Medicaid RACs: Final Rule Issued

Section 6411 of the Patient Protection and Affordable Care Act (“PPACA”) requires states to establish a Medicaid recovery audit contractor (“Medicaid RAC”) program similar to the existing Medicare RAC program. Like Medicare RACs, Medicaid RACs will be tasked with auditing claims to identify overpayments and underpayments and will be compensated on a contingency fee basis. On November 10, 2010, the Medicaid RAC proposed rule (“Proposed Rule”) was published in the Federal Register. Now, the final rule (“Final Rule”) has been issued finalizing the additions to 42 CFR Part 455 Subpart F, which governs Medicaid Program Integrity.

Although the initial implementation date was slated for April 1, 2011, CMS chose to delay implementation until it had issued its Final Rule. Under the Final Rule, the new implementation date for the Medicaid RAC program is January 1, 2012. Some notable aspects of the Final Rule are below:

The Final Rule requires certain specific program elements that are consistent with Medicare RAC program elements. Some of these elements include:

A 3-year maximum claims look-back period;
A State-established limit on the number and frequency of medical records requested by a RAC;
State coordination of recovery audit efforts with other auditing entities; and
Returning contingency fees within a reasonable time frame if the Medicaid RAC determination is overturned at any level of appeal.

CMS “strongly encourage[s]” States to adopt specific program elements present in the existing Medicare RAC program:

Medical necessity reviews;
Extrapolation of audit findings;
External validation of accuracy of RAC findings; and
Types of claims audited.

CMS grants States “complete flexibility” in the following areas:

Underpayment methodology;
State appeals processes;
Contingency fee rates (States have complete flexibility in the contingency fee rates they pay, exclusive of FFP. However, CMS will provide FFP only for amounts that do not exceed the then-highest contingency fee rate paid to Medicare RACs) ;
State exclusion of claims;
Bundling of procurements; and
Coordination of the collection of RAC overpayments.

With respect to contingency fee payments paid to the Medicaid RACs, States have two options to pay contingency fees to RACs: (i) States may pay RACs from amounts identified and recovered, but not fully adjudicated, but the RAC would be required to return any contingency fee that corresponded to the amount of an overpayment overturned at any level of appeal within a reasonable time frame as prescribed by the State; or (ii) the State may pay the RAC after the overpayment is fully adjudicated. According to the Final Rule, contingency payments may not exceed the total amounts recovered and payments may not be 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.

CMS has left the appeals process extremely flexible for States, allowing States to maintain an existing appeals process or develop a new appeals process. Many commenters indicated that difficulties may arise in providers that practice in multiple States if each State’s appeals process varies. CMS recognized the difficulty, but maintained that States will have the flexibility to design their own appeals processes.

Comparing the Proposed Rule and the Final Rule, CMS provided the following list of provisions where the Final Rule differs from the Proposed Rule:

States may exclude Medicaid managed care claims from review by Medicaid RACs (§455.506(a)(1)).
States must coordinate the recovery audit efforts of their Medicaid RACs with other auditing entities (§455.506(c)).
States must make referrals of suspected fraud and/or abuse to the MFCU or other appropriate law enforcement agency (§455.506(d)).
States must set limits on the number and frequency of medical records to be reviewed by the Medicaid RACs subject to requests for exceptions made by the RACs (§455.506(e)).
Each RAC must hire a minimum of 1.0 FTE Contractor Medical Director who is a Doctor of Medicine or Doctor of Osteopathy in good standing with the relevant State licensing authorities and has relevant work and educational experience. A State may seek to be excepted, in accordance with §455.516, from requiring its RAC to hire a minimum of 1.0 FTE Contractor Medical Director by submitting to CMS a written request for CMS review and approval (§455.508(b)).
RACs must hire certified coders unless the State determines that certified coders are not required for the effective review of Medicaid claims (§455.508(c)).
RACs must work with the State to develop an education and outreach program (including notification of audit policies and protocols) (§455.508(d)).
RACs must provide minimum customer service measures including: providing a tollfree customer service telephone number in all correspondence sent to providers, and staffing the toll-free number during normal business hours from 8:00 a.m. to 4:30 p.m. in the applicable time zone (§455.508(e)(1)); compiling and maintaining provider approved addresses and points of contact (§455.508(e)(2)); mandatory acceptance of provider submissions of electronic medical records on CD/DVD or via facsimile at the providers’ request (§455.508(e)(3)); notifying providers of overpayment findings within 60 calendar days (§455.508(e)(4)).
RACs must not review claims that are older than 3 years from the date of the claim, unless it receives approval from the State (§455.508(f)).
RACs should not audit claims that have already been audited or that are currently being audited by another entity (§455.508(g)).
If a provider appeals a Medicaid RAC overpayment determination and the determination is reversed, at any level, then the Medicaid RAC must return its contingency within a reasonable timeframe as prescribed by the State (§455.510(b)(3)).
States must adequately incentivize the detection of underpayments (§455.510(c)(2)).
States must notify providers of underpayments that are identified by the Medicaid RACs (§455.510(c)(3)).
States must provide appeal rights under State law or administrative procedures to Medicaid providers that seek review of an adverse Medicaid RAC determination (§455.512).

Update: The Final Rule was published in the Federal Register on September 16.

For more information regarding audits, including Medicaid RAC audits, please contact Abby Pendleton, Esq. or Jessica L. Gustafson, Esq. at (248) 996-8510 or (212) 734-0128 or visit the HLP website.