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pspencer100If you thought the current appeals process for Medicare RAC determinations created plenty of angst and extended travail, get ready for more than 50 distinct appeals methods for programs across the nation if the proposed rule from The Centers for Medicare & Medicaid Services (CMS) becomes final.

In a last-minute news dump Friday afternoon, CMS unceremoniously released the proposed rule regarding RAC activity tied to Medicaid programs nationwide. Much of the information in the proposed rule mirrors what was learned with the release of the first preliminary guidance letter from CMS to state Medicaid directors on Oct. 1.

Section 6411 of the Patient Protection and Affordable Care Act (PPACA) requires states to contract with one or more Medicaid RACs by Dec. 31. States by this date also are mandated to submit a State Plan Amendment (SPA) indicating the initiation of the Medicaid RAC program, along with being required to pay contingency fees to their respective contractors. The goal of the proposed rule is a Medicaid RAC implementation date of April 1, 2011, and CMS is seeking comment on this date.

States can request an exception from any part of the Medicaid RAC program, but the proposed rule reiterated that CMS foresees granting exceptions “rarely, and only under the most compelling of circumstances.”

Contingency Fees

The proposed rule requests comment on current methodologies for determining the maximum contingency fees allowed under the Medicaid RAC program. Unless a state provides ample justification for an exception based on existing state law, no state will pay a contingency fee higher than the maximum allowed under the Medicare RAC program, which is currently 12.5 percent for a five-year period ending July 1, 2014. If state law mandates a higher contingency fee for similar services, a federal match will not be paid to the state plan on any amount above the Medicare RAC fee maximum.

As is the case with the Medicare RAC program, states must amend their plans to provide incentives for the identification of underpayments to Medicaid providers. The total combined contingency fee paid to the Medicaid RAC for underpayments and overpayments cannot equal more that the total amount of overpayments collected by the contractor.


In reporting the value of collected overpayments, states under the new rule would report only the net amount after payment of contingency fees to the contractor is subtracted. After this amount is determined, each state is required to refund the federal share of the net overpayment amount to the federal government. The proposed rule also would require that states issue reports describing the effectiveness of their Medicaid RAC programs.


The proposed rule aims to give states options regarding setting up appeals processes for providers. Rather than taking one standardized Medicaid RAC appeals approach, CMS is requesting comment on giving states the option of either utilizing an existing process for appeals of RAC determinations or creating a new one specifically tailored to an individual state’s RAC program. These particular passages in the proposed rule have the potential to create more than 50 distinct appeals processes: one for each state and territory covered by the Medicaid program.

Coordination of Audit Efforts

The proposed rule once again makes clear that the establishment of a Medicaid RAC does not nullify existing audit efforts by state plans. Going further, states are expected to mandate coordination efforts between the Medicaid RACs and other audit entities to minimize the risk of overlapping audits. CMS wishes not to jeopardize the outcome of ongoing fraud investigations via duplication of efforts.

There are multiple passages in the proposed rule about state plans and language in their Medicaid RAC programs regarding fraud and abuse referrals. CMS is finding that the Medicare RACs, due to the existence of financial incentives for identifying overpayments, generally are not referring suspected cases of fraud to CMS for further investigation.

Comment Period

The publication date of the proposed rule is Nov. 10, meaning that the public comment period will remain open until Jan. 9, 2011.

About the Author

Paul Spencer is the Compliance Officer for Fi-Med Management, Inc., a national physician practice financial management company based in Wauwatosa, WI. Paul has over 20 years of experience across all facets of healthcare billing, including 6 years spent with insurance carriers. In his current role with Fi-Med, he acts as a physician educator on issues related to E/M level of service and documentation audits by CMS and other outside entities. Paul has carried the CPC and CPC-H credentials from the American Academy of Professional Coders since 1998.

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J. Paul Spencer, CPC, COC

J. Paul Spencer is a senior healthcare consultant for DoctorsManagement. Is the national correspondent for Monitor Mondays, the live Internet radio broadcast produced by RACmonitor.

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