Federal Register / Vol. 75, No. 217 / Wednesday, November 10, 2010 / Proposed Rules 69037 

utilizing approved Federal Equivalent 

Methods. 

3. How does this information relate to 

the Proposed Rule—Ambient Ozone 

Monitoring Regulations: Revisions to 

Network Design Requirements? 

On July 16, 2009, EPA published a 

proposed rule (74 FR 34525) to revise 

the ozone monitoring network design 

requirements. EPA proposed to modify 

minimum monitoring requirements in 

urban areas, add new minimum 

monitoring requirements in non-urban 

areas, and to extend the length of the 

required ozone monitoring season in 

some states. 

In its proposal, EPA used ambient 

ozone monitoring data obtained from 

monitors operating outside (i.e., before 

and after) the current required ozone 

monitoring season to assess whether 

ambient ozone concentrations could 

approach or exceed the level of the 

primary (8-hour) National Ambient Air 

Quality Standards (NAAQS) during 

these periods when monitoring is not 

currently required. EPA’s analysis 

utilized data for the period 2004–2006, 

representing data from approximately 

530 monitors which were operated on a 

year-round basis. These data were 

analyzed for two indicators: (1) The 

number of exceedences of the NAAQS 

(i.e., daily maximum 8-hour ozone 

averages above 0.075 ppm) in the 

months falling outside the currently 

required ozone monitoring season for 

each area, and (2) occurrences of daily 

maximum 8-hour ozone averages of at 

least 0.060 ppm, representing a value of 

80 percent of the 0.075 ppm NAAQS. In 

the proposal, we noted that the 

operation of ozone monitors during 

such periods of time when ambient 

levels reach at least 80 percent of the 

NAAQS ensures that persons unusually 

sensitive to ozone are alerted to the 

occurrence of elevated ozone 

concentrations in their area, and 

protects against the potential for 

undocumented NAAQS exceedances. 

The availability of these additional data 

support many objectives including more 

comprehensive real-time air quality 

reporting to the public, ozone 

forecasting programs, and the 

verification of real-time air quality 

forecast models. 

As EPA completes revised analyses to 

support the upcoming ozone monitoring 

final rule, certain patterns of out-ofseason elevated 8-hour average ozone 

concentrations, which were not 

recognizable during 2004–2006, have 

become apparent in newer data. These 

patterns include a greater frequency of 

occurrences of daily maximum 8-hour 

ozone averages of at least 0.060 ppm 

before and after the currently required 

ozone monitoring seasons for the 

aforementioned states than was 

observed in the 2004–2006 dataset. 

Accordingly, EPA is making these 

newer data available for the specific 

states that have such patterns. 

4. Where can I get this information? 

All of the information can be obtained 

through the Air Docket and at http:// 

www.regulations.gov (see ADDRESSES

section above for docket contact 

information). 

5. What issue is EPA taking comment 

on? 

EPA requests comment on the 

interpretation of the newer ambient 8- 

hour average ozone monitoring data for 

the states of Colorado, Kansas, and Utah 

in the context of determining the final 

ozone monitoring season requirements 

for these states. Specifically, do the 

patterns of elevated 8-hour average 

ozone concentrations that occurred both 

before and after the current required 

ozone monitoring seasons for these 

states support the revised seasons 

proposed in the July 16, 2009, 

rulemaking for these states? Do these 

patterns support alternative required 

monitoring seasons different from what 

was proposed in the July 16, 2009, 

rulemaking for these states? Issues for 

consideration with regard to Colorado, 

Kansas, and Utah are whether the 

current ozone season requirements 

should be maintained, whether the 

proposed changes to seasons should be 

finalized as proposed or revised, and 

whether changes should be made for 

these states that were not originally 

proposed in the July 2009 rule. 

6. What should I consider as I prepare 

my comments for EPA? 

You may find the following 

suggestions helpful for preparing your 

comments: 

1. Explain your views as clearly as 

possible. 

2. Describe any assumptions that you 

used. 

3. Provide any technical information 

or data you used that support your 

views. 

4. Provide specific examples to 

illustrate your concerns. 

5. Offer alternatives. 

6. Make sure to submit your 

comments by the comment period 

deadline identified. 

7. To ensure proper receipt by EPA, 

identify the appropriate docket 

identification number in the subject line 

on the first page of your response. It 

would also be helpful if you provided 

the name, date, and Federal Register 

citation related to your comments. 

