Recovery Audit Contractors (RAC)

The RAC Program’s purpose is to reduce improper Medicare payments and implement actions to prevent future improper payments. Section 306 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required CMS to complete a three-year demonstration program to determine whether RAC use is a cost-effective means of identifying and correcting Medicare overpayments and underpayments in the Medicare Fee-For-Service Program.

In March 2005, this demonstration program started in California, Florida, and New York—the largest states in terms of Medicare utilization. In 2007, the demonstration program was expanded to Massachusetts, South Carolina, and Arizona.

In March 2008, the RAC demonstration program ended with more than $1.03 billion recovered from improper payments. Approximately 96 percent of the improper payments were overpayments collected from providers and the remaining four percent were underpayments paid to providers. The majority of the overpayments (85 percent) were collected from inpatient hospital providers; 6 percent were collected from Inpatient Rehabilitation Facilities (IRFs); and 4 percent were collected from outpatient hospital providers.

The permanent RAC program requires the Secretary of HHS to expand the program to all 50 states no later than 2010. Read more about RAC on the CMS Web site.