Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICARE RECOVERY AUDIT 

CONTRACTORS AND CMS’S 

ACTIONS TO ADDRESS 

IMPROPER PAYMENTS, 

REFERRALS OF POTENTIAL 

FRAUD, AND PERFORMANCE 

Daniel R. Levinson 

Inspector General 

August 2013 

OEI-04-11-00680 
 

 

EXECUTIVE SUMMARY: MEDICARE RECOVERY AUDIT CONTRACTORS 

AND CMS’S ACTIONS TO ADDRESS IMPROPER PAYMENTS, REFERRALS 

OF POTENTIAL FRAUD, AND PERFORMANCE, OEI-04-11-00680 

WHY WE DID THIS STUDY 

Recovery Audit Contractors (RAC) are designed to protect Medicare by identifying 

improper payments and referring potential fraud to the Centers for Medicare & Medicaid 

Services (CMS). Prior Government Accountability Office work has identified problems 

with CMS’s actions to address improper payment vulnerabilities, and prior Office of 

Inspector General (OIG) work has identified problems with CMS’s actions to address 

referrals of potential fraud. Further, OIG has identified vulnerabilities in CMS’s 

oversight of its contractors. Given the critical role of identifying improper payments, 

effective oversight of RAC performance is important. 

HOW WE DID THIS STUDY 

We collected RAC Data Warehouse (i.e., electronic database) files from CMS and data 

from RACs to determine their activities to identify improper payments and refer potential 

fraud in fiscal years (FYs) 2010 and 2011. We also collected data from CMS regarding 

activities to address vulnerabilities (i.e., improper payments exceeding $500,000 that 

result from a specific issue) and referrals of potential fraud. Finally, we collected RAC 

performance evaluations and performance evaluation metrics from CMS and determined 

the extent that RAC performance evaluations addressed these metrics. We also compared 

performance evaluation metrics to contract requirements to determine the extent that 

these metrics addressed contract requirements. 

WHAT WE FOUND 

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

resulted in improper payments totaling $1.3 billion. CMS took corrective actions to 

address the majority of vulnerabilities it identified in FYs 2010 and 2011; however, it did 

not evaluate the effectiveness of these actions. As a result, high amounts of improper 

payment may continue. Additionally, CMS did not take action to address the six referrals 

of potential fraud that it received from RACs. Finally, CMS’s performance evaluations 

did not include metrics to evaluate RACs’ performance on all contract requirements. 

WHAT WE RECOMMEND 

We recommend that CMS (1) take action, as appropriate, on vulnerabilities that are 

pending corrective action and evaluate the effectiveness of implemented corrective 

actions; (2) ensure that RACs refer all appropriate cases of potential fraud; (3) review and 

take appropriate, timely action on RAC referrals of potential fraud; and (4) develop 

additional performance evaluation metrics to improve RAC performance and ensure that 

RACs are evaluated on all contract requirements. CMS concurred with our first, second, 

and fourth recommendations. CMS did not indicate whether it concurred with our third 

recommendation but noted that it has reviewed the six RAC referrals of potential fraud in 

our review. 
TABLE OF CONTENTS 

Objectives ....................................................................................................1 

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

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

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

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

reviewed as having resulted in improper payments totaling 

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

CMS took corrective action to address the majority of 

vulnerabilities it identified in FYs 2010 and 2011; however, it 

did not evaluate the effectiveness of these corrective actions......12 

CMS did not take action to address the six referrals of potential 

fraud that it received from RACs in FYs 2010 and 

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

CMS’s performance evaluations did not include metrics to 

evaluate RACs’ performance on all contract 

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

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

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

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

A: Number and Percentage of Appealed Overpayment 

Identifications by Claim Type in Fiscal Years 2010 and 

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

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

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

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

 

 

 

 

 

OBJECTIVES 

To determine the extent that: 

1.	 Recovery Audit Contractors (RAC) identified improper payments; 

2.	 the Centers for Medicare & Medicaid Services (CMS) took corrective 

actions to address vulnerabilities; 

3.	 RACs referred potential fraud to CMS and CMS took action on these 

referrals; and 

4.	 CMS evaluated RACs on all performance requirements. 

BACKGROUND 

The Medicare Prescription Drug, Improvement, and Modernization Act of 

2003 mandated the establishment of a RAC demonstration project to 

determine effectiveness in (1) identifying improper payments 

(underpayments and overpayments) and (2) recouping overpayments in 

Medicare Parts A and B.1 The demonstration project occurred in six States 

from March 2005 to March 2008.2 During the demonstration project, 

RACs identified over $1.03 billion in improper payments.3 Of these 

improper payments, $992.7 million were overpayments and $37.8 million 

were underpayments. 

The Tax Relief and Health Care Act of 2006 required the Secretary of 

Health and Human Services to establish a national RAC program by 

January 1, 2010.4 To fulfill this requirement, CMS awarded competitive 

contracts to four contractors to perform recovery audit functions in four 

separate geographical regions. All four RAC regions were operational by 

October 2009. See Appendix B for a map of States in each RAC region. 

1

 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 

P.L. 108-173, Title III, § 306; CMS, The Medicare Recovery Audit Contractor Program: 

An Evaluation of the 3-Year Demonstration. Accessed at http://www.cms.gov/ResearchStatistics-Data-and-Systems/Monitoring-Programs/recovery-auditprogram/downloads/RACEvaluationReport.pdf on August 22, 2012. 2

 These six States were Arizona, California, Florida, Massachusetts, New York, and 

South Carolina. 

3

 CMS, The Medicare Recovery Audit Contractor Program: An Evaluation of the 3-Year 

Demonstration. Accessed at http://www.cms.gov/Research-Statistics-Data-andSystems/Monitoring-Programs/recovery-auditprogram/downloads/RACEvaluationReport.pdf on August 22, 2012. 4

 The Tax Relief and Health Care Act of 2006, P.L. 109-432, Division B, § 302(h); Social 

Security Act, § 1893(h); CMS, Implementation of Recovery Auditing at The Centers for 

Medicare & Medicaid Services. August 2011. Accessed at 

https://www.cms.gov/Recovery-Audit Program/Downloads/FY2010ReportCongress.pdf 

on August 22, 2012. 

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Unlike other Medicare contractors, RACs are mandated to be paid on a 

contingency-fee basis.5 Contingency fees are calculated as a percentage of 

improper payments that are recovered (overpayments) or returned 

(underpayments) to providers.6 RACs do not receive these fees until 

improper payments are recovered or returned (i.e., the payments are 

contingent on the recovery or return). 

