

audited by another entity. At 

§ 455.510(b)(3), we finalize that if a 

provider appeals a RAC overpayment 

determination and that determination is 

reversed, at any level, the RAC must 

return the contingency fees associated 

with that payment. We expect that these 

provisions will encourage RACs to 

perform their work with diligence and 

restraint. At § 455.510(c)(2) and (c)(3), 

we require States to adequately 

incentivize RACs to detect 

underpayments and notify providers 

about underpayments that are identified 

by RACs, respectively. Lastly, we 

finalize at § 455.512, the requirement for 

States to provide an adequate appeals 

process for providers. We are sensitive 

to the challenge that responding to 

audits and appeals in multiple States 

can present to providers that participate 

in multiple States’ Medicaid programs. 

Comment: One commenter requested 

that CMS reconsider its statement that 

the proposed rule will have no 

significant impact on Medicaid 

providers and consider the resources 

and time that providers must devote to 

Medicaid RAC requests for medical 

records, appeals, etc. The commenter 

noted that CMS should also consider the 

exponential impact of this program 

when combined with other audit 

programs. The commenter urged CMS to 

take steps in the final rule to minimize 

these costs. 

Response: We are aware of the 

challenge of responding to multiple 

requests for audits for providers that 

serve in State Medicaid programs. 

Under section 1902(a)(42)(B)(ii)(IV)(cc) 

of the Act, States must coordinate their 

audit efforts with other contractors and 

entities performing audits or providers, 

including efforts with law enforcement. 

In an effort to minimize provider 

burden, we have included in this final 

rule at § 455.508(g) that Medicaid RACs 

should not audit claims that have 

already been audited or are currently 

being audited by another entity as well 

as a provision at § 455.506(e) requiring 

the State to set limits on the number and 

frequency of medical records to be 

reviewed by its RAC (subject to RAC 

requests for an exception to this 

requirement). Lastly, as detailed in the 

previous response, this final rule 

modeled several requirements on RACs 

based on the lessons learned from 

providers’ past experience with the 

Medicare RAC demonstration. As a 

result, we believe this will limit the 

financial impact on providers. 

IV. Provisions of the Final Regulations 

After consideration of the comments 

reviewed and further analysis of specific 

issues, we are adopting the provisions of 

the proposed rule as final with several 

revisions. Those provisions of the final 

rule that differ from the proposed rule 

are as follows: 

• States may exclude Medicaid 

managed care claims from review by 

Medicaid RACs (§ 455.506(a)(1)). 

• States must coordinate the recovery 

audit efforts of their Medicaid RACs 

with other auditing entities 

(§ 455.506(c)). 

• States must make referrals of 

suspected fraud and/or abuse to the 

MFCU or other appropriate law 

enforcement agency (§ 455.506(d)). 

• States must set limits on the 

number and frequency of medical 

records to be reviewed by the Medicaid 

RACs subject to requests for exceptions 

made by the RACs (§ 455.506(e)). 

• Each RAC 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 § 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 

(§ 455.508(b)). 

• RACs must hire certified coders 

unless the State determines that 

certified coders are not required for the 

effective review of Medicaid claims 

(§ 455.508(c)). 

• RACs must work with the State to 

develop an education and outreach 

program (including notification of audit 

policies and protocols) (§ 455.508(d)). 

• RACs must provide minimum 

customer service measures including: 

Providing a toll-free customer service 

telephone number in all correspondence 

sent to providers, and staffing the tollfree number during normal business 

hours from 8:00 a.m. to 4:30 p.m. in the 

applicable time zone (§ 455.508(e)(1)); 

compiling and maintaining provider 

approved addresses and points of 

contact (§ 455.508(e)(2)); mandatory 

acceptance of provider submissions of 

electronic medical records on CD/DVD 

or via facsimile at the providers’ request 

(§ 455.508(e)(3)); notifying providers of 

overpayment findings within 

60 calendar days (§ 455.508(e)(4)). 

• RACs must not review claims that 

are older than 3 years from the date of 

the claim, unless it receives approval 

from the State (§ 455.508(f)). 

• RACs should not audit claims that 

have already been audited or that are 

currently being audited by another 

entity (§ 455.508(g)). 

• If a provider appeals a Medicaid 

RAC overpayment determination and 

the determination is reversed, at any 

level, then the Medicaid RAC must 

return its contingency within a 

reasonable timeframe as prescribed by 

the State (§ 455.510(b)(3)). 

