Medicaid RAC Improvement Act of 2026
- Sponsor
- Sen. Scott, Rick [R-FL]
- Committees
- Finance Committee (primary)
- Last action
- Jun 24, 2026
Bottom line
The bill seeks to significantly increase the identification and recovery of Medicaid overpayments, particularly from managed care entities, by expanding the scope and rigor of the federal-state RAC program.
What it actually does
This bill aims to strengthen the Medicaid Recovery Audit Contractor (RAC) program by enhancing federal oversight of state exceptions, mandating the inclusion of Medicaid managed care organizations in RAC audits, and extending the retrospective audit period to four fiscal years. It also requires new reporting from states and CMS on payment integrity efforts, and directs studies and a demonstration project to address barriers to state participation in the RAC program.
Proponents argue
Proponents argue that the bill will enhance accountability and fiscal integrity within the Medicaid program by recovering billions in improper payments, ensuring taxpayer dollars are used efficiently, and reducing fraud, waste, and abuse. They highlight the critical importance of extending RAC audits to managed care plans, which represent a substantial and growing portion of Medicaid spending, to close existing loopholes.
Opponents contend
Opponents might argue that expanding RAC audits, especially to managed care organizations and with extended look-back periods, could impose significant administrative burdens and costs on states, healthcare providers, and managed care plans. Concerns could also be raised about potential disruptions to patient care, increased disputes over claims, and the aggressive tactics sometimes employed by RACs.
The bill is relatively short and clearly structured, making it accessible for a quick but informed review by stakeholders and policymakers.
Section 2(a), adding Social Security Act 1903(cc)(2)
Enhanced CMS Oversight of State Medicaid RAC Exceptions
This provision requires the Secretary of HHS to establish policies and procedures for clearly communicating and monitoring the expiration dates of State Medicaid RAC program exceptions, ensuring states are notified of upcoming deadlines. It explicitly states that these exceptions will not be extended beyond 2029. Additionally, states with approved exceptions must submit annual, detailed reports on their Medicaid RAC programs, including audit methodologies and justifications for any limits or exclusions.
Supporters argue
Supporters argue this will improve federal oversight, ensure states are held accountable for payment integrity, and prevent indefinite exceptions that undermine the effectiveness of the RAC program.
Critics contend
Some states might argue that stricter oversight and reporting requirements, coupled with the hard deadline for exceptions, could impose undue administrative burdens, especially for states with unique program structures or limited resources.
Tradeoffs
This provision balances the federal government's desire for consistent oversight and accountability in Medicaid payment integrity with states' historical need for flexibility in program administration.
Section 2(a), adding Social Security Act 1903(cc)(3)
Annual Congressional Reports on Medicaid RAC Program Effectiveness
This provision mandates that the Secretary of HHS, in collaboration with State Medicaid agencies, submit an annual report to Congress, starting December 31, 2027. These reports must detail the effectiveness of the Medicaid RAC program for the most recently ended fiscal year. Contents include state-specific information on recovered overpayments, identified underpayments, savings from pre-payment review, appeal settlement rates, common initiatives to reduce payment errors, and the number of audit categories conducted or on hold. The reports must also include recommendations for program expansion or improvement.
Section 3, amending Social Security Act 1902(a)(42)
Mandating Medicaid Managed Care Inclusion in RAC Programs
This section amends the Social Security Act to require that State Medicaid RAC programs be carried out in a 'robust manner' and 'specifically include a review of claims paid by medicaid managed care organizations (MCOs), prepaid inpatient health plans (PIHPs), and prepaid ambulatory health plans (PAHPs).' By January 1, 2028, states must ensure contracts with these managed care entities include provisions for payment integrity review. MCOs/PIHPs/PAHPs must either conduct their own payment integrity review for a designated period (not exceeding 18 months post-payment or contract term) or agree to permit a State-engaged Medicaid RAC to conduct such review, and cooperate with RACs.
Section 4(a), adding Social Security Act 1903(cc)(4)
State and Congressional Reports on All Payment Integrity Reviews
This provision requires each state to submit annual reports to the Secretary, separate from other reporting, detailing the reviewing entity (including any recovery audit contractor or other program integrity entity) for *each payment stream* under their Medicaid plan or waiver. This includes non-state funded payments and capitation or other payments made to managed care entities. The Secretary must then compile and submit a report detailing this information to Congress annually, along with recommendations for legislation and administrative action.
Section 4(b), adding Social Security Act 1903(cc)(5)
Study on Barriers to State Participation in Medicaid RAC Programs
This provision mandates a study by the Secretary of HHS on barriers preventing states from establishing and implementing Medicaid RAC programs. The study must examine the contingency fee payment structure for recovery audit contractors (its competitiveness and effectiveness), alternative arrangements for engaging RACs (including multi-state contracts), and startup costs for new Medicaid RAC programs. It also requires recommendations for payment structures that could include initial funding for RACs. A report to Congress containing the study results and recommendations is required within one year of enactment.
Section 4(b), adding Social Security Act 1903(cc)(6)
Demonstration Project for Increased State RAC Participation
Based on the findings of the study on barriers to state participation, the Secretary is mandated to conduct a 5-year demonstration project, starting within two years of enactment. This project is designed to increase the number of states that establish and implement a Medicaid RAC program. Interim and final reports to Congress are required, including an evaluation of the project and recommendations for legislation and administrative action.
Section 4(c), adding Social Security Act 1902(a)(42)(D)
Extended Retrospective Audit and Recovery Period
This provision mandates that, beginning 120 days after enactment, all state contracts with recovery audit contractors (including those applying to managed care entities) must provide that audit and recovery activities shall be conducted for the current fiscal year and retrospectively for a period of four fiscal years prior to the current fiscal year.
Amends Section 1902(a)(42)(B)(i) of the Social Security Act to explicitly state that exceptions to the Medicaid RAC program requirements are only permitted 'through December 31, 2028.'
Section 2(b)
Why it matters:This is standard legislative practice for technical adjustments to existing law, but it carries a significant policy consequence by setting a firm, statutory deadline for the end of state exceptions.
Case for: Ensures all states eventually comply with the full RAC program, standardizing efforts to recover overpayments and promoting national program integrity.
Case against: States with existing exceptions lose flexibility and may face significant challenges in transitioning to full compliance by the specified deadline, potentially disrupting ongoing program integrity efforts.
Estimated impact: Ensures all states will be subject to full RAC program requirements by 2029, potentially increasing nationwide overpayment recoveries and standardizing program integrity efforts.
States that 'the RAC exception SPA approval expiration date shall not be extended after 2029.'
Section 2(a), adding 1903(cc)(2)(A)(ii)
Why it matters:While part of detailed administrative instructions, this specific phrase is a critical policy detail that reinforces the hard deadline for state exceptions, preventing any future administrative extensions.
Case for: Provides certainty and a firm deadline for states to come into full compliance, preventing perpetual exceptions and ensuring consistent application of RAC program requirements across all states.
Case against: Limits state flexibility and may not account for unforeseen circumstances or unique state challenges that could genuinely warrant an extension beyond 2029, potentially forcing states into difficult compliance situations.
Estimated impact: Solidifies the end of state exceptions to the Medicaid RAC program by 2029, ensuring all states fully participate in overpayment recovery efforts.