RAC Claims Review Process 

RACs’ primary responsibility is to identify improper payments from 

Medicare Part A and B claims that have been paid by claims processing 

contractors.7 RACs analyze claims and review those most likely to 

contain improper payments.8 RACs may also request and analyze 

provider claim documentation to ensure services provided were reasonable 

and necessary. Improper payments may include: (1) payment for items or 

services that do not meet Medicare’s coverage and medical necessity 

criteria, (2) payment for items that are incorrectly coded, and (3) payment 

for services where the documentation submitted did not support the 

ordered service. 

Recovered and Returned Improper Payments. When RACs identify 

improper payments, they notify the claims processing contractor of the 

applicable claims. The claims processing contractor adjusts the claims to 

reflect the proper payment amounts.9 If the improper payment is an 

overpayment, the claims processing contractor sends a demand letter to 

the provider to recover the improper payment.10 The demand letter 

includes the overpayment amount, the reason for the overpayment, and 

payment instructions. If the improper payment is an underpayment, the 

5

 Tax Relief and Health Care Act of 2006, P.L. 109-432, Division B, § 302(h)(1). 

6

 In FY 2011, RACs received 9 to 17.5 percent in contingency fee payments, depending 

on the type of the claim with the improper payment. CMS, Recovery Auditing in the 

Medicare and Medicaid Programs for Fiscal Year 2011. Accessed at 

http://www.cms.gov/Research-Statistics-Data-and-Systems/MonitoringPrograms/Recovery-Audit-Program/Downloads/FY2011-Report-To-Congress.pdf on 

February 8, 2013. 

7

 The Patient Protection and Affordable Care Act, P.L. 111-148, § 6411, expanded the 

RAC program to identify improper payments in Medicare Part D, Medicare Advantage, 

and Medicaid claims. CMS awarded the Medicare Part D RAC contract to ACLR 

Strategic Business Solutions in 2011, and this RAC began recouping improper payments 

on CMS’s behalf in FY 2013. CMS is in the process of implementing a Medicare 

Advantage RAC. Additionally, approximately 40 States have awarded Medicaid RAC 

contracts. 

8

 CMS, Recovery Audit Program Final Statement of Work. Accessed at 

https://www.cms.gov/Recovery-Audit-Program/Downloads/090111RACFinSOW.pdf on 

August 22, 2012. 

9

 CMS, Medicare Financial Management Manual, Pub. No. 100-06, ch. 4, § 100.5. 10 Prior to 2012, RACs sent demand letters to providers. 

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claims processing contractor notifies the provider and pays the provider 

the underpaid amount. 

RAC-identified improper payments are recorded in the RAC Data 

Warehouse (i.e., electronic database) and monitored by CMS.11 When 

RACs identify improper payments that result from a specific issue (e.g., 

incorrect coding of diagnoses and procedure codes), that issue is classified 

as a vulnerability.12 The CMS Division of Recovery Audit Operations 

provides further guidance that defines a vulnerability as a specific issue 

associated with more than $500,000 in improper payments.13 When CMS 

identifies a vulnerability, it may develop a corresponding corrective 

action, such as conducting provider education or implementing 

computerized “edits” (i.e., system processes) to prevent future improper 

payments. 

CMS also uses the RAC Data Warehouse to prevent RACs from reviewing 

claims that have already been reviewed or that are under review by other 

CMS contractors or law enforcement. 14 To do this, CMS contractors and 

law enforcement access the RAC Data Warehouse and exclude or suppress 

applicable claims from RAC review. Excluded claims include those that 

have already been reviewed by other CMS contractors. Suppressed claims 

include those that are currently under investigation by law enforcement or 

are under fraud/benefit integrity review by CMS contractors.15 

Provider Appeals. Providers may appeal RAC-identified overpayments. 

Once a provider requests an appeal, overpayment recoupment must stop 

until a final determination has been made.16 There are five progressive 

levels in the appeals process.17 RACs do not receive contingency fees for 

overpayments that are appealed and ruled in the provider’s favor (i.e., 

overturned appeals) at any of the five levels. CMS tracks appeals 

information in the RAC Data Warehouse. 

11 CMS, Recovery Audit Program Final Statement of Work. Accessed at 

https://www.cms.gov/Recovery-Audit-Program/Downloads/090111RACFinSOW.pdf on 

August 22, 2012. 

12 CMS, Standard Operating Protocol: Vulnerability Tracking Corrective Action
 

Process, February 7, 2011. 13 CMS communicated this guidance to OIG during meetings in 2012.
 14 Other contractors may include claims processing contractors or program integrity
 

contractors.
 15 CMS, Medicare Financial Management Manual, Pub. No. 100-06, ch. 4, § 100.4.
 16 Social Security Act, § 1893(f)(2). This applies to overpayments that are appealed
 

within 30 days of the date of the demand letter. 

17 The five appeals levels include (1) redetermination made by a claims processing
 

contractor, (2) reconsideration made by a Qualified Independent Contractor (QIC),
 

(3) Administrative Law Judge hearing, (4) appeals council review, (5) Federal District 

Court review. CMS contracts with QICs to process second-level appeals, or 

reconsiderations. 

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RAC Referrals of Potential Fraud. RACs’ primary responsibility is to 

review claims for improper payments. However, if RACs encounter 

potential fraud, they are required to refer the provider to CMS.18 RACs 

may continue to review claims that they have referred for potential fraud 

unless law enforcement or other CMS contractors instruct RACs to stop 

their reviews. Additionally, if improper payments are identified on claims 

included in fraud referrals, RACs receive contingency fees unless they are 

instructed to stop their review of these claims. RACs also refer external 

notifications (e.g., complaints from provider employees or beneficiaries) 

of potentially fraudulent providers to CMS. 