• States must adequately incentivize 

the detection of underpayments 

(§ 455.510(c)(2)). 

• States must notify providers of 

underpayments that are identified by 

the Medicaid RACs (§ 455.510(c)(3)). 

• States must provide appeal rights 

under State law or administrative 

procedures to Medicaid providers that 

seek review of an adverse Medicaid 

RAC determination (§ 455.512). 

In addition to the inclusion of 

provisions in the final rule that differ 

from the proposed rule, we are retaining 

the following provisions, described 

below, as published in the proposed 

rule. 

We have retained proposed ‘‘Subpart 

F—Medicaid Recovery Audit 

Contractors Program’’ that will 

implement section 1902(a)(42)(B) of the 

Act, which sets forth provisions relating 

to States establishing recovery audit 

contractor programs in which States 

will contract with 1 or more Medicaid 

RACs to audit Medicaid claims and to 

identify underpayments and identify 

and recover overpayments. We are also 

retaining the following sections: 

A. Purpose (§ 455.500) 

In § 455.500, we set forth the purpose 

of the new subpart F. The regulations 

will implement section 1902(a)(42)(B) of 

the Act that establishes the Medicaid 

RAC program. 

B. Establishment of Program (§ 455.502) 

In § 455.502(a), we establish the 

Medicaid RAC program as a measure for 

States to promote the integrity of the 

Medicaid program. At § 455.502(b), we 


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require that States enter into contracts 

with one or more RACs to carry out the 

activities described in § 455.506. At 

§ 455.502(c), we require that States 

report on certain elements describing 

the effectiveness of their Medicaid RAC 

program. 

C. Definitions (§ 455.504) 

In § 455.504(a), we define the 

Medicaid RAC program as a recovery 

audit contractor administered by a State 

to identify overpayments and 

underpayments and recoup 

overpayments. At § 455.504(b), we 

define the Medicare RAC program as a 

recovery audit contractor program 

administered by CMS to identify 

overpayments and underpayments and 

recoup overpayments. 

D. Activities to be Conducted by 

Medicaid RACs and States (§ 455.506) 

At § 455.506(b), States will have 

discretion over the manner in which 

they coordinate with Medicaid RACs’ 

for the recoupment of overpayments. 

E. Eligibility Requirements for Medicaid 

RACs (§ 455.508) 

At § 455.508(a), we provide that an 

entity must have the technical 

capability to carry out the activities 

described in § 455.506, including 

employing trained medical 

professionals to review Medicaid 

claims. At § 455.508(i), we provide that 

RACs must meet other requirements as 

the State may require. 

F. Payments to RACs (§ 455.510) 

At § 455.510(a), fees paid to RACs 

must be made only from amounts 

recovered. At § 455.510(b), we require 

the State to determine the contingency 

fee rate paid to a Medicaid RAC for the 

identification and recovery of 

overpayments. At § 455.510(b)(1), we 

require that the contingency fee paid to 

Medicaid RACs be based on a 

percentage of the recovered 

overpayment amount. At 

§ 455.510(b)(2), States must determine at 

what stage of the audit process 

Medicaid RACs will receive their 

contingency fee. At § 455.510(b)(4), 

except as provided in paragraph (b)(5), 

we will not provide FFP for any amount 

of contingency fee that exceeds the then 

highest contingency fee rate paid to a 

Medicare RAC. At § 455.510(b)(5), on a 

case-by-case basis, we will review and 

consider substantially justified requests 

from States to pay Medicaid RAC(s) a 

contingency fee higher than the highest 

Medicare RAC contingency fee. At 

§ 455.510(c)(1), we require that States 

determine the fee paid to Medicaid 

RACs to identify underpayments. 

G. Federal Share of State Expense for 

the Medicaid RAC Program (§ 455.514) 

At § 455.514(a), funds expended by 

States to carry out the Medicaid RAC 

program must be considered necessary 

for the proper and efficient 

administration of the States Plan or 

waivers of the Plan. Additionally, in 

§ 455.514(a), the Federal share of State 

expenses does not include fees paid. At 

§ 455.514(b), FFP is available to States 

for administrative costs of operation and 

maintenance of Medicaid RACs, subject 

to CMS’ reporting requirements. 

H. Exceptions From Medicaid RAC 

Programs (§ 455.516) 

At § 455.516, States that seek to be 

excepted from any of the requirements 

of the Medicaid RAC program must 

submit to CMS a written justification for 

the request and obtain CMS approval. 

