On September 14, 2011, the Centers for Medicare & Medicaid Services released a final rule detailing the implementation of the Medicaid Recovery Audit Contractor program, based on a comparable Medicare program already in operation nationwide. This final rule was published in the September 16 Federal Register at page 57808. The rule implements section 6411 of the Affordable Care Act and provides 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. The rule also directs states to assure that adequate appeal processes are in place for providers to dispute adverse determinations made by Medicaid RACs. The rule also directs states to coordinate with other contractors and entities auditing Medicaid providers and with state and federal law enforcement agencies. The rule becomes effective on January 1, 2012.

Under the program, the states will contract with the Medicaid RACs, which will search for fraud, waste, and abuse by reviewing past claims that have already been paid.  Auditors will be compensated on a percentage of funds they recover that were paid improperly to doctors, hospitals, and others.  The rule also directs states to pay reviewers for uncovering underpayments that must be reimbursed to those filing claims.

The final rule makes several changes to the proposed rule requested by physicians and hospital organizations, including:

• Prohibiting audits of Medicaid claims that are more than 3 years old.
• Requiring each auditor to hire a licensed physician as medical director.
• The coordination requirement noted above.
• Requiring states to set limits on the number of medical records RACs can review and the frequency with which they can request the records.
• Requiring RACs to return their fee if an overpayment determination is reversed at any level of appeal.