7. Submitting Confidential Business 

Information (CBI) 

Do not submit information you are 

claiming as CBI to EPA through http:// 

www.regulations.gov or e-mail. Clearly 

mark the part of the information that 

you claim to be CBI. Information so 

marked will not be disclosed except in 

accordance with procedures set forth in 

40 CFR part 2. For CBI information in 

a disk or CD–ROM that you mail to EPA, 

mark the outside of the disk or CD–ROM 

as CBI and then identify electronically 

within the disk or CD–ROM the specific 

information that is claimed as CBI. In 

addition to one complete version of the 

comment that includes information 

claimed as CBI, a copy of the comment 

that does not contain the information 

claimed as CBI must be submitted for 

inclusion in the public docket. 

List of Subjects in 40 CFR Part 58 

Air pollution control, Environmental 

protection, Intergovernmental relations, 

Reporting and recordkeeping 

requirements, Ambient air monitoring. 

Dated: November 3, 2010. 

Mary E. Henigin, 

Acting Director, Office of Air Quality Planning 

and Standards. 

[FR Doc. 2010–28259 Filed 11–9–10; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 455 

[CMS–6034–P] 

RIN 0938–AQ19 

Medicaid Program; Recovery Audit 

Contractors 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

provide 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 in accordance with 

section 6411 of the Affordable Care Act. 

In addition, this rule proposes 

requirements for States to assure that 

adequate appeal processes are in place 

for providers to dispute adverse 


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determinations made by Medicaid 

RACs. Finally, the rule proposes that 

States and Medicaid RACs coordinate 

with other contractors and entities 

auditing Medicaid providers and with 

State and Federal law enforcement 

agencies. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on January 10, 2011. 

ADDRESSES: In commenting, please refer 

to file code CMS–6034–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the ‘‘Submit a comment’’ instructions. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–6034–P, P.O. Box 8016, Baltimore, 

MD 21244–8016. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address ONLY: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–6034–P, Mail 

Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments before the close 

of the comment period to either of the 

following addresses: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

FOR FURTHER INFORMATION CONTACT: 

Joanne Davis, (410) 786–5127. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 

8:30 a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

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 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. Although 

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) requires States to 

establish programs in which they would 

contract with 1 or more Recovery Audit 

Contractors (Medicaid RACs) by 

December 31, 2010. The Medicaid RACs 

would review Medicaid claims 

submitted by providers of services for 

which payment may be made under 

section 1902(a) of the Act or a waiver of 

the State plan. Medicaid RACs would 

identify underpayments, and identify 

and collect overpayments from 

providers. 

Section 6411(a)(1) of the Affordable 

Care Act amends 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 proposed approach to the 

Medicaid RAC program, we provide 

background discussion on the Medicare 

RAC program. 

B. Medicare RACs 

Medicare RACs are private entities 

with which CMS contracts to identify 

and collect improper payments made in 

Medicare’s fee-for-service program. 

Initially authorized by the Congress as 

a 3-year demonstration program by the 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 


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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). The 

TRHCA directed CMS to expand the 

Medicare RAC program nationwide by 

January 1, 2010. 

During the Medicare RAC 

demonstration period, we 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 

collected or 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. 

In our evaluation of the Medicare 

RAC demonstration, providers surveyed 

identified to CMS a number of concerns 

and processes needing improvement. 

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, we directed Medicare 

RACs to consistently document their 

‘‘good cause’’ for reviewing a claim. We 

now require each Medicare RAC to hire 

a 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 

authorized CMS to pay Medicare RACs 

on a contingency fee basis. Currently, 

we pay Medicare RACs a contingency 

fee rate ranging between 9 and 12.50 

percent. These contingency fees are not 

initially fixed by CMS, but are 

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, we 

now require 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. 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 allows contingency fee 

payments if the following conditions are 

met: (1) The intent of the contingency 

fee contract must be to produce savings 

or recoveries in the Medicaid program; 

(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. 

D. Medicaid RACs 

Section 6411(a) of the Affordable Care 

Act amends and expands section 

1902(a)(42) of the Act to require States 

to establish programs by December 31, 

2010, to contract with 1 or more 

Medicaid RACs to audit Medicaid 

claims and to identify underpayments 

and overpayments. While States are 

required to establish their Medicaid 

RAC programs by December 31, 2010, 

via the State plan amendment process, 

such programs need not be 

implemented by this date. Instead, 

absent an exception, States must fully 

implement their Medicaid RAC 

programs by April 1, 2011. We solicit 

comments on the proposed 

implementation date. States would be 

required to report to CMS certain 

elements describing the effectiveness of 

their Medicaid RAC programs. These 

elements would include, but not be 

limited to 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). To implement this provision, we 

propose to add a new subpart F to 42 

CFR part 455. 