I. Applicability to the Territories 

(§ 455.518) 

At § 455.518, the provisions in 

§ 455.500 through § 455.516 are 

applicable to Guam, Puerto Rico, U.S. 

Virgin Islands, American Samoa and the 

Commonwealth of the Northern Mariana 

Islands. 

V. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the OMB for review and 

approval. To fairly evaluate whether an 

information collection should be 

approved by OMB, section 3506(c)(2)(A) 

of the Paperwork Reduction Act of 1995 

requires that we solicit comment on the 

following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We solicited public comment on each 

of these issues for the following sections 

of this document that contain 

information collection requirements 

(ICRs): 

A. ICRs Regarding State Submission of 

Certain Elements Describing the 

Effectiveness of Their Medicaid RAC 

Programs (§ 455.502) 

Section 455.502(c) requires States to 

submit certain elements describing the 

effectiveness of their Medicaid RAC 

programs. These elements include, but 

are not limited to general program 

descriptors and program metrics that 

will evaluate effectiveness. The burden 

associated with this requirement will be 

the time and effort put forth by the State 

to aggregate data to report on the 

effectiveness of its RAC program. We 

estimate it will take each State 2 hours 

to perform this task. The estimated 

annual burden for this requirement is 

112 hours (56 States × 2 hours) at an 

estimated cost of $3,778.88 ($33.74/hr 

labor × 112 hours). The work will be 

performed by a mid-level analyst whose 

salary is the average hourly salary as 

determined by the Bureau of Labor 

Statistics as of December 2010, not 

seasonally adjusted. This hourly wage 

reflects 48 percent fringe benefits and 

overhead costs. 

B. ICRs Regarding State Justifications to 

Pay Higher Contingency Fees (§ 455.510) 

Section 455.510(b)(5) requires States 

to submit justifications to CMS to pay 

Medicaid RACs a contingency fee higher 

than the highest Medicare RAC. The 

burden associated with this requirement 

is the time and effort put forth by the 

State to prepare and submit a 

justification. We estimate it will take 

each State 60 hours to perform this task 

if they submit the justification. The 

estimated annual burden for this 

requirement is 3,360 hours (56 States × 

60 hours) at an estimated total cost of 

$113,366.40 ($33.74/hr labor × 3,360 

hours). The work will be performed by 

a mid-level analyst whose salary is the 

average hourly salary as determined by 

the United States Bureau of Labor 

Statistics as of December 2010, not 

seasonally adjusted. This hourly wage 

reflects 48 percent fringe benefits and 

overhead costs. 

C. ICRs Regarding Medicaid RAC 

Provider Appeals (§ 455.512) 

Section 455.512 requires States to 

provide administrative appeal 

procedures for Medicaid providers that 

seek review of an adverse Medicaid 

RAC determination. The burden 

associated with this requirement is the 

time and effort put forth by the State to 

prepare and provide administrative 

appeal procedures. We estimate it will 

take each State 60 hours to perform 

these tasks. The estimated annual 

burden for this requirement is 3,360 

hours (56 States × 60 hours) at a cost of 

$192,696 ($57.35/hr labor × 3,360 

hours). The work will be performed by 

an attorney whose salary is the average 

hourly salary as determined by the 

United States Bureau of Labor Statistics 

as of December 2010, not seasonally 


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adjusted. This hourly wage reflects 48 

percent fringe benefits and overhead 

costs. 

D. ICRs Regarding Federal Share of 

State Expense for the Medicaid RAC 

Program (§ 455.514) 

Section 455.514(b) provides that FFP 

will be available to States for the 

Federal share of State expenses for the 

Medicaid RAC program, subject to CMS’ 

reporting requirements. The burden 

associated with a State reporting 

quarterly expenditure estimates is 

currently approved under OMB control 

number 0938–0067 with an expiration 

date of August 31, 2011. CMS recently 

submitted its request for a 3-year 

extension of the August expiration date. 

This rule will not significantly affect the 

requirements under OMB # 0938–0067. 

The Form CMS–64 is a collection of 

forms in which States are already 

required to report routine Medicaid 

recoveries to CMS on a quarterly basis. 

This task is accomplished 

electronically. The final rule requires 

States to account for, separately, 

Medicaid RAC overpayment recoveries 

and the corresponding contingency fees 

associated with the recoveries. We 

estimate that it will take each State 4 

hours/quarterly to meet this 

requirement; therefore, the total annual 

burden associated with this requirement 

is 896 hours(56 States × 4 hours × 4 

quarters) at an annual total estimated 

cost of $43,285.76($48.31/hour labor × 

896 hours). The work will be performed 

by a computer systems analyst whose 

salary is the average hourly salary as 

determined by the United States Bureau 

of Labor Statistics as of December 2010, 

not seasonally adjusted. This hourly 

wage reflects 48 percent fringe benefits 

and overhead costs. 