CMS Actions on Vulnerabilities and Referrals of Potential 

Fraud 

A 2011 CMS policy tasks various CMS components with responsibility 

for addressing vulnerabilities and referrals of potential fraud.19 

CMS Corrective Actions on Vulnerabilities. The CMS Division of Data 

Analysis, in collaboration with the CMS Division of Recovery Audit 

Operations, monitors improper payment amounts. CMS classifies any 

specific issue resulting in more than $500,000 in improper payments as a 

vulnerability, or “major finding.” These vulnerabilities receive high 

priority for corrective action; however, CMS determines which 

vulnerabilities it should address on the basis of several factors, such as 

improper payment amount and geographic scope (e.g., whether the 

vulnerability spans multiple RAC regions).20, 21, 22 Vulnerabilities and 

applicable corrective actions are recorded in the Improper Payment 

Prevention Plan. Additionally, the Division of Data Analysis is 

responsible for evaluating corrective actions and determining their 

effectiveness in reducing improper payments.23 Specifically, CMS does 

18 CMS, Recovery Audit Program Final Statement of Work. Accessed at 

https://www.cms.gov/Recovery-Audit-Program/Downloads/090111RACFinSOW.pdf on 

August 22, 2012. Examples of fraud may include incorrect reporting of diagnoses to 

maximize payments or billing for services not provided. CMS, Medicare Program 

Integrity Manual, Pub. No. 100-08, ch. 4, § 4.2.1. 

19 CMS, Standard Operating Protocol: Vulnerability Tracking Corrective Action 

Process, February 7, 2011. 20 CMS may determine various corrective actions are appropriate, such as computerized
 

edits or provider education. CMS may also determine that no action is necessary. 

21 CMS, Standard Operating Protocol: Vulnerability Tracking Corrective Action 

Process, February 7, 2011. 22 While vulnerabilities may span multiple regions, CMS calculates improper payment 

amounts identified by individual RAC regions only when determining whether they meet 

the Division of Recovery Audit Operations’ vulnerability threshold. Government 

Accountability Office (GAO), Greater Prepayment Control Efforts Could Increase 

Savings and Better Ensure Proper Payment, GAO-13-102, November 2012. 23 CMS, Standard Operating Protocol: Vulnerability Tracking Corrective Action 

Process, February 7, 2011. 

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not consider corrective actions closed until it has conducted analyses to 

determine their effectiveness.24 

CMS Actions on RAC Referrals of Potential Fraud. The CMS Project 

Officer tracks the submission of RAC referrals of potential fraud and 

forwards them to the CMS Center for Program Integrity (CPI) for 

potential action. 25 Action may include referring the provider to program 

integrity contractors or law enforcement. CMS also provides training to 

RACs to help them identify potentially fraudulent claims or providers. 

CMS Activities To Evaluate RAC Performance 

The Federal Acquisition Regulation mandates that CMS evaluate 

contractor performance.26 These evaluations enable CMS to provide 

feedback to contractors regarding their performance and determine 

whether to renew a company’s contract. CMS may reduce contractor 

workloads or take other necessary action, such as reducing payments to 

contractors, if it determines that contractors are not meeting their 

performance requirements. 

RAC Annual Performance Evaluations. CMS conducts RAC annual 

performance evaluations at intervals of no less than 12 months after the 

contract award date. RACs are assessed on the basis of performance 

evaluation metrics within categories established in the Contractor 

Performance Assessment Reporting System (CPARS) policy guide. 

These categories include: (1) Business Relations, (2) Quality of Product 

or Service, (3) Schedule/Timeliness, (4) Management of Key Personnel, 

and (5) Utilization of Small Business. For each category, CMS provides a 

narrative describing RAC performance against performance evaluation 

metrics and assigns a rating.27 However, CMS does not provide an overall 

performance rating, such as the average of all category ratings. 

24 Ibid. 

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

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

Accessed at http://www.cms.gov/Medicare-Medicaid-Coordination/FraudPrevention/MedicaidIntegrityProgram/downloads/cpiinitiatives.pdf on October 12, 2012. 26 48 CFR § 42.1502(a). 

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

These include: (1) unsatisfactory, (2) marginal, (3) satisfactory, (4) very good, and 

(5) excellent. 

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CMS records completed performance reports in CPARS for RACs to 

access and view.28 After reports have been recorded in CPARS, RACs 

have 30 days to review and respond if they disagree with the ratings that 

CMS has given them. 

Related Work 

In 2010, GAO reported that CMS lacked an effective process to address 

vulnerabilities identified during the 3-year RAC demonstration project 

(2005–2008).29 GAO also determined that by January 2010, CMS had not 

addressed approximately 60 percent of improper payment vulnerabilities 

identified during the demonstration project. GAO recommended that 

CMS implement a process to decide on the appropriate response to 

address vulnerabilities. GAO also recommended that the agency act 

promptly to address vulnerabilities. CMS concurred with both of these 

recommendations. 

OIG has also identified vulnerabilities in CMS’s oversight of its 

contractors. Given the critical role of identifying improper payments, 

effective oversight of these contractors’ performance is important. In 

2010, the Office of Inspector General (OIG) reported that RACs referred 

two cases of potential fraud to CMS during the demonstration project.30 

However, CMS stated that it did not receive any referrals of potential 

fraud during this time. The report also indicated that RACs had not 

received formal training and guidance from CMS to help them identify 

fraud. OIG recommended that CMS require RACs to receive mandatory 

training on the identification and referral of fraud. CMS concurred with 

this recommendation. 

METHODOLOGY 

We collected RAC Data Warehouse files from CMS and data from RACs 

to determine activities performed to identify improper payments and refer 

28 RACs may view only reports specific to their performance and may not review reports 

from other regions and/or contractors. Additionally, CPARS helps the Government 

provide current and accurate data on contractor performance for use in source selections 

through the Past Performance Informational Retrieval System (PPIRS). For instance, 

completed performance assessments in PPIRS are used as a resource in awarding 

contracts and orders to contractors that consistently provide quality, timely products and 

services that adhere to contractual requirements. Department of Defense, Contractor 

Performance Assessment Reporting System Policy Guide. Accessed at 

http://www.cpars.csd.disa.mil/cparsfiles/pdfs/DoD-CPARS-Guide.pdf on November 14, 

2012. CMS performance evaluations are retained in CPARS. The Department of 

Defense is responsible for managing this system. 

29 GAO, Medicare Recovery Audit Contracting: Weaknesses Remain in Addressing 

Vulnerabilities to Improper Payments, Although Improvements Made to Contractor 

Oversight, GAO-10-143, March 2010. 30 OIG, Recovery Audit Contractor’s Fraud Referrals, OEI-03-09-00130, February 2010. 

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potential fraud in FYs 2010 and 2011. We collected data from CMS 

regarding activities to address vulnerabilities resulting from 

RAC-identified improper payments and referrals of potential fraud. We 

also collected RAC performance evaluations and performance evaluation 

metrics from CMS. Both RACs and CMS submitted documentation to 

support their responses and we followed up with them, as appropriate. All 

four RACs were operational during our timeframe and were included in 

our review. 

