The RACs are charged in their statement of work to identify improper Medicare payments, but are not responsible for identifying and reviewing claims with possible fraudulent activity, a charge left to their Zone Program Integrity Contractor (ZPIC) counterparts.


According to the report, the RACs only referred two cases of potential fraud to CMS during the 3-year demonstration project, which ran from March 2005 through March 2008. The OIG report suggests that the RACs may have a disincentive to refer potential fraud to CMS because they do not receive their contingency fees on cases that are determined to involve fraud. The report also suggests that CMS did not provide the RACs with any formal training during the demonstration project to identify and refer potential fraud cases.


In the report, the OIG makes these recommendations to CMS:


1. ”Conduct follow up to determine the outcomes of the two referrals made during the demonstration project,”
2. ”Implement a system to track fraud referrals,” and
3. ”Require RACs to receive mandatory training on the identification and referral of fraud.”


In response to the report, CMS accepted and agreed to the recommendations; in fact, it has incorporated fraud detection training to the permanent Medicare RAC program. CMS said it already has scheduled two training sessions for the permanent RACs and is in discussions with the OIG and the Justice Department on additional training.


So what does that mean for providers now?


In light of the OIG’s stance on this issue, it is likely that CMS and the OIG are going to continue to address this shortcoming from the demonstration project and refine operational processes to make them more efficient through training and additional monitoring.


Despite the fact that the RACs don’t receive a contingency fee when they report a referral that is found to be fraudulent, it certainly would be a feather in the cap of a RAC auditor to identify a fraud case and pass it off to its ZPIC cohort. It is a slippery slope for a RAC auditor not to interrupt fraud investigation activity and also support the discovery of possible fraudulent activity. CMS did note in its RAC Demonstration Evaluation Report (
that during the demonstration project, RAC contractors did not disrupt Medicare’s anti-fraud efforts:


“The RAC demonstration succeeded in developing the cooperation needed to ensure that RAC activities did not compromise ongoing law enforcement investigations,” the report reads. “The relationships built during the RAC demonstration have improved the overall coordination of these activities and will provide a framework for the nationwide expansion of the RAC permanent program.”


The report also goes on to describe role delineation between all of the various contractors via the RAC data warehouse, which was developed to provide CMS with an automated means of administering and overseeing claim activity during the demonstration project.


“The RAC data warehouse serves as the repository for data about all claims with improper payments identified by the (Claim) RACs, and it is used by CMS to ensure that RACs do not review claims previously subjected to medical record review by another review entity (such as a QIO or Medicare claims processing contractor) or currently under a fraud investigation,” the report reads. “This important tool minimizes the unnecessary burden to providers and prevents overlap with other Medicare program safeguard activities. The RAC data warehouse is also the principal data source for reporting improper payment findings to CMS and the public.”


An important transmittal to note, which describes these various roles and activities, is
Transmittal 152, CR 6384, issued June 12, 2009 (


In it, the following issues are clarified:


1) Use of the RAC data warehouse for tracking appeals.
2) How to handle potential fraud referrals: “the RAC will refer any claims it determines to be potentially fraudulent to the appropriate CMS RAC Project Officer who will then forward this claim information to the CMS Division of Benefit Integrity Management Operations.”
3) Dissemination of information between the RACs and MACs


There probably will be a fair amount of scope creep as the details of this new protocol are worked out between the MACs, the RACs, the OIG and CMS.


Providers unfortunately will be in the middle of it all, so this is another very good reason to have your own processes in place that identify possible duplicate claims under review by these various auditing bodies.


About the Author


Carla Engle, MBA, is a product manger for MediRegs, a Wolters Kluwer company. Her background includes more than 20 years in hospital and physician practice operations, particularly in reimbursement and billing functions. Prior to joining Wolters Kluwer recently, she was the vice president of compliance for a national revenue cycle solutions company and prior to that was in the Reimbursement Training Department with HCA.  For several years she headed up the Part A Fraud Investigation Unit for a CMS Program Safeguard Contractor (PSC) where she was successful in the prosecution of several national cases. In her revenue cycle compliance capacity, she worked with a number of clients in California and Florida with Recovery Audit Contractors (RACs) in setting up processes and appeals.


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