Medicaid RAC Improvement Act of 2026

This Act may be cited as the “Medicaid RAC Improvement Act of 2026”.

(a) Improved oversight.— Section 1903 of the Social Security Act (42 U.S.C. 1396b) is amended by adding at the end the following new subsection:

“(cc) Improving State payment integrity.—

(1) Definitions.— In this subsection:

(A) Medicaid RAC program.— The term Medicaid RAC program means a program described in section 1902(a)(42)(B)(i).

(B) RAC exception SPA.— The term RAC exception SPA means a State plan amendment submitted to the Secretary by a State for approval of a full exception from, or an exception to 1 or more of, the requirements described in section 1902(a)(42)(B).

(2) Improved oversight of Medicaid RAC program exceptions.— Not later than 180 days after the date of enactment of this subsection, the Secretary shall establish and implement policies and procedures for the following:

(A) Communicate expiration of Medicaid RAC program exception.— Clearly communicating to a State with an approved RAC exception SPA—

(i) the expiration date of the approval; and

(ii) a statement that the RAC exception SPA approval expiration date shall not be extended after 2029.

(B) Monitoring of RAC exception SPA expirations.— Monitoring of RAC exception SPA expiration dates and notifying States with respect to any upcoming expiration date.

(C) State reports.— Requiring annual, detailed reporting from a State with an approved RAC exception SPA that includes an overview of the State's Medicaid RAC program, including methodologies and justifications for audit limits or exclusions applied under the program.

(3) Improved reporting to Congress on the effectiveness of the Medicaid RAC program.—

(A) In general.— Not later than December 31, 2027, and annually thereafter, the Secretary, in collaboration with State Medicaid agencies, shall submit to Congress a report describing the effectiveness of the Medicaid RAC program for the most recently ended fiscal year.

(B) Contents.— Each report submitted by the Secretary to Congress under subparagraph (A) shall include the following information with respect to the reporting period:

(i) State-specific information.— For each State:

(I) A summary of the State's Medicaid RAC program, including methodologies and justifications for audit limits or exclusions applied under the program, and a description of any approved exceptions.

(II) The aggregate amount of Medicaid overpayments recovered and the amount of each overpayment recovered.

(III) The aggregate amount of Medicaid underpayments and the amount (actual or estimated) of each underpayment.

(IV) If the State that has implemented pre-payment review of Medicaid payments to beneficiaries, the aggregate amount of savings (actual or estimated) attributable to such pre-payment review.

(V) The percentage of appeals of demands for overpayment that ended in settlement and, with respect to any such settlement amount, the percentage of such amount in comparison to the original overpayment demanded.

(VI) The 5 initiatives most often implemented by the State to reduce overpayments and underpayments.

(VII) The number of audit categories—

(aa) conducted by a State; or

(bb) on hold or denied by a State.

(ii) Secretary recommendations.— Recommendations for expanding or improving the Medicaid RAC program, as the Secretary determines appropriate.”.

(b) Conforming amendment.— Section 1902(a)(42)(B)(i) of the Social Security Act (42 U.S.C. 1396a(a)(42)(B)(i)) is amended by inserting “(but only through December 31, 2028)” after “exceptions”.

Section 1902(a)(42) of the Social Security Act (42 U.S.C. 1396a(a)(42)) is amended—

(1) in subparagraph (A), by striking “and” at the end;

(2) in subparagraph (B)(ii)—

(A) in subclause (III), by striking “and” at the end; and

(B) by adding at the end the following new subclause:

“(V) such program is carried out in a robust manner likely to identify and recoup or prevent a substantial portion of overpayments and specifically includes a review of claims paid by medicaid managed care organizations (as defined in section 1903(m)(1)(A)), prepaid inpatient health plans (as defined in section 1903(m)(9)(D)(iii)(I)), and prepaid ambulatory health plans (as defined in section 1903(m)(9)(D)(iii)(II));”; and

(3) by adding at the end the following new subparagraph:

“(C) not later than January 1, 2028, the State shall provide assurances satisfactory to the Secretary that the State has an adequate process for ensuring that any contract with a medicaid managed care organization (as defined in section 1903(m)(1)(A)), prepaid inpatient health plan (as defined in section 1903(m)(9)(D)(iii)(I)), or prepaid ambulatory health plan (as defined in section 1903(m)(9)(D)(iii)(II)), and a State shall include provisions under which such an organization or health plan—

(i) shall either—

(I) elect to engage in a period of payment integrity review by designating a period (not to exceed the lesser of 18 months after payment for a claim or the term of the contract with the managed care organization) during which the organization or health plan shall be permitted to engage in efforts to identify underpayments and overpayments and recoup overpayments under the State plan and under any waiver of the State plan with respect to all services for which payment is made to the organization or health plan under such plan or waiver; or

(II) agree to permit a Medicaid recovery audit contractor (as described in subparagraph (B)) engaged by the State to engage in such payment integrity review; and

(ii) shall agree to—

(I) cooperate with any Medicaid recovery audit contractor (as so described) engaged by the State to identify any such underpayments and overpayments and recoup any overpayments under the State plan and under any waiver of the State plan (after the expiration of the period designated under clause (i)(I), if the organization or health plan has elected such a period); and

(II) coordinate such recovery audit efforts in the same manner described in subparagraph (B)(ii)(IV)(cc); and”.

