The Centers for Medicare & Medicaid Services (CMS) conducted a demonstration project from 2005 to 2008 to detect and correct past improper payments in the Medicare fee-for-service program, and to provide information to CMS and the Medicare claims processing contractors that could help protect Medicare trust funds by preventing future improper payments. The Office of Inspector General (OIG) recently published a report on how CMS and the recovery audit contractors (RACs) handled fraud cases found during the demonstration project.

The OIG made two general findings: (1) recovery audit contractors (RACs) referred two cases of potential fraud, and (2) CMS did not provide any formal training to RACs in the demonstration regarding the identification and referral of potential fraud, yet provided a presentation regarding fraud to the permanent RACs.

CMS compensates RACs through contingency fees, which are a percentage of the amount of improper payments that RACs find and submit for recoupment. However, any claims or activity found by the RACs and considered to be potentially fraudulent were to be referred to the CMS Project Officer, who would in turn forward the referrals to the Program Integrity Group at CMS for further review and determination. Once claims were forwarded, RACs were prohibited from reviewing or taking further action on these claims, and even if the claims they referred to CMS were determined to be fraudulent, the RAC would not collect any contingency fee. Therefore, there is an obvious disincentive for the RACs to report potentially fraudulent activities or claims.

OIG has recommended that CMS: (1) follow up to determine the outcomes of the two fraud referrals from the demonstration, (2) implement a database 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 recommendations.

Find excerpts of the report or download the report in our Documents Section: OIG Report, No. OEI-03-09-00130, Feb. 2010