Medicaid RACs would review postpayment claims for improper payments, 

overpayments, as well as 

underpayments consistent with State 

laws and regulations. Medicaid RACs 

are a supplemental approach to 

Medicaid program integrity efforts 

already underway to ensure that States 

make proper payments to providers. 

Medicaid RACs do not replace any 

existing State program integrity or audit 

initiatives or programs. States must 

maintain their existing program 

integrity efforts uninterrupted with 

respect to levels of funding and activity. 

Should we detect evidence of fraud, 

waste, and abuse that goes unreported 

by the Medicaid RACs, we would work 

closely with States to identify focus 

areas for Medicaid RACs to improve 

their efficacy. 

The Affordable Care Act requires all 

States to establish Medicaid RAC 

programs, subject to such exceptions 

and requirements as the Secretary may 

require. This provision enables CMS to 

vary the Medicaid RAC program 

requirements, or exempt a State from 

establishing a Medicaid RAC program if 

inconsistent with State law. For 

example, we 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 such exception. 

Similarly, some State legislatures 

must enact legislation before amending 

their State plans. Because the 

establishment of a Medicaid RAC 

program is accomplished by State plan 

amendment (SPA), many State 

legislatures will not have the 

opportunity to convene and enact such 

an amendment to their State plans prior 

to December 31, 2010, those States 

would need to submit justifications to 

defer establishing Medicaid RAC 

programs until after those State 

legislatures have met. For States that 

require a State legislative change 

granting authority to establish a 

Medicaid RAC program, a SPA should 

be submitted indicating that the 

Medicaid RAC program cannot be 

established until legislative authority is 

granted. 

Finally, there may be circumstances, 

unrelated to the examples above, where 

a State would seek to be excepted from 

some or all of the requirements of the 

Medicaid RAC program. Accordingly, 


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we propose at § 455.516 that States 

seeking exceptions from contracting 

with Medicaid RACs must submit to 

CMS a written justification for the 

request. 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 amends section 1902(a)(42) of the 

Act, which requires States to make the 

following assurances to CMS regarding 

Medicaid RAC programs: 

• Under section 1902(a)(42)(B)(ii)(I) 

of the Act, payments shall be made to 

a Medicaid RAC contractor under 

contract with a State only from amounts 

recovered. As discussed more fully 

below, we interpret this to mean that 

payments to Medicaid RACs may not 

exceed the total amounts recovered. 

Additionally, we interpret this to mean 

that 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. 

The payment methodology 

determination for States, as well as 

when Medicaid RACs should be paid by 

States for their work are separate, but 

closely related issues. The distinction 

between amounts recovered and 

amounts identified has implications for 

how States would structure and 

administer payment agreements with 

Medicaid RACs, as well as the timing of 

Medicaid RACs’ receipt of payments. 

The options below illustrate two ways 

that States could structure payments, 

though they are not exhaustive. 

In option one, for example, State A 

pays RAC B its fee when RAC B 

identifies and recovers an overpayment. 

If provider C appeals and wins at any 

stage, RAC B would be required to 

return any portion of the contingency 

fee that corresponds to the amount of an 

overpayment that is overturned on 

appeal. 

In a second option, State D 

determines it would pay RAC E 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 

F. At that point, State D would pay RAC 

E 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 

shall be made on a contingent basis for 

collecting overpayments from the 

amounts recovered. We are aware that 

the proposed Medicaid RAC program, 

by virtue of the differences between the 

Medicare and Medicaid programs, 

would not operate identically to the 

Medicare RAC program. Recognizing 

that each State must tailor its Medicaid 

RAC activities to the uniqueness of its 

own State, we are not proposing to 

prescribe a set contingency fee rate for 

States. Instead, we are proposing certain 

guidelines based upon section 

1902(a)(42)(B) of the Act and our 

experience with the Medicare RAC 

program, but allowing States the 

discretion to set their fees within those 

guidelines. 

The Medicaid RACs would contract 

with States and territories to identify 

and collect overpayments, and would 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 to identify and 

pay underpayments to Medicare 

providers. We recognize the differences 

among States and territories when it 

comes to the issue of coordinating with 

RACs the collection of overpayments. 