(a) Annual reports regarding State payment integrity reviews.— Section 1903(cc) of the Social Security Act (42 U.S.C. 1396b), as added by section 2(a) of this Act, is amended by adding at the end the following new paragraph:

“(4) Annual reports regarding State payment integrity reviews.—

(A) State reports.— Not later than 1 year after the date of enactment of this paragraph, and annually thereafter, each State shall submit, separate from the information reported under paragraph (2)(C), a report to the Secretary, in such standard form and manner as the Secretary shall specify, that identifies the reviewing entity (including any recovery audit contractor or other program integrity entity) for each payment stream (including a non-State funded payment and capitation or other payments made to a medicaid managed care organization (as defined in section 1903(m)(1)(A)), prepaid inpatient health plan (as defined in section 1903(m)(9)(D)(iii)(I)), or prepaid ambulatory health plan (as defined in section 1903(m)(9)(D)(iii)(II))) under the State plan or under a waiver of such State plan with respect to all items and services for which payment is made for the applicable reporting period.

(B) Reports to Congress.— Not later than 180 days after the date of each annual State reporting deadline under subparagraph (A), the Secretary shall prepare and submit to Congress a report detailing the information contained in such State reports, together with recommendations for such legislation and administrative action as the Secretary determines appropriate.”.

(b) Identifying and testing barriers to State participation in Medicaid RAC programs.— Section 1903(cc) of the Social Security Act, as amended by subsection (a), is amended by adding at the end the following new paragraphs:

“(5) Study on barriers to State participation in Medicaid RAC programs.—

(A) In general.— The Secretary shall conduct a study on barriers to State establishment and implementation of Medicaid RAC programs as required under section 1902(a)(42)(B)(i). Such study shall examine—

(i) the contingency fee payment structure for recovery audit contractors, including—

(I) whether such payment structure ensures a healthy and competitive marketplace for States to establish and implement Medicaid RAC programs; and

(II) the effectiveness of such payment structure based on the population of a State that participates in the State Medicaid program;

(ii) alternative arrangements for engaging recovery audit contractors, including the viability of multi-State contracts; and

(iii) the start up costs associated with establishing a new Medicaid RAC program in a State, including—

(I) the amount of time before a recovery audit contractor starts recouping overpayments to the extent that the recovery audit contractor recovers such start up costs; and

(II) recommendations for a payment structure that could include initial funding to a recovery audit contractor.

(B) Report.— Not later than 1 year after the date of enactment of this paragraph, the Secretary shall submit to Congress a report containing the results of the study conducted under subparagraph (A), together with recommendations for such legislation and administrative action as the Secretary determines appropriate.

(6) Demonstration project to improve State participation in Medicaid RAC programs.—

(A) In general.— Not later than 2 years after the date of enactment of this paragraph, based on the study conducted under paragraph (5), the Secretary shall conduct a 5-year demonstration project designed to increase the number of States that establish and implement a Medicaid RAC program in accordance with section 1902(a)(42)(B)(i).

(B) Reports to Congress.— The Secretary shall submit an interim report to Congress on the demonstration project conducted under this paragraph not later than 90 days after the initiation of the demonstration project, and a final report not later than 180 days after the demonstration project ends. The final report shall include an evaluation of the project and recommendations for such legislation and administrative action as the Secretary determines appropriate.”.

(c) Audit and recovery periods.— Section 1902(a)(42) of the Social Security Act (42 U.S.C. 1396a(a)(42)), as amended by section 3, is amended by adding at the end the following new subparagraph:

“(D) notwithstanding clause (i) of subparagraph (B), beginning 120 days after the date of enactment of this subparagraph, each contract entered into by the State with a recovery audit contractor under the program described in subparagraph (B), including any contract with a recovery audit contractor applying to a medicaid managed care organization (as defined in section 1903(m)(1)(A)), prepaid inpatient health plan (as defined in section 1903(m)(9)(D)(iii)(I)), or prepaid ambulatory health plan (as defined in section 1903(m)(9)(D)(iii)(II)), shall provide that audit and recovery activities shall be conducted during a fiscal year with respect to payments made under the State plan and under any waiver of the State plan, or, if applicable, payments made by such an organization or health plan, during such fiscal year and retrospectively for a period of 4 fiscal years prior to such fiscal year;”.