RAC Identification of Improper Payments 

RAC Identification of Improper Payments. We collected RAC Data 

Warehouse files in June 2012 and calculated the number and dollar 

amount of improper payments that RACs identified and the amounts that 

were recovered from or returned to providers in FYs 2010 and 2011. We 

analyzed claims within the RAC Data Warehouse to determine (1) the 

percentage of improper payment amounts recovered from or returned to 

providers in each State and RAC region, (2) the provider types with the 

largest dollar amounts of recovered or returned improper payments, and 

(3) the reasons (e.g., coding or billing mistakes) for the recovered or 

returned improper payments. We did not determine the accuracy of 

RACs’ improper payment determinations, nor did we assess the burden 

RACs placed on providers for requesting claim documentation (e.g., 

medical records). 

We also collected from CMS the number of claims that RACs reviewed 

and the overpayment identifications that providers appealed in FYs 2010 

and 2011. However, we did not analyze the accuracy of appeals 

determinations (e.g., overturned in the provider’s favor). Finally, we 

analyzed claims within the RAC Data Warehouse files to determine 

whether providers received improper payments for billing potentially 

fraudulent claims. As is our typical process, we will forward to OIG’s 

Office of Investigations (OI) any potential fraud that we identified so that 

OI may determine the appropriate course of action. 

CMS Actions on Vulnerabilities and RAC Referrals of Potential 

Fraud 

CMS Corrective Actions on Vulnerabilities. In May and June 2012, we 

collected all vulnerabilities that CMS identified in FYs 2010 and 2011.31 

We calculated the amount of improper payments associated with these 

vulnerabilities and determined the action that CMS took to address them.32 

31 These data were provided to OIG in the Improper Payment Prevention Plan. CMS may 

identify vulnerabilities resulting from region-specific or national issues. 

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

regarding the actions it had taken to address vulnerabilities during our time frame. 

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We considered a corrective action to have been taken if CMS had taken 

steps to address the vulnerability, such as sending technical direction 

letters to contractors or putting computerized edits into place to prevent 

improper payments.33 Additionally, if CMS indicated that no action was 

necessary to address the vulnerability, we considered this a corrective 

action. For example, if CMS determined that no action was necessary 

because a forthcoming policy would address the vulnerability. However, 

we did not consider a corrective action to be taken if CMS had only 

reviewed or discussed the vulnerability. 

We asked CMS to specify the dates that it took corrective actions. If CMS 

had not taken corrective actions, we followed up to determine why. We 

then calculated the length of time between CMS’s identifying a 

vulnerability and taking corrective action on it.34 In addition, we collected 

data from CMS that documented whether it had evaluated the 

effectiveness of corrective actions. Using these data, we identified the 

number of corrective actions for which CMS had evaluated effectiveness. 

We considered a corrective action to have been evaluated for effectiveness 

if CMS provided documentation that it had determined whether the 

corrective action had reduced improper payments or affected provider 

billing patterns. Finally, we collected any documents that described 

CMS’s processes or criteria for evaluating corrective actions. 

CMS Actions on Referrals of Potential Fraud. We collected 

documentation of referrals of potential fraud that CMS received from 

RACs in FYs 2010 and 2011. For each referral, we collected the referral 

date, provider identification number, name of the RAC that sent the 

referral, reason for the referral, and resulting CMS actions (e.g., whether 

CMS referred the provider to CPI for further review). We requested 

information from CMS from October to November 2012 to determine 

whether and how it had addressed these referrals. 

We also asked CMS to provide the dates that it or other agencies (e.g., 

Department of Justice) provided training to RACs on fraud identification 

and the referral process. We collected documentation, such as slides or 

handouts, from these sets of training. 

33 Technical direction letters provide additional details and guidance to contractors about 

tasks required of them. Contractors incorporate edits in their claims processing systems 

to verify and validate claims data by detecting errors or potential errors. Edits also verify 

that certain data are consistent and appropriate. CMS, Medicare Administrative 

Contractor Workload Implementation Handbook (Legacy-to-MAC), ch. 4, § 4.10.3.2. 

Accessed at http://www.cms.gov/Medicare/MedicareContracting/MedicareContractingReform/Downloads/Handbooks/Legacy2MACImp.pdf 

on February 3, 2012. 

34 We used the date that vulnerabilities were added to the Improper Payment Prevention
 

Plan as the date CMS identified them. 

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RAC Performance Evaluations 

In April and May 2012, we collected the records for the annual RAC 

performance evaluations that CMS conducted in 2010 and 2011 and the 

performance evaluation metrics that CMS used.35 We compared these 

items to determine the extent that RAC performance evaluations addressed 

performance evaluation metrics. We also compared RAC performance 

evaluation metrics to RAC contract requirements to determine the extent 

that performance evaluation metrics addressed contract requirements. 

Standards 

This study was conducted in accordance with the Quality Standards for 

Inspection and Evaluation issued by the Council of the Inspectors General 

on Integrity and Efficiency. 

35 Performance periods are from February to February each year. 
 

 

 

 

 

 

 

 

 

FINDINGS 

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

they reviewed as having resulted in improper 

payments totaling $1.3 billion 

In FYs 2010 and 2011, RACs reviewed 2.6 million claims from 

approximately 292,000 providers.36 During this period, RACs identified 

approximately 1.3 million claims with improper payments (50 percent) 

that totaled nearly $1.3 billion.37 Of this amount, $903 million was 

38, 39 recovered from or returned to providers in FYs 2010 and 2011.

Approximately $768 of the $903 million was recovered from providers 

($53 million in FY 2010 and $715 million in FY 2011). The remaining 

$135 million was returned to providers ($15 million in FY 2010 and 

$120 million in FY 2011). 

Over half (57 percent) of all recovered or returned improper payments 

resulted from medical services being delivered in inappropriate facilities 

(32 percent) or providers billing incorrect codes on Medicare claims 

(25 percent).40 Improper payments also resulted from other sources, such 

as providers billing Medicare for services for deceased beneficiaries. For 

instance, CMS recovered $3 million in improper payments stemming from 

approximately 27,000 claims for services billed for deceased 

36 There were a total of 2,608,481 claims from 292,265 unique providers. 

37 There were a total of 1,289,056 claims with $1,261,328,388 in identified improper 

payments. However, some of these identified improper payments ultimately may not 

have been recovered from or returned to providers for various reasons, such as CMS 

determining that the RAC made an incorrect improper payment determination. 

