Court Ruling Delays New Medicare RAC Audit Contracts

The United States Federal Claims Court recently handed down a decision in the case of CGI Federal versus the United States (Fed. Claims Ct., 14-355C), granting a request for a stay from issuing new Recovery Audit Contract (RAC) awards in the Centers for Medicare and Medicaid Services (CMS) regions 1,2 and 4. New York is located in region 2. The current RAC contractor for New York is Diversified Collection Services, Inc.

In its original claim against CMS, CGI alleged that CMS violated the Federal Acquisition Streamlining Act (“FASA”) and Part 12 of the Federal Acquisition Regulation (“FAR”) by including payment terms that are inconsistent with customary commercial practice. The Plaintiff further claimed that the payment terms are unduly restrictive of competition. Accordingly, CGI asked that CMS be enjoined from the awarding of the contracts and that all prospective bidders be given an opportunity to submit new bids under the revised conditions. The specific payment term in question changed the RAC contract to specify that  RACs will not be paid for identified Medicare overpayments until the determinations have made it through the second round of the appeal process, instead of the previous provision that only specified that RACs would have to return payment if their rulings were overturned.

In its initial decision, the Court rejected CGI’s arguments, stating that CMS was within its prerogative to revise the conditions of the contracts and had not acted in a capricious or arbitrary manner. However, the Court is allowing a stay in the awarding of contracts in regions 1, 2 and 4 pending CGI exhausting its appeal rights. This decision could in fact impact awards in other regions as well given the fact that both CMS and the bidders may not seek to commit to new contracts if there is a possibility that those contracts will be judged invalid. CMS signed contract extensions through 2016 with the existing contractors and it is unlikely that any new awards will be finalized until sometime in 2015.

Contact: Patrick Cucinelli, pcucinelli@leadingageny.org, 518-867-8827