The Medicare Recovery Auditing Contract is a significant program developed by the federal government that has impacts on the healthcare provider community. 

Every year since 1996, the Office of the Inspector General for the Department of Health and Human Services performed an audit of paid Medicare claims.  The audit resulted in an “error rate”. In 1996, the error rate was 14.2% and equated to $23.8 billion in improperly paid Medicare claims. In 1997, the error rate was 11.8% and equated to $20.3 billion in improper payments. 

The Centers for Medicare and Medicaid (CMS), the agency that runs the Medicare program, have worked diligently since the first audits were performed and, most recently (2007), have reduced the error rate to 3.9% and $10.8 billion in improper payments.

Along the way, in December 2003, Congress enacted the Medicare Modernization Act.  Section 306 of this act called for a demonstration project testing the use of private sector “recovery audit” firms on Medicare improper payments. Private sector recovery audit firms had been identifying and recovering billions of dollars of commercial health insurance overpayments for decades. The demonstration project was designed to determine if their techniques and skills worked on Medicare claims.

The demonstration project showed initial success in the first report released by the CMS in November 2006. In the first 18 months of the project, the three awarded contractors (non-MSP) identified over $289 million in overpayments and recovered over $64 million. Then, in 2007 alone, the contractors identified and corrected $371 million in improper payments.

With the passage of the Tax Relief and Health Care Act of 2006, the demonstration program was authorized and required to expand nationally by 2010. CMS released a request for proposal in the fall of 2007 and expects to make awards to four individual recovery audit vendors in the four designated territories by Spring of 2008.

Medicare At A Glance

Medicare Spending and Financing

2006 Medicare RAC Status Document

2007 Medicare RAC Status Document