E. ICRs Regarding Exceptions From 

Medicaid RAC Programs (§ 455.516) 

Section 455.516 requires a State that 

is seeking an exception from any of the 

requirements of the Medicaid RAC 

program to submit a written justification 

to CMS. The burden associated with this 

requirement is the time and effort put 

forth by the State to prepare and submit 

a written justification for the request. 

We estimate it will take each State 20 

hours to meet this requirement. During 

the SPA process, we received exception 

requests from 14 States. Therefore, the 

total annual burden associated with this 

requirement is 280 hours (14 responses 

× 20 hours) at a cost of $9,447.20 

($33.74/hr labor × 280 hours). We 

estimate that the work was performed 

by a mid-level analyst whose salary is 

the average hourly salary as determined 

by the United States Bureau of Labor 

Statistics as of December 2010, not 

seasonally adjusted. This hourly wage 

reflects 48 percent fringe benefits and 

overhead costs. 


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If you comment on these information 

collection and recordkeeping 

requirements, please do either of the 

following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this final rule; or 

2. Submit your comments to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Attention: CMS Desk Officer, 

[CMS–6034–F] Fax: (202) 395–6974; or 

E-mail: 

OIRA_submission@omb.eopage.gov. 

VI. Regulatory Impact Analysis 

A. Introduction 

We have examined the impacts of this 

rule as required by Executive Orders 

12866 on Regulatory Planning and 

Review (September 30, 1993) and 13563 

on Improving Regulation and Regulatory 

Review (January 18, 2011). Executive 

Orders 12866 and 13563 direct agencies 

to assess all costs and benefits of 

available regulatory alternatives and, if 

regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. A 

regulatory impact analysis (RIA) must 

be prepared for major rules with 

economically significant effects ($100 

million or more in any one year). This 

final rule has been designated an 

‘‘economically significant’’ rule under 

section 3(f)(1) of Executive Order 12866. 

In addition, this is a major rule under 

the Congressional Review Act (5 U.S.C. 

804(2)). Accordingly, the rule has been 

reviewed by the Office of Management 

and Budget. 

B. Statement of Need 

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. Section 1902(a)(42)(B) of 

the Act requires all States to establish 

Medicaid RAC programs, subject to the 

exceptions and requirements as the 

Secretary may require. 

Medicaid RACs are State programs 

designed to produce savings in State 

Medicaid expenditures by detecting 

improper payments to Medicaid 

providers. The majority of State 

expenditures will be derived from the 

contingency fee payments to Medicaid 

RACs. 

This final rule will: (1) Implements 

section 6411 of the Affordable Care Act 

and provides guidance to States related 

to Federal/State funding of State startup, operation and maintenance costs of 

Medicaid RACs and the payment 

methodology for State payments to 

Medicaid RACs; (2) requires States to 

assure that adequate appeal processes 

are in place for providers to dispute 

adverse determinations made by 

Medicaid RACs; and (3) requires States 

to coordinate with other contractors and 

entities auditing Medicaid providers, as 

well as with State and Federal law 

enforcement agencies. 

C. Overall Impact 

This final rule applies to States’ 

requirement to contract with Medicaid 

RACs to perform audits of Medicaid 

providers on a contingency fee basis. 

The majority of anticipated savings, as 

a result of the provisions in this rule, are 

related to improper payments. However, 

as seen in the Medicare RAC 

Demonstration period, we expect a 

limited financial impact on most 

providers, as significant improper 

payments are relatively rare. The CMS 

Office of the Actuary (OACT) estimated 

the potential impact on Federal 

Medicaid costs and savings. OACT used 

the historical experience from the 

Medicare program to estimate potential 

savings to Medicaid. The estimates in 

the final rule differ from those in the 

proposed rule primarily as a result of 

the new implementation date of January 

1, 2012, versus that of April 1, 2011, in 

the proposed rule. These estimates are 

highly uncertain, and as a result we 

offer estimates for FYs 2012 through 

2016 to illustrate the potential effects of 

this program. As a result, OACT’s 

estimates for FYs 2012 through 2016 are 

presented in Table 2. 

