The RAC is paid on a contingency fee  basis from amounts recovered, as required by law. CMS Implemented the Part D RAC Program by Establishing a Statement of Objectives and Conducting a Solicitation Process to Select a Contractor

CMS implemented the Part D RAC program in January 2011 by  undertaking various activities, such as establishing a statement of  objectives, conducting a solicitation process to select a contractor, and  awarding a Part D RAC contract. Unclear Expectations and Unrealistic Project Timelines Hampered RAC Program Implementation

CMS’s challenges in setting expectations about the work the Part D RAC  would conduct and establishing the length of time required for CMS and  the RAC to reach project milestones hampered Part D RAC program  implementation. Since CMS faced challenges setting expectations about the work the   Part D RAC would conduct and about the length of time required for CMS  and the RAC to reach implementation milestones for the Part D RAC  program, the RAC did not have a clear understanding about the work it  should perform, and CMS did not recover improper payments for Part D  until a year later than projected. Consistent with FAR requirements,  agencies should clearly define requirements for services. CMS Has Not Completed Annual Evaluations of the Part D RAC but Has Conducted Other Oversight of the RAC’s Performance

Since the Part D RAC contract was executed in January 2011, CMS has  not completed any annual evaluations of the RAC’s performance. In March 2015, CMS officials acknowledged  that they should have completed annual evaluations and said the agency  has been behind in its evaluations of some of its contractors, including the  RAC. CMS officials said they started an evaluation of the RAC’s  contract year 2014 performance in December 2014. In May 2015, CMS  officials finished the initial evaluation of the RAC’s 2014 performance and  provided the evaluation to the RAC for review and comment. Multiple federal standards and our prior work contain requirements and  suggestions for conducting regular performance evaluations and  developing performance measures, which would have provided CMS and  the RAC with a basis for evaluating the RAC’s performance. Since CMS had not completed annual contractor  performance evaluations of the RAC using performance standards with  measurable targets, CMS did not have a clear basis for assessing RAC  performance in identifying improper payments and did not provide the  RAC with targets against which the RAC could compare its performance. CMS Has Conducted Other Oversight of the RAC’s Performance, Including Inspecting Its Work Products and Reviewing Its Audit Findings

While CMS has not conducted annual contractor performance  evaluations, it has conducted other oversight by establishing quality  assurance procedures through contract modifications, including a  statement of work. CMS officials said that the  data validation contractor reviews 100 percent of the RAC’s findings, in  part because of concerns CMS had about the quality of the RAC’s initial  audit work. CMS Collected Less than $10 Million in Improper Payments as of May 2015, in Part Because of Challenges in Determining and Conducting Audit Activities

From January 2011 through May 2015, for five audit issues, CMS both  authorized the RAC to conduct audit activities and pursued improper  payment collections. Challenges faced by CMS and the RAC have resulted in few audit issues  being approved and therefore a small amount of improper payments  being identified and collected relative to CMS’s estimates of improper  payments in Medicare Part D. In more than 4 years, initial CMS and RAC  challenges in determining the audit work to conduct and later RAC  challenges in determining how to apply regulations and rules to audit  issues have resulted in CMS’s approving 1 of the 15 audit issues the RAC  proposed, and no approvals for issues submitted since the new audit  issue process took effect. Both CMS and the RAC are charged with reducing Medicare Part D  improper payments. The $9.7 million in improper payments that CMS has collected  since 2011 is a relatively small amount compared to CMS’s estimated  improper payments in Medicare Part D of $1.9 billion in 2014 alone. If the  process for identifying, reviewing, and approving new audit issues was  more efficient in developing appropriate issues, the process would likely  have resulted in more issues being approved each year of the RAC  contract and more improper payments being identified and collected. Establishing clear work statements, realistic timelines, and  an improved process for identifying, reviewing, and approving audit  issues would provide more assurance that audit work can be conducted  more effectively and efficiently through the next RAC contract. At that time, we will send copies to the Secretary of Health  and Human Services, the Administrator of the Centers for Medicare &  Medicaid Services, and other interested parties.
Why GAO Did This Study