38 The average recovered overpayment amount in FYs 2010 and 2011 was $507. 

Recovered overpayments during this time ranged from less than $1 to over $156,000. 

The average returned underpayment amount in FYs 2010 and 2011 was $2,171. 

Returned underpayments during this time ranged from less than $1 to approximately 

$407,000. RACs typically do not forward any claims to the claims processing contractor 

for adjustment if the overpayment amount is less than $10 or the underpayment amount is 

less than $1. Recovered and returned amounts below these thresholds may have been due 

to various reasons, such as partial improper payment amounts being collected. 

39 Our reported recovered and returned amount ($903 million) differs from CMS’s 

reported amount by approximately $127 million. In 2011 and 2013, CMS released its 

annual reports to Congress, as required by section 1893(h) of the Social Security Act. 

These reports stated that RACs recovered or returned improper payments of 

approximately $1.03 billion in FYs 2010 and 2011. Our amount differs because we 

analyzed recovered or returned improper payments that we could reliably match to 

improper payments identified in FYs 2010 and 2011. 

40 An example of medical services being delivered in an inappropriate facility could 

include providing services to a beneficiary in an inpatient setting when the beneficiary’s 

medical record indicated that these services should have been provided in a different, less 

intensive and less costly setting. An example of a provider billing for incorrect codes on 

a Medicare claim could include billing incorrect diagnosis codes. 

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beneficiaries.41 These improper payments represented less than one-half of 

one percent of total improper payments recovered or returned in FYs 2010 

and 2011. 

Two provider types accounted for 93 percent of all recovered 

or returned improper payments, and approximately one 

quarter of improper payments were for providers in two States 

Claims from two provider types accounted for 93 percent of all recovered 

or returned improper payments: inpatient hospitals (88 percent) and 

physicians or nonphysician practitioners (5 percent).42 Additionally, the 

five providers with the largest improper payment amounts were hospitals. 

Improper payments for these hospitals were $18.4 million in FYs 2010 

and 2011, which was approximately 2 percent of total improper payments. 

Approximately 87 percent of these improper payments resulted from 

medical services being delivered in inappropriate facilities.43 Further, 

approximately one quarter (23 percent) of all recovered or returned 

improper payments were for providers in California, with $156 million in 

such payments, and in New York, with $49 million in such payments.44 

Providers did not appeal RACs’ decisions for approximately 

94 percent of claims identified with overpayments, but of those 

that were appealed, almost half were overturned 

In FYs 2010 and 2011, RACs identified approximately 1.1 million claims 

with overpayments. During this time, providers appealed 65,198 

(6 percent) of these overpayments. Of those appealed, nearly half 

(44 percent) were overturned in the providers’ favor. 

Previous OIG work on overpayments appeals found that 56 percent of all 

those appealed, not just those identified by RACs, were overturned at the 

Administrative Law Judge level in FY 2010.45, 46 This overall percentage is 

41 Approximately $75,000 was recovered in FY 2010 and the remaining $2.9 million in 

FY 2011. These payments may represent potentially fraudulent billing that RACs could 

refer to CMS for action. 

42 Nonphysician practitioners include nurse practitioners, physician assistants, or certified 

nurses.
 43 This could include providing services to a beneficiary in an inpatient setting when the 

beneficiary’s medical record indicated that these services should have been provided in a 

different, less intensive, and less costly setting. 

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

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

State and Age as of July 2010. Accessed at http://www.cms.gov/Research-StatisticsData-and-Systems/Statistics-Trends-andReports/MedicareEnrpts/Downloads/Sageall10.pdf. 45 OIG, Improvements Are Needed at the Administrative Law Judge Level of Medicare 

Appeals, OEI-02-10-00340, November 2012. 46 Overpayments were appealed by providers, beneficiaries, and State Medicaid agencies. 

Additionally, this percentage includes only appeals that were fully overturned.
 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 11 

(OEI-04-11-00680) 
 

 

 

 

 

generally consistent with the percentage of RAC-identified overpayments 

appeals that were overturned in the providers’ favor that we found when 

conducting this evaluation. This may indicate that the high Medicare 

overpayment appeal overturn rate is not limited to RACs. 

Overturned overpayments in FYs 2010 and 2011 represented 3 percent of 

total claims identified as having overpayments in FYs 2010 and 2011, and 

accounted for approximately $40 million. See Table 1 for the number and 

percentage of appealed overpayment identifications in each RAC region 

for FYs 2010 and 2011. See Appendix A for the number and percentage of 

appealed overpayment identifications in FYs 2010 and 2011, by claim 

type. See Appendix B for a map of RAC regions and the States in each 

region. 

Table 1: Number and Percentage of Appealed Overpayment Identifications in FYs 2010 

and 2011 

RAC 

Region 

Number of 

Claims 

Identified With 

Overpayments 

Number of 

Overpayment 

Identifications 

Appealed* 

Percentage of 

Overpayment 

Identifications 

Appealed 

Number of 

Appealed 

Overpayment 

Identifications 

Overturned 

Percentage of 

Appealed 

Overpayment 

Identifications 

Overturned 

Percentage of 

Appealed 

Overpayment 

Identifications 

Overturned 

out of Claims 

Identified With 

Overpayments 

A 131,037 3,588 3% 955 27% 1% 

B 110,468 15,726 14% 6,303 40% 6% 

C 335,338 9,928 3% 3,612 36% 1% 

D 490,168 35,956 7% 17,945 50% 4%

 Total 1,067,011 65,198 6% 28,815 44% 3% 

Source: OIG analysis of CMS appeals data, 2012. *Because the outcomes could not be linked to specific RAC regions, these numbers exclude 3,968 unspecified appeals that were 

adjudicated by Administrative Law Judges. 

CMS took corrective action to address the majority of 

vulnerabilities it identified in FYs 2010 and 2011; 

however, it did not evaluate the effectiveness of these 

corrective actions 

CMS classifies any specific issue resulting in more than $500,000 in 

improper payments as a vulnerability. In FYs 2010 and 2011, CMS 

identified 46 vulnerabilities that resulted in improper payments. The 

majority of these vulnerabilities (26 of 46) were for improper payments 

under Medicare Part B. Examples included providers billing add-on codes 

without primary codes or indicating the incorrect place of service on 

claims for services performed in ambulatory surgical centers or outpatient 

hospitals. The remaining vulnerabilities (20 of 46) were for improper 

payments under Medicare Part A or in the area of durable medical 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 12 

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equipment (DME), such as DME suppliers and physicians billing 

separately for bundled services or billing services or supplies for deceased 

beneficiaries.47 By June 2012, these vulnerabilities had resulted in 

improper payments of approximately $1.9 billion. 