TABLE 2—ESTIMATED MEDICAID IMPACT RESULTING FROM THE EXPANSION OF THE RECOVERY AUDIT CONTRACTOR

PROGRAM

[FYs 2012–2016] 

Estimated savings ($Millions) FYs 2012–2016 

2012 2013 2014 2015 2016 2012–2016 

Federal share ................................................................... $60 $190 $280 $330 $360 $1,220 

State share ....................................................................... 50 140 200 250 270 910 

Total .......................................................................... 110 330 480 580 630 2,130 

D. Detailed Impacts 

The Medicaid RACs are part of a 

significant initiative to reduce waste 

and improper payments and recoup the 

improper payments. The estimated 

impact on the Medicaid program, as 

presented in Table 2, reflects an 

aggregate net savings of $2.13 billion for 

FYs 2012 through 2016. This includes 

an estimated net savings of $1.22 billion 

to the Federal Medicaid program and a 

net savings of $910 million to the State 

Medicaid program, for the same time 

period of FYs 2012 through 2016. 

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. 

CMS experience from the Medicare 

RAC demonstration has shown that 

overpayment recoveries by Medicare 

RACs represented over 96 percent of the 

improper payments, while 

underpayments accounted for the 

remaining 4 percent of the improper 

payments. (Medicare RAC Program: An 

Evaluation of the 3–Year 

Demonstration, January 2008). As a 

result, we continue to believe that States 

would not need to maintain a reserve of 

recovered overpayments to fund 

Medicaid RAC costs associated with 

identifying underpayments. We do, 

however, require States to maintain an 

accounting of amounts recovered and 

paid. States must report overpayments 

to CMS based on the net amount 

remaining after all fees are paid to the 


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Medicaid RAC. As discussed earlier, 

Medicaid RACs may only receive 

payments through the contingency fee 

arrangement made in accordance with 

these requirements and the limitations 

relating to the maximum contingency 

fee amount, unless a State receives an 

exception from CMS. No additional FFP 

is available for any other State payment 

made to the RACs. The treatment of the 

fees and expenditures are linked to 

specific statutory language 

implementing the Medicaid RAC 

requirements and not extended to 

Medicaid overpayment recoveries in 

other contexts. 

Regarding appeal costs, a State’s 

appeal costs would be an allowable 

administrative cost under the State’s 

Cost Allocation Plan. A provider’s 

appeal costs are administrative costs 

that are not allowable under Medicaid. 

With regard to the impact upon 

providers, as discussed earlier in the 

preamble, we closely examined many of 

the lessons learned from the Medicare 

RAC demonstration, in parallel with the 

current provisions of the permanent 

Medicare RAC program and 

incorporated those best practices into 

this final rule. As a result, we believe 

this will limit the burden and associated 

financial impact on providers. 

Furthermore, we finalize a number of 

measures that address providers’ 

concerns of overzealous RAC auditors. 

For example, at § 455.506(c), we finalize 

that States must coordinate the recovery 

audit efforts of their RACs with other 

auditing entities. At § 455.506(e), we 

require States to set limits on the 

number and frequency of medical 

records to be reviewed by the RACs, 

subject to requests for exceptions from 

RACs. At § 455.508 (a), (b) and (c), we 

prescribe mandatory staffing 

requirements for RACs. At § 455.508(d), 

we require States and their RACs to 

develop an education and outreach 

program which includes notification to 

providers of audit policies and 

protocols. At § 455.508(e), we require 

RACs to provide several mandatory 

customer service measures. At 

§ 455.508(f), we prescribe a maximum 

look back period of 3 years from the 

date of the claim. At § 455.508(g), we 

prohibit RACs from auditing claims that 

have already been audited or that are 

currently being audited by another 

entity. At § 455.510(b)(3), we finalize 

that if a provider appeals a RAC 

overpayment determination and that 

determination is reversed, at any level, 

the RAC must return the contingency 

fees associated with that payment. At 

§ 455.510(c)(2) and (c)(3), we require 

States to adequately incentivize RACs to 

detect underpayments and notify 

underpayments that are identified by 

RACs, respectively. Lastly, we finalize 

at § 455.512, the requirement for States 

to provide an adequate appeals process 

for providers. 

E. Alternatives Considered 

In the proposed rule, we stated that 

States would have complete flexibility 

with regard to most, if not all, of the 

Medicaid program elements. We wanted 

to account for differences in the size of 

the State, Medicaid population, amount 

of expenditures, and other State-specific 

characteristics, for example, allowing 

smaller States the flexibility to vary the 

requirements that would otherwise 

overburden them financially. 