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. In keeping with the 

statutory language that States must 

establish RAC programs consistent with 

State law, we propose to provide States 

with the flexibility of coordinating RAC 

collections of overpayments. 

Currently, there are 4 Medicare RAC 

contractors 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. 

Accordingly, in § 455.510(b)(3) and 

(b)(4), we are proposing that we would 

not provide Federal financial 

participation (FFP) with respect to 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. 

In the absence of an approved 

exception, a State may only pay a RAC 

contractor, from the overpayments 

collected, a contingency fee up to the 

highest Medicare RAC contingency rate. 

Any additional payment from the State 

to the RAC must be made using Stateonly 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 would not pay the 

Federal match on the 1.50 percent 

difference. The State would use Stateonly 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 2009. Initially, the maximum 

contingency rate for which FFP would 

be available for States to pay Medicaid 

RACs would be the highest Medicare 

RAC contingency fee, which is 12.50 

percent. That fee would be the 

maximum rate when States implement 

their RAC programs no later than April 

1, 2011. Subsequently, we would make 

States aware of any modifications to 

payment methodology for contingency 

fees and Medicaid RAC maximum 

contingency rates for which FFP would 

be available by publishing in a Federal 

Register notice, by December 31, 2013, 

the maximum Medicare contingency fee 

rate, which would apply to FFP 

availability for any Medicaid RAC 

contracts covering the period of 

performance beginning on July 1, 2014. 

The established rate would be in place 

for 5 years or until we publish a new 

maximum rate in the Federal Register. 

We solicit public comments on this 

approach. 

The Medicare RAC program is still a 

relatively new program. We will apply 

the lessons learned from the Medicare 

RAC Demonstration, as well as from the 

current program in providing States 

technical support and assistance in their 

efforts to implement their programs. For 

example, States would require Medicaid 

RACs to employ trained medical 

professionals to review Medicaid 

claims, as CMS now requires the 

Medicare RACs to do. Additionally, 

States may consider establishing 

requirements regarding the 

documentation of good cause to review 

a claim. States should also be cognizant 

of potential organizational conflicts of 

interest, and should take affirmative 

steps to identify and prevent any such 

conflicts of interest. 

The Office of the Inspector General of 

U.S. Department of Health and Human 

Services (HHS–OIG) recently reported 

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 are disincentivized to 


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make referrals because the RACs receive 

contingency fees. As we learn from the 

lessons of Medicare RACs, we caution 

States, in their design of Medicaid RAC 

programs, to ensure that the Medicaid 

RACs report instances of fraud and/or 

criminal activity in addition to the 

pursuit of overpayments. At 

§ 455.508(b), we propose that whenever 

RACs have reasonable grounds to 

believe that fraud or criminal activity 

has occurred, they must report it to the 

appropriate law enforcement officials. 

We solicit comments on these and other 

issues that States should consider in the 

design of their RAC programs. At 

§ 455.508(c), we propose 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 may be 

made in the amounts as the State may 

specify for identifying underpayments 

from the amounts recovered. 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. 

With respect to Medicaid RACs, 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 right amount to the right provider 

for the right service at the right time for 

the right recipient, whatever 

methodology a State chooses must 

adequately incentivize the detection of 

underpayments. In § 455.510(c), we are 

proposing to grant States the flexibility 

to specify the underpayment fee for 

Medicaid RACs. Additionally, we 

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 

reveals over time. We solicit public 

comments on the proposal of allowing 

States this flexibility. 

The Affordable Care Act requires that 

payments to a Medicaid RAC can only 

come from amounts recovered. Federal 

matching payments are not available for 

RAC fees paid in excess of the 

overpayment amounts collected. The 

total fees paid to a Medicaid RAC 

include both the amounts associated 

with (1) identifying and recovering 

overpayments; and (2) identifying 

underpayments. Due to the Affordable 

Care Act’s requirement that contingency 

fees only come from amounts recovered, 

total fees must not exceed the amounts 

of overpayments collected. 

Our experience with Medicare RAC 

contractors is that overpayment 

recoveries exceed underpayment 

identification by more than a 9:1 ratio. 

Therefore, it is not anticipated that 

States would need to maintain a reserve 

of recovered overpayments to fund 

Medicaid RAC costs associated with 

identifying underpayments. However, 

States must maintain an accounting of 

amounts recovered and paid. Further, 

States must also ensure that they do not 

pay in total RAC fees more than the total 

amount of overpayments collected. 

