TITLE 1. ADMINISTRATION

DIVISION 3. ADMINISTRATIVE ACTIONS AND SANCTIONS

1 TAC §371.1725

The executive commissioner of the Texas Health and Human Services Commission (HHSC) proposes new §371.1725, concerning the Medicaid Recovery Audit Contractor Program, in the Texas Administrative Code Title 1, Part 15, Chapter 371, Medicaid and Other Health and Human Services Fraud and Abuse Program Integrity, Subchapter G, Division 3, Administrative Actions and Sanctions.

BACKGROUND AND PURPOSE

The proposal is necessary to implement House Bill 142, 89th Texas Legislature, Regular Session, 2025, which amended Texas Government Code §544.0504 to expand the Recovery Audit Contractor (RAC) program into Medicaid managed care.

Section 371.1725 replaces §354.1451, Medicaid Recovery Audit Contractor Program, which is proposed for repeal elsewhere in this issue of the Texas Register. The Medicaid Recovery Audit Contractor Program rule was relocated to Chapter 371, Medicaid and Other Health and Human Services Fraud and Abuse Program Integrity, from Chapter 354, Medicaid Health Services, to accurately reflect that RAC is a program integrity function within the HHSC Office of Inspector General (OIG).

Section 371.1725 states that the RAC program is applicable to both fee-for-service and managed care. The new rule establishes requirements for submitting requested records, OIG approval and deconfliction of RAC reviews, the scope of RAC reviews, notices issued by the RAC, appeal processes, and recovery of overpayments.

The new rule updates language to improve readability, adds relevant statutory citations, and adds new definitions for terms used in the section.

SECTION-BY-SECTION SUMMARY

Proposed new §371.1725(a) provides that Texas Government Code §544.0504 is the statutory authority for the RAC program. The rule establishes that the RAC program applies to fee-for-service and is expanded to managed care.

Proposed new §371.1725(b) defines terms used in the section.

Proposed new §371.1725(c) describes the procedures related to a RAC records request, including the deadline required to submit records, the permitted methods for submitting records, and the issuance of a technical denial for failure to produce requested records.

Proposed new §371.1725(d) specifies limits the RAC must follow, including required approval of the review by OIG and a time lapse of at least one year after a claim is received by the payer before the RAC may begin the review. Subsection (d) also describes RAC review procedures, including identifying overpayments and underpayments, recovering overpayments from the provider or MCO, and when certain claims are excluded from a RAC review.

Proposed new §371.1725(e) lists the types of written notice the RAC sends to providers during a review, including a notice of a technical denial, the results of the review, the overpayment amount, the underpayment amount, and the appeal process.

Proposed new §371.1725(f) outlines the first and second level appeal options available to a provider subject to a RAC review and the deadlines for requesting those appeals.

FISCAL NOTE

Victoria Grady, Deputy Chief, Finance, has determined that for each year of the first five years that the rule will be in effect, there will be an estimated reduction in cost to state government as a result of enforcing and administering the rule as proposed. Enforcing or administering the rule does not have foreseeable implications relating to costs or revenues of local government.

The effect on state government for each year of the first five years the proposed rule is in effect is an estimated cost of $1,626,357 in fiscal year (FY) 2026, and an estimated reduction in costs of $18,888,907 in FY 2027, $41,453,360 in FY 2028, $72,422,268 in FY 2029, and $72,422,268 in FY 2030 by returning misspent funds in Texas Medicaid.

GOVERNMENT GROWTH IMPACT STATEMENT

HHSC has determined that during the first five years that the rule will be in effect:

(1) the proposed rule will not create or eliminate a government program;

(2) implementation of the proposed rule will create new HHSC employee positions;

(3) implementation of the proposed rule will result in no assumed change in future legislative appropriations;

(4) the proposed rule will not affect fees paid to HHSC;

(5) the proposed rule will create new regulations;

(6) the proposed rule will not expand, limit or repeal existing regulations;

(7) the proposed rule will increase the number of individuals subject to the rule; and

(8) the proposed rule will positively affect the state's economy.