For example, North Dakota, Wyoming, 

Rhode Island and Connecticut may not 

have the volume of Medicaid 

expenditures that a State such as 

California would have. Requiring a 

Connecticut RAC to hire 1.0 FTE 

Medical Director, we believe, would 

increase the labor costs to a RAC, and 

subsequently to the State. Initially, we 

considered allowing States to determine 

the appropriate personnel for RACs to 

hire. However, we received a number of 

comments regarding the need for 1.0 

FTE Medical Director to oversee the 

review of claims in the RAC program 

due to the high overturn rates found in 

the Medicare RAC Demonstration 

period and numerous provider 

complaints. Accordingly, we decided to 

include the requirement of 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 § 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. 

In addition, we considered giving 

States complete flexibility with regard 

to setting their own claims look-back 

periods based upon State specific laws 

and regulations regarding their claims 

look-back periods, which varied from 

three to seven years. As a result of many 

stakeholder comments, we reconsidered 

and now include a 3-year maximum 

look back period, similar to the 

Medicare RAC program. States will have 

the option of requesting exceptions to 

this provision. 

F. Accounting Statement 

As required by OMB Circular A–4 

available at http://www.whitehouse.gov/ 

omb/circulars_a004_a-4, in Table 3, we 

have prepared an accounting statement 

table showing the classification of the 

impacts associated with the 

implementation of section 6411 in this 

final rule. 

TABLE 3—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED NET SAVINGS, FROM FY 2012 TO FY 2016 

[in $Millions] 

Category Transfers 

Annualized monetized transfers 

Year dollar Units discount rate Period covered 

2010 7% 3% FYs 2012–2016 

Primary Estimate .............. ¥$233.9 ¥$239.6 

From ............................................................................ Federal Government to providers 

Primary Estimate .............. ¥$174.5 ¥$178.7 

From ............................................................................ State Governments to providers 

VII. Regulatory Flexibility Act Analysis 

The Regulatory Flexibility Act (RFA) 

(15 U.S.C. 604), as modified by the 

Small Business Regulatory Enforcement 

Fairness Act of 1996 (SBREFA) (Pub. L. 

104–121), requires agencies to 

determine whether proposed or final 

rules would have a significant economic 

impact on a substantial number of small 


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entities and, if so, to prepare a 

Regulatory Flexibility Analysis and to 

identify in the notice of proposed 

rulemaking or final rulemaking any 

regulatory options that could mitigate 

the impact of the proposed regulation 

on small businesses. For purposes of the 

RFA, small entities include businesses 

that are small as determined by size 

standards issued by the Small Business 

Administration, nonprofit organizations, 

and small governmental jurisdictions). 

Individuals and States are not included 

in the definition of a small business 

entity. 

For purposes of the RFA, we assume 

that approximately 75 percent of 

Medicaid providers are considered 

small businesses according to the Small 

Business Administration’s size 

standards (with total revenues of $35 

million or less in any one year), and 80 

percent are nonprofit organizations. 

Medicaid providers are required, as a 

matter of course, to follow the 

guidelines and procedures as specified 

in State and Federal laws and 

regulations. The Medicaid providers 

must retain accurate billing records for 

the requisite period of time. 

Additionally, Medicaid providers must 

cooperate in audits conducted by the 

State and/or Federal Governments and 

their agents. Lastly, the majority of the 

economic impacts associated with this 

final rule are a direct result of the 

recovery of improper payments. 

Therefore, the Secretary has determined 

that this final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a metropolitan statistical area and has 

fewer than 100 beds. For the same 

reason as Stated above, the Secretary 

has determined that this final rule will 

not have a significant impact on the 

operations of a substantial number of 

small rural hospitals. 

VIII. Unfunded Mandates Reform Act 

Analysis 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4) requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any one year of 

$100 million in 1995 dollars, updated 

annually for inflation. In 2011, that 

threshold is approximately $136 

million. This final rule applies to the 

States’ requirement to procure Medicaid 

RACs to perform audits of Medicaid 

providers on a contingency fee basis. 

State expenditures associated with this 

final rule will initially involve directing 

or allocating personnel resources to 

procurement activities. Per the terms of 

the contracts, States will not be 

expending funds over $136 million for 

RACs to perform the contracts. 

Associated costs that may include the 

operation of RAC programs, collateral 

State personnel costs, and maintenance 

of records are not expected to exceed 

the $136 million threshold. Therefore, 

this final rule is not anticipated to have 

an effect on State, local, or tribal 

governments in the aggregate, or by the 

private sector of $136 million or more. 