States must report overpayments to 

CMS based on the net amount 

remaining after all fees are paid to the 

Medicaid RAC. Medicaid RACs may 

only receive payments through the 

contingency fee arrangement made in 

accordance with these requirements and 

the limitations discussed relating to the 

maximum contingency fee amount. No 

additional FFP is available for any other 

State payment made to the RACs. This 

treatment of the fees and expenditures 

is directly linked to the specific 

statutory language implementing 

Medicaid RAC requirements. It does not 

apply to Medicaid overpayment 

recoveries in other contexts. 

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 amount is $100, and the 

total amount of underpayment is $20, 

the total fees paid to the Medicaid RAC 

would be $12 ($10 for the identification 

of the overpayment and $2 for the 

identification of the underpayment). 

From the remaining amount of the $88 

overpayment, the State would report, 

and the Federal share of the identified 

overpayment amount would be based 

upon, the appropriate State match rate 

for FFP. If the State pays a provider 

based on the Medicaid RAC-identified 

underpayment, and that expenditure is 

claimed in accordance with timely filing 

requirements, the $20 expenditure 

would be matched at the regular FMAP, 

or the appropriate FFP rate. 

Currently, § 433.312 requires States to 

refund the Federal share of 

overpayments, regardless of whether the 

State actually recovers the 

overpayments from the provider. This 

requirement, and all other requirements 

relating to overpayments, would apply 

to Medicaid RAC identified 

overpayments. Therefore, if a Medicaid 

RAC identifies an overpayment to a 

provider, the State is required to refund 

the Federal share of the overpayment 

amount to the Federal government net 

of any contingency fee paid, as 

discussed above. 

• 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. 

Each State already has in place an 

administrative appeals infrastructure, 

whereby a provider may avail itself of 

its due process rights in an 

administrative or judicial setting, 

depending on State law or 

administrative rule, with attendant 

procedures for notice and an 

opportunity to be heard. States may 

utilize the existing appeals 

infrastructure to adjudicate Medicaid 

RAC appeals. States would be required 

to submit to CMS a proposal describing 

the appeals process, which must be 

approved prior to implementing their 

RAC programs. 

Alternatively, 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, at 

§ 455.512 we propose to offer States the 

flexibility to determine the appeals 

process that would be available to 

providers who seek review of adverse 

RAC determinations. 

Finally, it is important to note that the 

potential length of a State’s 

administrative appeals process may 

have an impact on the methodology/ 

structure of the payment agreement 

between a State and a Medicaid RAC. 

For example, in a contract between State 

X and RAC Y, where State X’s 

administrative appeal process can 

extend for 2 years, RAC Y may not 

receive payment for an extended period 

of time. Accordingly, RAC Y’s 

contingency fee rate will most likely 

reflect operating, maintenance and legal 

costs over that period. Alternatively, in 

State Z, completion of the 

administrative appeals process takes 9 

months. A contract between State Z and 

RAC V 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. We propose in 

§ 455.514(b) that FFP would be available 

to States for administrative costs subject 

to reporting requirements. 


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• Section 1902(a)(42)(B)(ii)(IV)(bb) 

and section 1903(d) of the Act applies 

to amounts recovered (not merely 

identified) under the Medicaid RAC 

program. 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 

conformance with the restrictions 

discussed above, including the 

maximum allowed RAC contingency fee 

and the exception process). In other 

words, a 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. Such 

amounts recovered would be subject to 

a State’s quarterly expenditure estimates 

and the funding of the State’s share. 

Additionally, we note that the 

territories operate under a separate 

funding authority that is statutorilycapped. Because of the limitations 

placed on FFP by section 1108(g) of the 

Act, territories must assess the 

feasibility of implementing and funding 

Medicaid RAC contractors in their 

jurisdictions. We would provide 

technical assistance to the territories on 

how to implement the provisions in 

sections 1902(a)(42)(B)(ii)(I), (II), (III) 

and (IV) of the Act. We solicit public 

comment on the impact and feasibility 

of such provisions on the territories. 

• 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. We emphasize 

that Medicaid RACs are not intended to, 

and do not, replace any State program 

integrity or audit initiatives or 

programs. We propose in § 455.508(b) 

that an entity that wishes to enter a 

contract with a State to perform the 

functions of a Medicaid RAC must agree 

to the coordination efforts. 

Although overlapping or multiple 

provider audits may be necessary, we 

hope to minimize the likelihood of 

overlapping audits. The Affordable Care 

Act requires that States assure CMS that 

they will coordinate Medicaid RAC 

audit activity with an array of other 

stakeholders that also conduct audits. 

