[Federal Register Volume 75, Number 217 (Wednesday, November 10, 2010)]
[Proposed Rules]
[Pages 69037-69045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-28390]
=======================================================================
-----------------------------------------------------------------------
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
[[Page 69038]]
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
[[Page 69039]]
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 post-payment 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,
[[Page 69040]]
we propose at Sec. 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 Sec. 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 State-only funds. FFP is not
available for administrative expenditure claims for the marginal
difference between the highest Medicare fee and the State's contingency
fee. For example, unless an exception applies, if the highest Medicare
RAC contingency fee is 12.50 percent and the State pays a Medicaid RAC
14 percent, we would not pay the Federal match on the 1.50 percent
difference. The State would use State-only funds to make up the
difference between the State's 14 percent contingency fee and the 12.50
percent contingency fee ceiling.
Currently, the Medicare RAC contracts have an established period of
performance of up to 5 years, beginning in 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
[[Page 69041]]
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 Sec. 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 Sec.
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 Sec.
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, Sec. 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 Sec.
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
Sec. 455.514(b) that FFP would be available to States for
administrative costs subject to reporting requirements.
[[Page 69042]]
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 statutorily-capped. 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 Sec. 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 (Sec. 455.500)
Proposed Sec. 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 (Sec. 455.502)
At proposed Sec. 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 Sec. 455.506,
and require that States report on certain elements describing the
effectiveness of their Medicaid RAC program.
C. Definitions (Sec. 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 (Sec. 455.506)
We propose at Sec. 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 Sec. 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 (Sec. 455.508)
We propose at Sec. 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 Sec. 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 (Sec. 455.510)
We propose at Sec. 455.510(a) that fees paid to RACs shall be made
only from amounts recovered. We propose at Sec. 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 Sec.
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
Sec. 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
[[Page 69043]]
highest contingency fee rate paid to a Medicare RAC. We propose at
Sec. 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 Sec. 455.510(c) to require that States
determine the fee paid to Medicaid RACs to identify underpayments.
G. Medicaid RAC Provider Appeals (Sec. 455.512)
We propose at Sec. 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 (Sec.
455.514)
We propose at Sec. 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 Sec. 455.514(a) that the Federal share of State
expense does not include fees paid.
We propose at Sec. 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 (Sec. 455.516)
We propose at Sec. 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 (Sec. 455.518)
We propose at Sec. 455.518 that the provisions in Sec. 455.500
through Sec. 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 (Sec. 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
(Sec. 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 (Sec. 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 (Sec. 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 (Sec. 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: [email protected].
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),
[[Page 69044]]
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
------------------------------------------------------------------------
Estimated savings
Fiscal year (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:
[[Page 69045]]
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
Sec. 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.
Sec. 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 Sec. 455.506 of this subpart.
(c) States will be required to report to CMS certain elements
describing the effectiveness of their Medicaid RAC program.
Sec. 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.
Sec. 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.
Sec. 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 Sec. 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 Sec.
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.
Sec. 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 well-justified request that CMS provide FFP in paying a
Medicaid RAC(s) a contingency fee in excess of the then-highest
contingency fee paid to a Medicare RAC.
(c) Underpayments. States shall determine the fee paid to a
Medicaid RAC to identify underpayments.
Sec. 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.
Sec. 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.
Sec. 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.
Sec. 455.518 Applicability to the territories.
The aforementioned provisions in Sec. 455.500 through Sec.
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