IX. Federalism Analysis 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a final 

rule (and subsequent final rule) that 

imposes substantial direct requirement 

costs on State and local governments, 

preempts State law, or otherwise has 

Federalism implications. We have 

reviewed this final rule under the 

threshold criteria of Executive Order 

13132, Federalism, and have 

determined that it will not have 

substantial direct effects on the rights, 

roles, and responsibilities of States, 

local or tribal governments. 

List of Subjects in 42 CFR Part 455 

Fraud, Grant programs-health, Health 

facilities, Health professions, 

Investigations, Medicaid, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR chapter IV as set forth below: 

PART 455—PROGRAM INTEGRITY— 

MEDICAID 

■ 1. The authority citation for part 455 

continues to read as follows: 

Authority: Section 1102 of the Social 

Security Act (42 U.S.C. 1302), section 

1902(a)(42)(B) (42 U.S.C. 1396a (a)(42(B)). 

■ 2. New subpart F is added to part 455 

to read as follows: 

Subpart F—Medicaid Recovery Audit 

Contractors Program 

Sec. 

455.500 Purpose. 

455.502 Establishment of program. 

455.504 Definitions. 

455.506 Activities to be conducted by 

Medicaid RACs and States. 

455.508 Eligibility requirements for 

Medicaid RACs. 

455.510 Payments to RACs. 

455.512 Medicaid RAC provider appeals. 

455.514 Federal share of State expense for 

the Medicaid RAC program. 

455.516 Exceptions from Medicaid RAC 

programs. 

455.518 Applicability to the territories. 

Subpart F—Medicaid Recovery Audit 

Contractors Program 

§ 455.500 Purpose. 

This subpart implements section 

1902(a)(42)(B) of the Act that establishes 

the Medicaid Recovery Audit Contractor 

(RAC) program. 

§ 455.502 Establishment of program. 

(a) The Medicaid Recovery Audit 

Contractor program (Medicaid RAC 

program) is established as a measure for 

States to promote the integrity of the 

Medicaid program. 

(b) States must enter into contracts, 

consistent with State law and in 

accordance with this section, with one 

or more eligible Medicaid RACs to carry 

out the activities described in § 455.506 

of this subpart. 

(c) States must comply with reporting 

requirements describing the 

effectiveness of their Medicaid RAC 

programs as specified by CMS. 

§ 455.504 Definitions. 

As used in this subpart— 

Medicaid RAC program means a 

recovery audit contractor program 

administered by a State to identify 

overpayments and underpayments and 

recoup overpayments. 

Medicare RAC program means a 

recovery audit contractor program 

administered by CMS to identify 

underpayments and overpayments and 

recoup overpayments, established under 

the authority of section 1893(h) of the 

Act. 

§ 455.506 Activities to be conducted by 

Medicaid RACs and States. 

(a) Medicaid RACs will review claims 

submitted by providers of items and 

services or other individuals furnishing 

items and services for which payment 

has been made under section 1902(a) of 

the Act or under any waiver of the State 

Plan to identify underpayments and 

overpayments and recoup overpayments 

for the States. 

(1) States may exclude Medicaid 

managed care claims from review by 

Medicaid RACs. 

(b) States may coordinate with 

Medicaid RACs regarding the 

recoupment of overpayments. 

(c) States must coordinate the 

recovery audit efforts of their RACs with 

other auditing entities. 

(d) States must make referrals of 

suspected fraud and/or abuse, as 


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57844 Federal Register / Vol. 76, No. 180 / Friday, September 16, 2011 / Rules and Regulations 

defined in 42 CFR 455.2, to the MFCU 

or other appropriate law enforcement 

agency. 

(e) States must set limits on the 

number and frequency of medical 

records to be reviewed by the RACs, 

subject to requests for exception from 

RACs to States. 

§ 455.508 Eligibility requirements for 

Medicaid RACs. 

An entity that wishes to perform the 

functions of a Medicaid RAC must enter 

into a contract with a State to carry out 

any of the activities described in 

§ 455.506 under the following 

conditions: 

(a) The entity must demonstrate to a 

State that it has the technical capability 

to carry out the activities described in 

§ 455.506 of this subpart. Evaluation of 

technical capability must include the 

employment of trained medical 

professionals, as defined by the State, 

who are in good standing with the 

relevant State licensing authorities, 

where applicable, to review Medicaid 

claims. 