We anticipate working systematically, 

both internally and with States. We 

recognize that providers are currently 

subject to audits by the States’ routine 

program integrity audits, CMS’ 

Medicaid Integrity Contractors’ audits, 

as well as audits conducted by other 

State and Federal entities. 

In addition to the obligation to 

coordinate auditing efforts to reduce the 

overburdening of Medicaid providers, 

we also want to ensure coordination 

between Medicaid RACs and law 

enforcement organizations so that 

suspected cases of fraud and abuse are 

processed through the appropriate 

channels. Law enforcement 

organizations that may conduct audits 

or investigations 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, other 

Federal and State law enforcement 

agencies as appropriate and CMS. One 

approach to ensure this coordination is 

for States to establish Memoranda of 

Understanding (MOUs) with their State 

Medicaid Fraud Control Units (MFCUs), 

program integrity units or other law 

enforcement agencies. Nothing would 

preclude a State from agreeing to pay 

the Medicaid RAC a contingency fee 

from funds ultimately recovered and 

returned to the State as the State share 

of an overpayment (or restitution) at the 

close of the civil or criminal proceeding. 

Finally, coordination may be a 

challenge because of the number of 

other agencies or entities that may be 

conducting audits, but States are 

obligated to ensure that Medicaid RACs 

do not duplicate or compromise the 

efforts of other entities performing 

audits, including law enforcement that 

may be investigating fraud and abuse. 

II. Provisions of the Proposed 

Regulations 

In the section that follows, we discuss 

the proposed changes to the regulations 

in part 455 governing the Program 

Integrity—Medicaid. 

We propose to add a new ‘‘Subpart 

F—Medicaid Recovery Audit 

Contractors Program’’ that would 

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

Act. Section 1902(a)(42)(B) 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 propose to add the following 

sections: 

A. Purpose (§ 455.500) 

Proposed § 455.500 sets forth the 

purpose of the new subpart F. The 

regulations would implement section 

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

the Medicaid RAC program. 

B. Establishment of Program (§ 455.502) 

At proposed § 455.502, we would 

establish the Medicaid RAC program as 

a measure for States to promote the 

integrity of their Medicaid program, and 

require that States enter into contracts 

with one or more RACs to carry out the 

activities described in § 455.506, and 

require that States report on certain 

elements describing the effectiveness of 

their Medicaid RAC program. 

C. Definitions (§ 455.504) 

We are proposing to define the 

Medicaid RAC program as a recovery 

audit contractor administered by a State 

to identify overpayments and 

underpayments and recoup 

overpayments. We are proposing to 

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 (§ 455.506) 

We propose at § 455.506(a), to require 

States to contract with one or more 

RACs to engage in reviews of Medicaid 

claims submitted by providers of 

services or other individuals furnishing 

items and services for which payment 

has been made under section 1902(a) of 

the Act to determine whether providers 

have been underpaid or overpaid, and to 

recover any overpayments identified. 

We propose at § 455.506(b), to leave to 

the States’ discretion the manner in 

which they will coordinate with 

Medicaid RACs’ recoupment of 

overpayments. 

E. Eligibility Requirements for Medicaid 

RACs (§ 455.508) 

We propose at § 455.508 to provide 

that in order to be eligible to contract 

with a State to perform the functions of 

a Medicaid RAC, an entity must have 

technical capability to carry out the 

activities described in § 455.506, 

including employing trained medical 

professionals to review Medicaid 

claims. An entity must also agree to 

coordinate with State and Federal 

agencies, and meet any such other 

requirements as the State may establish. 

F. Payments to RACs (§ 455.510) 

We propose at § 455.510(a) that fees 

paid to RACs shall be made only from 

amounts recovered. We propose at 

§ 455.510(b)(1) to require that the 

contingency fee paid to Medicaid RACs 

be based on a percentage of the 

recovered overpayment amount. We 

propose at § 455.510(b)(2), that States 

shall determine at what stage of the 

audit process Medicaid RACs will 

receive their contingency fee. We 

propose at § 455.510(b)(3) that, except as 

provided in paragraph (b)(4), CMS will 

not provide FFP for any amount of 

contingency fee that exceeds the then 


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highest contingency fee rate paid to a 

Medicare RAC. We propose at 

§ 455.514(b)(4), that, on a case-by-case 

basis, CMS 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. We 

propose at § 455.510(c) to require that 

States determine the fee paid to 

Medicaid RACs to identify 

underpayments. 

