The proposed Senate health care reform bill, which proposes the expansion of the existing RAC program, comes on the heels of a November 18, 2009, report by the White House Office of Management and Budget (“OMB”) revealing that the federal government made $98 billion in improper payments in fiscal year 2009, an increase of 37.5% since 2008. Of that amount, the OMB found that there were $24 billion in improper Medicare fee-for-service payments, $18 billion in improper payments made by the Medicaid program, and $12 billion in improper payments made by the Medicaid Advantage program.  It is unclear from the OMB report what amount of the $98 billion in overpayments is attributable to fraudulent activities. Responding to the OMB’s report, President Obama signed an Executive Order into law on November 24, 2008, which was aimed at reducing improper payments by intensifying efforts to eliminate payment error, waste, fraud, and abuse in the major programs administered by the federal government. 

In keeping with the theme of recovering improper payments by the federal government, the final version of the Patient Protection and Affordable Health Care Act, proposed by the Senate (H.R. 3590, Section 6411, p. 1777-1783), would expand the Recovery Audit Contractor (“RAC”) program, currently applicable only to Medicare Parts A & B, to include Medicare Parts C & D, as well as the Medicaid program. The Senate Bill proposes implementation of the RAC’s expansion by December 31, 2010. 

As with the current Medicare RAC program, Medicaid RACs would be responsible for identifying overpayments and underpayments to the Medicaid program, and would be paid a contingency fee of 9% to 12.5% of the amount of overpayments identified and recovered by the RAC.   In addition, states would be required to:

• Establish programs under which the state would contract with RACs in order to identify overpayments and underpayments by the state Medicaid agency, and to recoup overpayments;
• Create processes for entities to appeal adverse determinations made by RACs;
• Coordinate recovery audit efforts with other governmental entities performing audits, including federal and state law enforcement agencies such as the FBI, HHS, and the state Medicaid fraud control unit.

In addition, H.R. 3590 would expand the RAC program to include the Medicare Part C (Medicare Advantage) & Part D (prescription drug) programs. The proposed bill contains special rules applicable to RACs auditing payments under Medicare Parts C & D, which include:

• Ensuring that each Medicare Advantage Plan under Part C has an anti-fraud plan in effect and reviewing the effectiveness of each such anti-fraud plan;
• Ensuring that each prescription drug plan under Part D has an anti-fraud plan in effect and reviewing the effectiveness of each such anti-fraud plan;
• Examining claims for reinsurance payments under section 1860D-15(b), which relates to subsidies for Part D eligible individuals for qualified prescription drug coverage, to determine whether prescription drug plans submitting such claims incurred costs in excess of the allowable reinsurance costs permitted under that section; and
• Reviewing estimates submitted by private prescription drug plans with respect to the enrollment of high cost beneficiaries and to compare such estimates with the numbers of such beneficiaries actually enrolled in those plans.

Critics of these provisions argue that the existing RAC program contains sufficient incentives for participating contractors to inflate overpayments, and the proposed Senate Bill would only expand the authority of the RACs. Furthermore, some fear that because the Medicaid program is administered at the state level, the federal government’s attempt to manage a Medicaid RAC project may prove unwieldy.

You can read the Senate Health Care Reform Bill at http://thomas.loc.gov/. In addition, President Obama’s November 24, 2008, Executive Order is available at http://www.egovmonitor.com/node/31235/print.

Robin Franco is an associate in the Health Care Practice Group at Balch & Bingham, LLP.

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