(b) 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 § 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. 

(c) The entity must hire certified 

coders unless the State determines that 

certified coders are not required for the 

effective review of Medicaid claims. 

(d) The entity must work with the 

State to develop an education and 

outreach program, which includes 

notification to providers of audit 

policies and protocols. 

(e) The entity must provide minimum 

customer service measures including: 

(1) 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. 

(2) Compiling and maintaining 

provider approved addresses and points 

of contact. 

(3) Mandatory acceptance of provider 

submissions of electronic medical 

records on CD/DVD or via facsimile at 

the providers’ request. 

(4) Notifying providers of 

overpayment findings within 60 

calendar days. 

(f) The entity must not review claims 

that are older than 3 years from the date 

of the claim, unless it receives approval 

from the State. 

(g) The entity should not audit claims 

that have already been audited or that 

are currently being audited by another 

entity. 

(h) The entity must refer suspected 

cases of fraud and/or abuse to the State 

in a timely manner, as defined by the 

State. 

(i) The entity meets other 

requirements as the State may require. 

§ 455.510 Payments to RACs. 

(a) General. Fees paid to RACs must 

be made only from amounts recovered. 

(b) Overpayments. States must 

determine the contingency fee rate to be 

paid to Medicaid RACs for the 

identification and recovery of Medicaid 

provider overpayments. 

(1) The contingency fees paid to 

Medicaid RACs must be based on a 

percentage of the overpayment 

recovered. 

(2) States must determine at what 

stage in the Medicaid RAC audit 

process, after an overpayment has been 

recovered, Medicaid RACs will receive 

contingency fee payments. 

(3) If a provider appeals a Medicaid 

RAC overpayment determination and 

the determination is reversed, at any 

level, then the Medicaid RAC must 

return the contingency fees associated 

with that payment within a reasonable 

timeframe, as prescribed by the State. 

(4) Except as provided in paragraph 

(5) of this section, the contingency fee 

may not exceed that of the highest 

Medicare RAC, as specified by CMS in 

the Federal Register, unless the State 

submits, and CMS approves, a waiver of 

the specified maximum rate. If a State 

does not obtain a waiver of the specified 

maximum rate, any amount exceeding 

the specified maximum rate is not 

eligible for FFP, either from the 

collected overpayment amounts, or in 

the form of any other administrative or 

medical assistance claimed expenditure. 

(5) CMS will review and consider, on 

a case-by-case basis, a State’s welljustified request that CMS provide FFP 

in paying a Medicaid RAC(s) a 

contingency fee in excess of the thenhighest contingency fee paid to a 

Medicare RAC. 

(c) Underpayments. (1) States must 

determine the fee paid to a Medicaid 

RAC to identify underpayments. 

(2) States must adequately incentivize 

the detection of underpayments. 

(3) States must notify providers of 

underpayments that are identified by 

the RACs. 

§ 455.512 Medicaid RAC provider appeals. 

States must provide appeal rights 

under State law or administrative 

procedures to Medicaid providers that 

seek review of an adverse Medicaid 

RAC determination. 

§ 455.514 Federal share of State expense 

of the Medicaid RAC program. 

(a) Funds expended by States for the 

operation and maintenance of a 

Medicaid RAC program, not including 

fees paid to RACs, are considered 

necessary for the proper and efficient 

administration of the States’ plan or 

waivers of the plan. 

(b) FFP is available to States for 

administrative costs of operation and 

maintenance of Medicaid RACs subject 

to CMS’ reporting requirements. 

§ 455.516 Exceptions from Medicaid RAC 

programs. 

A State may seek to be excepted from 

some or all Medicaid RAC contracting 

requirements by submitting to CMS a 

written justification for the request for 

CMS review and approval through the 

State Plan amendment process. 

§ 455.518 Applicability to the territories. 

The aforementioned provisions in 

§ 455.500 through § 455.516 of this 

subpart are applicable to Guam, Puerto 

Rico, U.S. Virgin Islands, American 

Samoa, and the Commonwealth of the 

Northern Mariana Islands. 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.778, Medical 

Assistance Program) 

Dated: May 6, 2011. 

Marilyn Tavenner, 

Principal Deputy Administrator and Chief 

Operating Officer, Centers for Medicare & 

Medicaid Services. 

Approved: August 9, 2011. 

Kathleen Sebelius, 

Secretary, Health and Human Services. 

[FR Doc. 2011–23695 Filed 9–14–11; 8:45 am] 

BILLING CODE 4120–01–P 


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