G. Medicaid RAC Provider Appeals 

(§ 455.512) 

We propose at § 455.512 to require 

States to provide a process for provider 

appeals of adverse Medicaid RAC 

determinations. 

H. Federal Share of State Expense for 

the Medicaid RAC Program (§ 455.514) 

We propose at § 455.514(a) that funds 

expended by the State to carry out the 

Medicaid RAC program shall be 

considered necessary for the proper and 

efficient administration of the State plan 

or a waiver of the plan. 

We propose at § 455.514(a) that the 

Federal share of State expense does not 

include fees paid. 

We propose at § 455.514(b) that FFP is 

available to States for administrative 

costs of operation and maintenance of 

Medicaid RACs, subject to CMS’ 

reporting requirements. 

I. Exceptions From Medicaid RAC 

Programs (§ 455.516) 

We propose at § 455.516, that 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 get CMS 

approval. 

J. Applicability to the Territories 

(§ 455.518) 

We propose at § 455.518 that 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. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order 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 are soliciting 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(c)) 

Section 455.502(c) would require 

States to submit certain elements 

describing the effectiveness of their 

Medicaid RAC programs. These 

elements will include, but not be 

limited to general program descriptors 

and program metrics evaluating 

effectiveness. The burden associated 

with this requirement is the time and 

effort put forth by the State to aggregate 

existing data that will be part of the 

process of establishing their RAC 

program. We estimate it would take 1 

State 2 hours to perform this task. The 

total annual burden for this requirement 

is 112 hours. 

B. ICRs Regarding State Justifications To 

Pay Higher Contingency Fees 

(§ 455.510(b)(4)) 

Section 455.510(b)(4) would require 

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 would 

take 1 State 60 hours to perform this 

task. The total annual burden for this 

requirement is 1680 hours. 

C. ICRs Regarding Medicaid RAC 

Provider Appeals (§ 455.512) 

Section 455.512 would require 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 would take 1 State 60 hours 

to perform these tasks. The total annual 

burden for this requirement is 3,360 

hours. 

D. ICRs Regarding Federal Share of 

State Expense for the Medicaid RAC 

Program (§ 455.514(b)) 

Section 455.514(b), FFP would be 

available to States for the Federal share 

of State expense 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# 0938–0067 with 

an expiration date of August 31, 2011. 

E. ICRs Regarding Exceptions From 

Medicaid RAC Programs (§ 455.516) 

Section 455.516 would require 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 would take 1 State 20 

hours to meet this requirement. We 

estimate approximately 15 States would 

request an exception; therefore, the total 

annual burden associated with this 

requirement is 300 hours. 

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 proposed 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–P] Fax: (202) 395–6974; or 

E-mail: OIRA_submission@omb.eop.gov. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), the 

Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), 


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section 1102(b) of the Social Security 

Act, section 202 of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), Executive Order 13132 on 

Federalism (August 4, 1999), and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Order 12866 directs 

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). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). We tentatively estimate 

that this rulemaking may be 

‘‘economically significant’’ as measured 

by the $100 million threshold, and, 

therefore, may be a major rule under the 

Congressional Review Act. 

This proposed 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. As such, these 

estimates are highly uncertain, as a 

result we offer estimates for FYs 2011 

through 2015 to illustrate the potential 

effects of this program. As a result, 

OACTs estimates for FYs 2011 through 

2015 are presented in Table A. 

TABLE A—POTENTIAL NET SAVINGS TO

FEDERAL MEDICAID PROGRAM FROM

THE EXPANSION OF THE RECOVERY

AUDIT CONTRACTOR PROGRAM

Fiscal year Estimated savings 

(in millions of dollars) 

2011 .......................... $80 

2012 .......................... 170 

2013 .......................... 250 

2014 .......................... 310 

2015 .......................... 330 

We plan to refine the estimated 

impacts in the final rule’s analysis and 

we request comment on the potential 

underpayments and overpayments 

collected by States and the associated 

contingency fees. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses, if a rule has a significant 

impact on a substantial number of small 

entities. For purposes of the RFA, we 

estimate that most Medicaid providers 

are small entities as that term is used in 

the RFA (include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions). The great 

majority of hospitals and most other 

health care providers and suppliers are 

small entities, either by being nonprofit 

organizations or by meeting the SBA 

definition of a small business (having 

revenues of less than $7.0 million to 

$34.5 million in any 1 year). For 

purposes of the RFA, 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 1 year and 80 

percent are nonprofit organizations. 