SMALL BUSINESS, MICRO-BUSINESS, AND RURAL COMMUNITY IMPACT ANALYSIS

Victoria Grady has also determined that there will be no adverse economic effect on small businesses, micro-businesses, or rural communities. The rule does not impose any additional costs on small businesses, micro-businesses, or rural communities that are required to comply with the rule.

LOCAL EMPLOYMENT IMPACT

The proposed rule will not affect a local economy.

COSTS TO REGULATED PERSONS

Texas Government Code §2001.0045 does not apply to this rule because the rule does not impose a cost on regulated persons and the rule is necessary to implement legislation that does not specifically state that §2001.0045 applies to the rule.

PUBLIC BENEFIT AND COSTS

Diane Salisbury, OIG Chief of Data Reviews, has determined that for years two through five of the first five years the rule is in effect, the public benefit will be that increased oversight of overpayments in Medicaid managed care services enhances Medicaid program integrity and promotes the responsible use of public funds. Increased recovery of overpayments may return additional funds to the state and support the continued delivery of services to Medicaid recipients.

Victoria Grady has also determined that for the first five years the rule is in effect, there are no anticipated costs to persons who are required to comply with the proposed rule because an overpayment recovery is not a cost to the business and it is returning funds that should never have been received.

TAKINGS IMPACT ASSESSMENT

HHSC has determined that the proposal does not restrict or limit an owner's right to the owner's property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking under Texas Government Code §2007.043.

PUBLIC COMMENT

Written comments on the proposal, including information related to the cost, benefit, or effect of the proposed rule, as well as any applicable data, research, or analysis, may be submitted to Rules Coordination Office, P.O. Box 13247, Mail Code 4102, Austin, Texas 78711-3247, or street address 4601 West Guadalupe Street, Austin, Texas 78751; or emailed to HHSRulesCoordinationOffice@hhs.texas.gov.

To be considered, comments must be submitted no later than 31 days after the date of this issue of the Texas Register. Comments must be (1) postmarked or shipped before the last day of the comment period; (2) hand-delivered before 5:00 p.m. on the last working day of the comment period; or (3) emailed before midnight on the last day of the comment period. If the last day to submit comments falls on a holiday, comments must be postmarked, shipped, or emailed before midnight on the following business day to be accepted. When emailing comments, please indicate "Comments on Proposed Rule 26R083" in the subject line.

STATUTORY AUTHORITY

The new section is authorized by Texas Government Code §524.0151, which provides that the executive commissioner of HHSC shall adopt rules for the operation and provision of services by the health and human services system; Texas Government Code §544.0504, which establishes the Texas Medicaid Recovery Audit Contractor Program and authorizes the executive commissioner, in consultation with the OIG, to adopt rules necessary to implement §544.0504; 42 CFR §455.502, which requires states to contract with one or more Medicaid recovery audit contractors to carry out RAC activities described in 42 CFR §455.506; Texas Government Code §544.0103, which grants OIG the responsibility for the prevention, detection, audit, inspection, review, and investigation of fraud, waste, and abuse in the provision and delivery of all health and human services in the state, including services through any state-administered health or human services program that is wholly or partly federally funded, and which provides OIG with the authority to obtain any information or technology necessary to enable it to meet its responsibilities; Texas Government Code §544.0102, which requires the executive commissioner of HHSC to work in consultation with OIG to adopt rules necessary to implement a power or duty of the office; Texas Human Resources Code §32.021 and Texas Government Code §532.0051, which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas, to administer Medicaid funds, and to adopt rules necessary for the proper and efficient regulations of the Medicaid program; and Texas Human Resources Code §32.039, which provides authority to assess administrative penalties and damages and provides due process for persons potentially subject to damages and penalties.

The new section affects Texas Government Code §§524.0151, 532.0051, 544.0504, 544.0102, and 544.0103 and Texas Human Resources Code §32.021 and §32.039.

§371.1725. Medicaid Recovery Audit Contractor Program.

(a) Purpose. The Medicaid Recovery Audit Contractor (RAC) Program is established under Texas Government Code §544.0504. This rule applies to Medicaid fee-for-service and the managed care program.

