Kusserow on Compliance: U.S. Court of Appeals invalidated a portion of the new RAC contract

The U.S. Court of Appeals for the Federal Circuit invalidated a provision of the new 2014 Recovery Audit Contractor (RAC) contracts with CMS that were scheduled to be awarded last year but were delayed pending outcome of the Court’s decision. This resulted in the original RAC contracts from 2008 being extended.

The RAC contractor, CGI Federal Inc., initiated the lawsuit in the U.S. Court of Federal Claims against the government in April 2014 asserting that a payment provision of the 2014 Recovery Audit Program contracts violates federal law. Under the invalidated provision, CMS payment of contingency fees to RACs would occur at the second level of appeal rather than the first level of appeal. Consequently, CMS’ timeframe for payment to RACs would potentially increase from approximately 120 days to more than 400 days.

The Court held that the revised payment terms violated the federal acquisition regulations’ prohibition against including contract terms inconsistent with customary commercial practice. Under current RAC contracts, CMS pays RACs after issuance of an overpayment determination. As part of the Court’s decision, CMS will either have to issue a new request for quotes that will omit the payment terms or seek a waiver to include the payment terms.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.