CMS took action to address 28 vulnerabilities that resulted in 

$1.86 of the $1.9 billion in improper payments 

When CMS identifies a vulnerability, it may develop a corresponding 

corrective action to prevent future improper payments. By June 2012, 

CMS took corrective action to address the majority (28 of 46) of 

vulnerabilities identified in FYs 2010 and 2011. These corrective actions 

addressed almost all ($1.86 billion of $1.9 billion) improper payments that 

resulted from identified vulnerabilities. Corrective actions included 

contractor technical direction letters, computerized edits, and mailing 

quarterly provider education letters. We did not find that CMS determined 

any of the vulnerabilities required no action in order to address them. 

CMS did not take action to address 18 vulnerabilities that 

resulted in $31 million in improper payments 

As of June 2012, CMS had not taken corrective action on the remaining 

18 of 46 vulnerabilities identified in FYs 2010 and 2011. These 

vulnerabilities resulted in $31 million in improper payments. As of June 

2012, these 18 vulnerabilities were pending corrective action an average 

of 375 days, with 2 pending over 700 days. 

CMS reported different reasons for not taking corrective actions on 18 of 

46 vulnerabilities. For instance, one vulnerability resulted from 

underpayments made to multiple providers. CMS stated in June 2012 that 

it considered this vulnerability to be a low priority and planned to take 

corrective action after addressing higher priority vulnerabilities. CMS 

also reported that it had determined the appropriate corrective action for 8 

of these 18 vulnerabilities but that actions were not scheduled to begin 

until late 2012. CMS had not determined corrective actions for the 

remaining 9 vulnerabilities because corrective actions were on hold or 

CMS planned to discuss potential actions at a later date. See Table 2 for 

the June 2012 status of vulnerabilities identified in FYs 2010 and 2011, by 

claim type. 

47 The DME benefit is covered under Medicare Part B; however, we analyzed DME 

vulnerabilities separately from Part B vulnerabilities because CMS records DME claims 

in separate data files and separates DME vulnerabilities from other Part B vulnerabilities. 

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Table 2: June 2012 Status of Vulnerabilities Identified in FYs 2010 and 2011, by 

Claim Type 

Status of Vulnerabilities 

Claim 

Type Number of 

Vulnerabilities 

Corrective Actions Taken Corrective Actions Not Taken 

Number of 

Vulnerabilities 

Dollar Amount 

of Improper 

Payments 

Number of 

Vulnerabilities 

Dollar Amount 

of Improper 

Payments 

DME 15 12 $56,032,825 3 $981,565 

Part A 5 4 $1,735,100,796 1 $3,031,926 

Part B 26 12 $72,962,567 14 $26,916,228

 Total 46 28 $1,864,096,188 18 $30,929,719

 Source: OIG analysis of CMS vulnerability data, 2012. 

CMS did not evaluate the effectiveness of implemented 

corrective actions 

CMS policy states that it is responsible for evaluating corrective actions 

and determining their effectiveness in reducing improper payments. 

Specifically, CMS does not consider corrective actions closed until it has 

conducted analyses to determine their effectiveness.48 By June 2012, CMS 

had not evaluated the effectiveness of corrective actions it took to address 

28 of 46 vulnerabilities totaling $1.86 billion in improper payments. CMS 

reported that it had not evaluated corrective actions because of lack of 

resources and the difficulty in determining causal relationships between 

corrective actions and reductions in improper payments. CMS also 

reported that some corrective actions should be in place for several years 

before it evaluates them. For instance, for computerized edits, CMS 

generally waits 1–2 years to evaluate effectiveness. However, if CMS 

does not evaluate corrective actions, it cannot determine whether its 

corrective actions are effectively addressing vulnerabilities, which may 

result in continued high amounts of improper payments. 

CMS did not take action to address the six referrals of 

potential fraud that it received from RACs in FYs 2010 

and 2011 

RACs’ primary responsibility is to review claims for improper payments, 

but if RACs encounter potentially fraudulent claims, they are required to 

48 CMS, Standard Operating Protocol: Vulnerability Tracking Corrective Action 

Process, February 7, 2011. 
 

 

 

 

 

 

 

 

 

refer the providers that submitted the claims to CMS.49 RACs may 

continue to review claims that they have referred for potential fraud unless 

law enforcement or other CMS contractors instruct RACs to stop their 

reviews. 

In FYs 2010 and 2011, three of four RACs referred a total of six providers 

to CMS for potential fraud. RACs referred all six providers on the basis 

of external notifications (e.g., complaints from providers’ employees of 

falsifying medical documentation or billing for supplies that were never 

provided).50 Region B made three of the six referrals of potential fraud 

and Regions A and D made the remaining three referrals.51 In contrast, the 

Region C RAC did not submit any fraud referrals to CMS in FYs 2010 or 

2011. This RAC initially identified two providers engaged in potentially 

fraudulent activity; however, it determined that these providers were 

already under investigation and requested that applicable claims be 

suppressed in the RAC Data Warehouse.52 

CMS indicated that it received the six referrals of potential fraud from 

RACs. However, by November 2012 it had not taken action (e.g., CPI 

review) to address them.53 

Additionally, in response to a previous OIG report, in FY 2010 CMS 

provided RACs with two sets of training that directly addressed fraud 

identification and referral.54, 55 One focused on examples of fraudulent 

schemes and billing practices, while the other covered the referral process 

49 All claims that RACs review have been screened to ensure they are not associated with 

ongoing reviews of potential fraud or ongoing investigations. 

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

potentially fraudulent billing, such as providers billing for services after a beneficiary’s 

death. 

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

52 According to the Region C RAC, one of these providers allegedly added information to
 

medical records after services were provided. The other provider had been asked by the 

RAC to return overpayments but the RAC had no record of their being returned. 

Further, the provider—although claiming to have returned the overpayments—had no
 

documentation to give the RAC.
 53 OI has investigated three of these providers for potential fraud. One investigation was 

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

both are now closed. The third provider was under investigation during our review
 

timeframe and remains under investigation. According to OI, two of the three provider 

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

referral.
 54 Training was conducted by other agencies, such as the OIG or Department of Justice; 

OIG, Recovery Audit Contractors’ Fraud Referrals, OEI-03-09-00130, February 2010. 55 CMS provided two additional sets of training in FY 2010 that did not cover referral or 

identification of fraud. These sets of training covered the False Claims Act and 

affirmative civil enforcement. 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 15 

(OEI-04-11-00680) 
 

for potential fraud. However, CMS did not provide related training to 

RACs in FY 2011. 

