Press release


The Centers for Medicare & Medicaid Services (CMS) today announced new initiatives to provide clear guidance on Medicare billing and a new demonstration project using recovery audit contractors (RACs) as part of CMS’ further efforts to assure accurate payments.


The Centers for Medicare & Medicaid Services (CMS) today announced new initiatives to provide clear guidance on Medicare billing and a new demonstration project using recovery audit contractors (RACs) as part of CMS’ further efforts to assure accurate payments. 


The demonstration will use the RACs to search for improper Medicare payments that may have been made to healthcare providers and that were not detected through existing program integrity efforts.  The present recovery audit contracts focus on Part A Medicare claims and exclude evaluation and management services. Currently, the Medicare contractors, which include carriers, fiscal intermediaries, and Durable Medical Equipment Regional Carriers, examine a defined percentage of claims during their medical review.


“There are two parts to making certain that Medicare dollars go to their intended purposes,” said CMS Administrator Mark McClellan, M.D., Ph.D.   “First, we need clear and straightforward rules to assure that fair payments are made for services to Medicare beneficiaries and second we need effective mechanisms in place to detect and respond to inappropriate billing.  In conjunction with new steps to ensure Medicare’s billing rules are clear, this demonstration will let us test a new approach to ensure that payments made to providers are accurate.”


CMS has ongoing efforts to ensure providers have the information they need to avoid over and under payments. There are now more education and training resources such as a customized provider Website (, new Medicare Learning Network educational products and training guides, web-based training (, regular “Medlearn Matters” articles explaining new program policy billing procedures (, and enhanced Frequently Asked Questions on the CMS website.


Section 306 of the Medicare Modernization Act directed CMS to investigate Medicare claims payment using RACs to identify underpayments and overpayments and to collect the overpayments so that they may be returned to the Medicare Trust Fund.


California , Florida , and New York are the states that have been chosen for this three-year demonstration.  The RACs selected to participate in the demonstration, Diversified Collection Services, Inc., Public Consulting Group Inc., HealthData Insights, Connolly Consulting, PRG-Shultz International, Inc.,   have experience performing recovery audit work with Medicaid state agencies, private insurers, healthcare providers or health plans.   To avoid any conflict of interest, current Medicare contractors were not eligible to bid on these contracts.


Since current Medicare contractors will continue to review claims in the current fiscal year, each RAC will begin work on claims that are at least one year old.  Using an audit plan developed especially for Medicare, the RACs will analyze claims that have a tendency to be incorrect despite clear guidance from Medicare.  This includes occurrences where Medicare is not the primary payer, there are complicated payment calculations as well as complex procedure codes and services that are “bundled” as required by statute.


The RACs will request claim history and medical records, if necessary, to determine if over or underpayments exist. If an overpayment is detected, the contractor will pursue payment and will be reimbursed a percentage of those recoveries. For underpayments, the RAC will provide the necessary documentation to the Medicare contractors for processing payment to the provider.  


For example Medicare pays a set amount for a hospital inpatient admission for treatment of breast cancer. However, Medicare pays a greater amount when certain complications arise during the admission. There is some evidence that some hospitals may not be following Medicare’s guidance on billing for such complications.   Upon the RAC’s review of Medicare payments for inpatient treatment of breast cancer, it discovers the majority of a hospital’s breast cancer treatments are billed at the higher amount.  The RAC must then examine the claims and any supporting documentation. Hospitals with appropriate supporting documentation will not face any action.   If upon conclusion of its review the RAC determines the hospital billed incorrectly, the RAC will notify the hospital on Medicare’s behalf and request repayment of any amounts owed to the Medicare program.


California  and Florida will also have an audit contractor to determine if a patient’s primary insurer and Medicare have both been billed for a single claim or if Medicare paid when a patient’s primary insurer should have paid.  In both situations, the RAC will verify the billing errors, including any potential underpayments and begin recovery of any overpayments.


Medicare continues to ensure payment accuracy by analyzing claims and reviewing case files.  In addition, CMS has undertaken key initiatives such as contractor reform, supplementary carrier quality controls and improved data capabilities, provider education and training tools to assure accurate payments. This initiative expands CMS’ ongoing efforts to strengthen its commitment to provide coverage to America ’s seniors, persons with certain disabilities, and those with End-Stage Renal Disease.                                                   

# # # 


CMS will be holding an open door forum in the near future to discuss the Recovery Audit Contractor (RAC) demonstration. For more information about the Open Door Initiative, please go to .