Individuals and States are not included 

in the definition of a small business 

entity. Medicaid providers are required, 

as a matter of course, to follow the 

guidelines and procedures as specified 

in State and Federal laws and 

regulations. As such, 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. Therefore, the Secretary 

has determined that this proposed 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 603 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, this proposed 

rule would not have a significant impact 

on the operation of small rural 

hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year of $100 

million in 1995 dollars, updated 

annually for inflation. In 2010, that 

threshold is approximately $135 

million. This proposed rule applies to 

the States’ requirement to procure 

Medicaid RACs to perform audits of 

Medicaid providers on a contingency 

fee basis. State expenditure associated 

with this proposed rule would initially 

involve directing or allocating personnel 

resources to procurement activities. Per 

the terms of the contracts, States would 

not be expending funds over $135 

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 $135 million threshold. 

Therefore, this proposed rule is not 

anticipated to have an effect on State, 

local or tribal governments in the 

aggregate, or by the private sector of 

$135 million or more. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed 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 proposed rule 

under the threshold criteria of Executive 

Order 13132, Federalism, and have 

determined that it would not have 

substantial direct effects on the rights, 

roles, and responsibilities of States, 

local or tribal governments. 

B. Conclusion 

We tentatively estimate that this rule 

may be ‘‘economically significant’’ as 

measured by the $100 million threshold 

as set forth by Executive Order 12866, 

as well as the Congressional Review 

Act. The analysis above provides our 

initial Regulatory Impact Analysis. We 

have not prepared an analysis for 

section 1102(b) of the RFA, section 202 

of the UFMA and Executive Order 

13132 because the provisions are not 

impacted by this rule. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

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: 


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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 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. 

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 

program. 

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 Social Security 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 shall enter into contracts, 

consistent with State law and in 

accordance with this section, with 

eligible Medicaid RACs to carry out the 

activities described in § 455.506 of this 

subpart. 

(c) States will be required to report to 

CMS certain elements describing the 

effectiveness of their Medicaid RAC 

program. 

§ 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. 

(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. 

(b) States shall have the discretion to 

coordinate with Medicaid RACs 

regarding the recoupment of 

overpayments. 

§ 455.508 Eligibility requirements for 

Medicaid RACs. 

An entity that wishes to perform the 

functions of a Medicaid RAC may 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 shall 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 to review Medicaid 

claims. 

(b) In carrying out such activities, the 

entity agrees to coordinate its efforts 

with the State as well as the Office of 

Inspector General of the U.S. 

Department of Health and Human 

Services, the U.S. Department of Justice, 

including the Federal Bureau of 

Investigation, State Medicaid Fraud 

Control Units, other Federal and State 

law enforcement agencies as appropriate 

and CMS. Whenever the entity has 

reasonable grounds to believe that fraud 

or criminal activity has occurred, the 

entity must report it immediately to 

appropriate law enforcement officials. 

(c) The Medicaid RAC meets such 

other requirements as the State may 

require. 

§ 455.510 Payments to RACs. 

(a) General. Fees paid to RACs shall 

be made only from amounts recovered. 

(b) Overpayments. A State shall 

determine the contingency fee rate to be 

paid to a Medicaid RAC for the 

identification and recovery of Medicaid 

provider overpayments. 

(1) The contingency fee paid to a 

Medicaid RAC shall be based on a 

percentage of the overpayment 

recovered. 

(2) States shall determine at what 

stage in the Medicaid RAC process, 

post-recovery, Medicaid RACs will 

receive contingency fee payments. 

(3) Except as provided in paragraph 

(4) 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 Federal financial 

participation (FFP), either from the 

collected overpayment amounts, or in 

the form of any other administrative or 

medical assistance claimed expenditure. 

(4) 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. States shall 

determine the fee paid to a Medicaid 

RAC to identify underpayments. 

§ 455.512 Medicaid RAC provider appeals. 

States shall provide appeal rights 

available 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 the State for 

the operation and maintenance of a 

Medicaid RAC program, not including 

fees paid to RACs, shall be considered 

necessary for the proper and efficient 

administration of the State plan or a 

waiver 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 and 

getting CMS approval. 

§ 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: August 19, 2010. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: October 29, 2010. 

Kathleen Sebelius, 

Secretary, Health and Human Services. 

[FR Doc. 2010–28390 Filed 11–5–10; 4:15 pm] 

BILLING CODE 4120–01–P 


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