CMS’s performance evaluations did not include 

metrics to evaluate RACs’ performance on all contract 

requirements 

In 2010 and 2011, CMS evaluated RACs on all metrics in their 

performance evaluations. However, CMS’s performance evaluations did 

not include metrics to evaluate RACs’ performance on all contract 

requirements. Specifically, CMS did not evaluate RACs on the extent that 

they identified improper payments. Further, four of the eight performance 

evaluations that we reviewed did not describe RACs’ ability, accuracy, or 

effectiveness in identifying improper payments. The other four 

performance evaluations we reviewed described RAC identification of 

improper payments to varying degrees; however, these descriptions were 

not linked to performance evaluation metrics. Finally, there were no 

performance evaluation metrics related to referring potential fraud to 

CMS, such as timeliness or documentation requirements, or related to 

whether RACs had systems in place to refer potential fraud to CMS on the 

basis of identified improper payments. 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 16 

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CONCLUSION AND RECOMMENDATIONS 

RACs are designed to protect Medicare by identifying improper payments 

and referring potential fraud to CMS. Prior Government Accountability 

Office work has identified problems with CMS’s actions to address 

improper payment vulnerabilities, and prior OIG work has identified 

problems with CMS’s actions to address referrals of potential fraud. 

Further, OIG has identified vulnerabilities in CMS’s oversight of its 

contractors. Given the critical role of identifying improper payments, 

effective oversight of RAC performance is important. 

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

having resulted in improper payments totaling $1.3 billion. CMS took 

corrective action to address the majority of vulnerabilities it identified in 

FYs 2010 and 2011; however, it did not evaluate the effectiveness of these 

actions, which may result in continued high amounts of improper 

payments. Additionally, CMS did not take action to address the six 

referrals of potential fraud that it received from RACs during this 

timeframe. Finally, CMS’s performance evaluations did not include 

metrics to evaluate RACs’ performance on all contract requirements. 

Therefore, we recommend that CMS: 

Take Action, as Appropriate, on Vulnerabilities That Are 

Pending Corrective Action and Evaluate the Effectiveness of 

Implemented Corrective Actions 

CMS should assess vulnerabilities that are pending corrective action and 

address them, as appropriate. CMS should also develop timeframes for 

addressing vulnerabilities to ensure that they are resolved in a timely 

manner. Finally, while CMS has taken corrective actions on 28 of 

46 vulnerabilities identified in FYs 2010 and 2011, it has not determined 

the effectiveness of these actions. CMS should evaluate whether these 

implemented corrective actions are effectively reducing improper 

payments. 

Ensure That RACs Refer All Appropriate Cases of Potential 

Fraud 

CMS should ensure that RACs refer all appropriate cases of potential 

fraud. To do this, CMS should identify specific examples of fraud that, if 

RACs encounter, they should refer to program integrity contractors. CMS 

should update these examples as needed to stay current with emerging 

fraud trends. CMS should also facilitate increased collaboration between 

RACs, CMS, and program integrity contractors. For instance, CMS 

should coordinate regular meetings between program integrity contractors 

and RACs to share information about fraudulent coding or billing schemes 

in their respective regions and to keep RACs aware of emerging fraud 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 17 

(OEI-04-11-00680) 
 

schemes. Additionally, CMS should provide regular (e.g., annual) training 

to RACs to help them refer potential fraud, as appropriate. 

Review and Take Appropriate, Timely Action on RAC Referrals 

of Potential Fraud 

CMS did not provide documentation that it took action on six RAC 

referrals of potential fraud. If CMS has not already done so, it should 

review these referrals to determine whether additional actions (e.g., 

referrals to program integrity contractors) are necessary. 

Develop Additional Performance Evaluation Metrics To 

Improve RAC Performance and Ensure That RACs Are 

Evaluated on Contract Requirements 

CMS should develop additional performance evaluation metrics to 

improve RAC performance and ensure that RACs are evaluated on 

contract requirements (i.e., identifying improper payments). These 

metrics could include accuracy targets for RAC determinations of 

improper payments or similar measures (e.g., effectiveness ratings). CMS 

should also include timeliness and other metrics for RAC referrals of 

potential fraud. Although these should not be the only measures of 

contractor performance, these metrics could provide important information 

on contractor performance and improve oversight. 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 18 

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AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

In its comments on the draft report, CMS concurred with our first, second, 

and fourth recommendations but did not indicate whether it concurred 

with our third recommendation. 

CMS concurred with our first recommendation and as of June 2013 

considers the 18 vulnerabilities pending corrective action to be closed. 

CMS also stated that it will explore the feasibility of developing a protocol 

that attempts to quantify the effectiveness of corrective actions using a 

combination of tools, including data analysis, error rate measurement, 

continued identification of overpayments via postpayment review, and 

other factors. 

CMS concurred with our second recommendation and stated that it 

believes increased collaboration between RACs and ZPICs/Program 

Safeguard Contractors (PSCs) is important, and will also ensure that 

RACs continue to concurrently refer all instances of fraud to OIG and 

CMS.56 Further, CMS stated that it has and will continue to provide 

regular training to the RACs on the identification of potential fraud. 

Although CMS did not indicate whether it concurred with our third 

recommendation, it noted that it had reviewed the six RAC referrals of 

potential fraud in our review. Four of the six referrals were forwarded to 

ZPICs/PSCs to determine whether the providers have conducted potential 

Medicare fraud. One of the other RAC referrals did not include specific 

information to conduct an investigation. The remaining referral was 

previously received from the Medicare Administrative Contractor.57 On 

the basis of that referral, an investigation was initiated by the PSC and the 

provider’s billing privileges were subsequently revoked from the Medicare 

program in 2012. 

CMS concurred with our fourth recommendation and stated that 

performance metrics, such as accuracy and appeal targets, are important 

measures and should be part of the regular performance evaluations. CMS 

has revised the 2012 CPARS evaluations to incorporate metrics on the 

RACs’ identification of improper payments and accuracy rates. 

56 PSCs are responsible for preventing, detecting, and deterring fraud in the Medicare 

program. CMS is in the process of replacing PSCs with ZPICs. 

