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Section 306 of the Medicare Prescription Drug, Enchancment and Modernization Act of 2003 (MMA), directed the Division of Health and Human Services (HHS) to conduct a 3-year demonstration program utilizing RACs. The demonstration started in 2005 within the three states with the best Medicare expenditures: California, Florida and New York. The aim of the demonstration program was to determine whether or not the use of RACs can be a cost-effective strategy to determine and correct improper funds in the Medicare FFS program. The RAC demonstration program proved extremely financially profitable from the perspective of the CMS. In fact, in fiscal year (FY) 2007 alone, the RACs recognized and collected $357.2 million in overpayments, and repaid just $14.3 million in recognized underpayments to Medicare suppliers and suppliers. Based mostly upon data compiled by CMS, the RAC demonstration program cost only 22 cents for every dollar returned to the Medicare Belief Funds.

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