S. 4898: Medicaid RAC Improvement Act of 2026

The bill would change how Medicaid “Recovery Audit Contractor” (RAC) programs operate and expand their reach. These programs use outside auditors to find Medicaid overpayments and, in some cases, underpayments.

What the bill would do

• Limit and phase out certain state exemptions from Medicaid RAC rules. States that already have special approval to exempt themselves from some RAC requirements would have to be told clearly when that approval expires, and the bill says those expirations cannot be extended past 2029. It also requires the federal government to track upcoming expiration dates and notify states.
• Require more state reporting. States with RAC exemptions would have to file annual detailed reports describing how their Medicaid RAC programs work, including audit methods and reasons for any limits or exclusions.
• Require annual federal reports to Congress. Starting by the end of 2027, the Secretary of Health and Human Services would have to report each year on how effective Medicaid RAC programs are. These reports would include, by state, information such as:
  • how the state’s RAC program is structured,
  • how much overpayment money was recovered,
  • how much underpayment was identified,
  • any savings from pre-payment review systems,
  • how often overpayment appeals are settled,
  • the main steps states use to reduce payment errors, and
  • how many audit categories were used, held, or denied.
• Require Medicaid managed care plans to be included in RAC activity. By January 1, 2028, states would have to show the federal government that they have a process ensuring contracts with Medicaid managed care organizations and certain prepaid health plans allow for payment integrity review. These plans would either:
  • run their own review period for identifying and recovering payment errors, or
  • allow a Medicaid recovery audit contractor hired by the state to do that work.
  The bill also requires these plans to cooperate with RAC efforts and coordinate those efforts in a specified way.
• Require additional annual state reports on payment integrity reviews. States would have to identify which entity is reviewing each payment stream, including managed care payments, and the federal government would then summarize those reports for Congress.
• Study barriers to state participation. The Secretary would have to study why some states do not set up Medicaid RAC programs, including:
  • whether the current contingency-fee payment model works well,
  • whether multi-state contracts could be used, and
  • startup costs and how long it takes contractors to recover those costs.
  A report with recommendations would be due to Congress within a year.
• Create a 5-year demonstration project. Based on that study, the Secretary would have to run a pilot program aimed at increasing the number of states that adopt Medicaid RAC programs. The Secretary would have to report to Congress soon after it starts and again after it ends.
• Extend the audit window. Contracts with recovery audit contractors would have to allow audits and recovery work for payments made during the current fiscal year and for the prior 4 fiscal years. This would apply to regular Medicaid payments and, where relevant, payments made through managed care organizations and similar plans.

Overall effect

In practical terms, the bill would push states to use Medicaid audit contractors more consistently, include Medicaid managed care payments in those audits, collect more information about payment errors, and give the federal government more tools to monitor and compare how states are recovering overpayments.

Relevant Companies

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