57 Medicare Administrative Contractors are responsible for making correct, reliable, and 

timely payment of Medicare home health claims. These contractors should also refer any 

instances of suspected fraud they encounter during their claims reviews to program 

integrity contractors. 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 19 

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CMS also provided technical comments. In response, we made revisions 

to the report where appropriate. 

We ask that, in its final management decision, CMS more clearly indicate 

whether it concurs with each of our recommendations. For the full text of 

CMS’s comments, see Appendix C. 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 20 

(OEI-04-11-00680) 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

APPENDIX A 

Number and Percentage of Appealed Overpayment 

Identifications by Claim Type in Fiscal Years 2010 and 2011 

Recovery 

Audit 

Contractor 

Region 

Claim 

Type 

Number of 

Claims 

Identified With 

Overpayments 

Number of 

Overpayment 

Identifications 

Appealed* 

Number of 

Appealed 

Overpayment 

Identifications 

Overturned 

Percentage of 

Appealed 

Overpayment 

Identifications 

Overturned 

Percentage of 

Appealed 

Overpayment 

Identifications 

Overturned out 

of Claims 

Identified With 

Overpayments 

A Part A 37,570 2,399 336 14% 1%

 Part B 80,116 521 512 98% 1%

 DME** 13,351 668 107 16% 1%

 131,037 3,588 955 27% 1% 

B Part A 57,473 12,589 5,510 44% 10%

 Part B 45,255 1,856 766 41% 2%

 DME 7,740 1,281 27 2% <1%

 110,468 15,726 6,303 40% 6% 

C Part A 78,430 6,723 1,829 27% 2%

 Part B 118,986 535 210 39% <1%

 DME 137,922 2,670 1,573 59% 1%

 335,338 9,928 3,612 36% 1% 

D Part A 68,213 10,554 1,319 13% 2%

 Part B 205,166 18,180 13,082 72% 6%

 DME 216,789 7,222 3,544 49% 2%

 490,168 35,956 17,945 50% 4%

 Total 1,067,011 65,198 28,815 44% 3% 

Source: Office of Inspector General analysis of Centers for Medicare & Medicaid Services appeals data, 2012. 

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

were adjudicated by Administrative Law Judges. 

**Durable medical equipment.
 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 21 

(OEI-04-11-00680) 
 

 

APPENDIX B 

Map of Medicare Recovery Audit Contractor Regions 

Recovery Audit Contactor Regions: 

Region A*, Performant Recovery Inc. of Livermore, California: Connecticut, 

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

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

Vermont. 

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

Indiana, Kentucky, Michigan, Minnesota, Ohio, and Wisconsin.
 

Region C, Connolly Consulting Associates Inc. of Wilton, Connecticut: 

Alabama, Arkansas, Colorado, Florida, Georgia, Louisiana, Mississippi, 

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

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

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

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

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

South Dakota, Utah, Washington, and Wyoming. 

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

Inc., of Livermore, California. 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 22 

(OEI-04-11-00680) 
APPENDIX C 

Agency Comments 

':ls£"-Vll't,s· (.J­ DEPAR"IMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services 

Admi11istrator 

Washington, DC 20201 

JUN 1 Z 2013 DATE: 

TO: 	 Daniel R. Levinson 


Inspecior General 


FROM: 	 MlMi)yn 'ravemrer 


Administrator 


SUBJECT: 	Office of .Inspector General (OIG) Draft Report: Medicare Recovery Audit 

Contractors and CMS's Actions to Address Improper Payments, Referrals of 

Potential Fraud, and Performance (OEl-04-11-00680) 

Thank you for the opportunity to review and comment on OIG's draft report referenced above. 

The Centers for Medicare & Medicaid Services (CMS) appreciates the time and resources OIG 

has invested to review this issue. The OlG's audit focused on the corrective actions the CMS 

took to address Recovery Audit Contractor (RAC)-identified payment vulnerabilities and the 

actions the CMS took concerning RAC referrals of potential fraud. Lastly, OIG reviewed the 

extent that the RACs' performance evaluations addressed performance metrics and contract 

requirements. 

By virtue ofCMS'~ oversight ofRACs, we continually strive to reduce the appeal rate to 

decrease provider burden and administrative costs. The majority of Recovery Auditor 

overpayment determinations are not appealed. Claims that are appealed can be overturned for a 

number of reasons. For example. the provider or supplier may present additional documentation 

during the appeal. All Medicare contractors that review claims, as well as the Qualified 

Independent Contractors and Administrative Law Judges (ALJ), are bound by all laws and 

regulations pertaining to the Medicare and Medicaid programs, National Coverage 

Determinations and CMS rulings. However, ALJs are not bound by CMS manuals and Local 

Coverage Determinations. While ALJs are required to provide substantial deference to this 

guidance, they are not bound by this guidance and may deviate from it in their decision-making. 

This creates discrepancies between the AU decisions and Medicare contractor decisions but 

does not necessarily mean the Medicare contractor's decision was incorrect. A recent OlG 

report 1 concluded. "most ALJ staff noted that ALJs often decided in favor of appellants when the 

intent, but not the letter, of a Medicare policy was met .'' 

The oversight of the contractors, as well as the collaboration to assess RAC-identified 

vulnerabilities, is vital for the protection ofthe Medicare Trust Fund. The CMS continuously 

implements corrective actions on potential and known vulnerabilities and has implemented a 

dynamic process for addressing these vulnerabilities. The CMS also values the collaboration 

with program integrity contractors in our continued efforts to combat fraud, waste and abuse. 

'Improvements needed at the Administrative Law Judge Level of Medicare Appeals - November 20!2 

Medicare RACs and CMS's Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 23 

(OEI-04-11-00680) 
 

APPENDIX C (CONTINUED)
 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 24
 (OEI-04-11-00680)
 
 

APPENDIX C (CONTINUED)
 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 25
 (OEI-04-11-00680)
 
 

APPENDIX C (CONTINUED)
 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 26
 (OEI-04-11-00680)
 
 

ACKNOWLEDGMENTS 

This report was prepared under the direction of Dwayne Grant, Regional 

Inspector General for Evaluation and Inspections in the Atlanta regional 

office, and Jaime Durley, Deputy Regional Inspector General. 

David Samchok served as the lead analyst for this study. Central office 

staff who provided support include Althea Hosein, Scott Manley, and 

Christine Moritz. 

Medicare RACs and CMS’s Actions To Address Improper Payments, Referrals of Potential Fraud, and Performance 27 

(OEI-04-11-00680) 
Office of Inspector General

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying 

out their respective responsibilities and are intended to provide independent assessments of 

HHS programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities.