OIG on RAC Fraud Referrals

This was a report received thru the OIG Public Affairs.

Recovery Audit Contractors' Fraud Referrals (OEI-03-09-00130)

We found that between March 2005 and March 2008, recovery audit contractors (RAC) referred two cases of potential fraud to the Centers for Medicare & Medicaid Services (CMS). However, CMS reported that it received no potential fraud referrals from RACs during this period.

RACs are contracted by CMS and are responsible for identifying improper payments of Medicare Part A and Part B claims. RACs conduct postpayment reviews to identify overpayments and underpayments and attempt to recoup any overpayments they identify. RACs receive contingency fees based on the amount of improper payments identified. They are not responsible for reviewing claims for fraudulent activity; however, they are responsible for referring any cases of potential fraud that are identified during their reviews to CMS. RACs do not receive contingency fees for cases they refer that are determined to be fraud. Thus, there may be a disincentive for RACs to refer cases of potential fraud.

A 3-year RAC demonstration project conducted from March 2005 through March 2008 was designed to (1) detect and correct past improper payments in the Medicare fee-for-service program and (2) provide information to CMS and to the Medicare claims-processing contractors that could help protect the Medicare trust funds by preventing future improper payments.

Three RACs participated in the demonstration project and identified more than $1.03 billion in Medicare improper payments. After the demonstration period, CMS awarded contracts to four companies that will serve as RACs in the permanent program.

We also found that during the demonstration project, RACs received no formal training from CMS regarding the identification and referral of potential fraud. However, CMS did provide permanent RACs with a presentation about fraud. CMS is planning to provide the permanent RACs with further education and training on the identification and referral of potential fraud, although no date or agenda has been determined.

Having a RAC staff that is trained and knowledgeable about fraud will increase awareness and detection of potential fraud during the claims review process. Therefore, we recommended the following to CMS: (1) conduct followup 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.

CMS concurred with all three of our recommendations. In regard to our first recommendation, CMS stated that it researched the two cases identified by the RAC for potential referral and determined that they should be referred to OIG for further development. CMS is in the process of forwarding these two cases to OIG. Regarding our second recommendation, CMS stated that it is in the process of developing a system to track the RAC claims review process. Finally, in response to our third recommendation, CMS stated that it has already provided two training sessions to the RACs and is in discussions with OIG and the Department of Justice on additional training.