In 2014, the federal government spent $58 billion on Medicare Part D, the voluntary, outpatient prescription drug coverage program. An estimated $1.9 billion of this total was improper payments--including overpayments or underpayments that may be due to errors, such as the submission of duplicate claims for the same service. In January 2011, CMS began a RAC program in Part D that was intended in part to identify and recoup improper payments, as required under the Patient Protection and Affordable Care Act. The RAC is paid a contingency fee from amounts recovered.
GAO was asked to review CMS's Part D RAC program implementation, oversight, and results. GAO examined (1) how CMS has implemented the Part D RAC program and any challenges it faced during implementation; (2) the extent to which CMS has overseen the RAC's audit activities; and (3) the results of the RAC's work to date and any challenges CMS and the RAC faced in identifying and collecting improper payments. To do this, GAO analyzed the RAC contract and audit documents, and federal statutes and regulations on Part D and federal contracting. GAO also interviewed CMS and RAC officials.

What GAO Found

The Centers for Medicare & Medicaid Services (CMS) within the Department of Health and Human Services (HHS) implemented the Part D recovery audit contractor (RAC) program in January 2011 by undertaking various activities, including establishing a statement of objectives and conducting a solicitation process to select a RAC to identify improper payments. However, CMS's challenges in setting expectations about the work the Part D RAC would conduct and establishing the length of time required for CMS and the RAC to reach project milestones hampered Part D RAC program implementation. Consistent with federal contracting requirements, agencies should clearly define requirements for services. As a result of CMS's challenges in setting expectations and establishing realistic timelines as it implemented the RAC program, the RAC did not have a clear understanding about the work it should perform, and CMS recovered improper payments for Part D more than a year after it had projected.
As of May 2015, CMS had not completed any annual evaluations of the Part D RAC, but an initial evaluation of the RAC's contract year 2014 performance was in progress, and the agency had conducted other oversight of the RAC's performance. Federal internal controls and contracting standards and GAO's prior work contain requirements and suggestions for conducting regular performance evaluations and developing performance measures. In March 2015, CMS officials acknowledged that the agency should have completed annual evaluations and noted that CMS has been behind schedule in conducting evaluations of some its contractors, including the RAC. In May 2015, CMS officials finished the initial evaluation of the RAC's 2014 performance and provided the evaluation to the RAC for review and comment. An annual performance evaluation would provide CMS with a clear basis for assessing RAC performance in identifying improper payments and provide the RAC with targets against which the RAC could compare its performance. While CMS has not completed annual evaluations, it has established quality assurance procedures to conduct oversight of the RAC. For example, CMS uses a separate contractor to review and validate 100 percent of the RAC's audit findings, in part because of concerns about the quality of the RAC's work.
As of May 2015, CMS had collected less than $10 million in improper payments, and had not approved the RAC to perform new audit work since March 2014. Both CMS and the RAC are charged with reducing Medicare Part D improper payments, and federal internal control standards call for agencies to have effective and efficient processes to meet agency goals. However, as a result of CMS's and the RAC's challenges in determining audit work to conduct and the RAC's challenges in developing audit methodologies, CMS has approved 1 of the 15 audit proposals from the RAC since the beginning of the contract in 2011 and has collected a limited amount of improper payments relative to the estimated $1.9 billion in improper payments in Part D in 2014. With a more effective and efficient process for identifying, reviewing, and approving appropriate new audit work, more audit work would likely have been approved each year of the RAC contract, resulting in more improper payments being identified and collected.

What GAO Recommends

As CMS prepares to solicit the next RAC contract(s), CMS should set clear expectations in contract work statements, conduct annual RAC performance evaluations, and review the process for developing new audit issues. HHS concurred with GAO's recommendations.