(b) Definitions. The following terms in this section have the following meanings unless the context clearly indicates otherwise.

(1) HHSC--The Texas Health and Human Services Commission or its designee.

(2) HIPAA--The Health Insurance Portability and Accountability Act of 1996, 42 U.S.C. §§1320d et seq., as modified by the Health Information Technology for Economic and Clinical Health Act (HITECH) (P.L. 111-5), and regulations adopted under those acts, including at 45 C.F.R. Parts 160 and 164.

(3) Managed care organization (MCO)--A Medicaid managed care organization contracted with HHSC to provide Medicaid services, including a dental MCO or a health care MCO.

(4) OIG--HHSC Office of Inspector General.

(5) Overpayment--Any payment made to a provider by HHSC or an MCO to which the provider is not entitled under Medicaid, including Medicaid waiver programs and the Medicaid managed care program.

(6) Provider--A person, firm, partnership, corporation, MCO, agency, association, institution, or other organization or entity that provides Medicaid services or products.

(7) Records--Documents, data, or information in any format, including electronic format.

(8) Recovery audit contractor (RAC)--An entity contracted with HHSC to identify Medicaid underpayments and overpayments and to recover the overpayments.

(9) Underpayment--Any payment made to a provider by HHSC or an MCO that is less than the amount to which the provider is entitled under Medicaid, including Medicaid waiver programs and the Medicaid managed care program.

(c) Records.

(1) A provider who receives a request for records for a RAC review must provide the requested records within the time period requested or 30 calendar days from the date of receipt of the request, whichever is later.

(2) A provider must submit requested records through the secure online RAC portal or other method approved by the RAC. All transmissions of records that contain personally identifiable information or protected health information must comply with HIPAA and other applicable federal and Texas information privacy and security law.

(3) Failure by a provider to timely produce requested records may result in a technical denial, an OIG enforcement action, or both.

(4) If the provider fails to timely produce requested records, the RAC will issue a preliminary technical denial notice including a final due date by which the RAC must receive the complete records. If the complete records are not received by the final due date, the RAC will issue a final technical denial notice and recover the overpayment corresponding to the requested records.

(d) Scope.

(1) The RAC may not initiate a review of a claim unless:

(A) the OIG or its designee determines the review would be cost-effective and approves the review; and

(B) at least one year has passed and no more than five years have passed since the date of the claim.

(2) The RAC may not initiate a recovery on a claim if an MCO has notified OIG that the MCO is auditing the claim. The MCO's notice must include information specified by OIG or the RAC, such as time scope, criteria, and other audit details and limits, that clearly define the parameters of the audit.

(3) The RAC reviews records to identify overpayments and underpayments and recover overpayments.

(4) An overpayment may be recovered from the provider or the MCO.

(5) A RAC review excludes claim and encounter details that are under review by OIG.

(6) The RAC must make referrals of suspected fraud or abuse, as defined in Texas Government Code §544.0001, to OIG.

(e) Notice.

(1) The RAC provides written notice of:

(A) a request for records;

(B) a preliminary technical denial, if applicable;

(C) a final technical denial, if applicable;

(D) the result of the review, unless the RAC refers fraud or abuse to OIG;

(E) the overpayment or underpayment amount, if any; and

(F) the appeal process.

(2) RAC notices may be sent:

(A) electronically, in which case notice is presumed to be received on the date sent;

(B) by hand delivery, in which case notice is presumed to be received on the date of delivery;

(C) by certified mail with return receipt requested, in which case notice is presumed to be received on the date of the signature of the addressee or its agent on the return receipt, or on the delivery date as reflected in the records of the United States Postal Service if the return receipt is unsigned or certified mail is unclaimed; or

(D) by fax with confirmation page, in which case notice is presumed to be received on the date of the confirmation of the fax.

(f) Appeals.

(1) A provider who receives a RAC notice of review results may request a first-level appeal and, if necessary, a second-level appeal.

(2) A provider who receives a RAC notice of a final technical denial may request a first-level appeal. The only issues on appeal are whether the provider received the preliminary notice of technical denial or timely submitted the requested records.

(3) A first-level appeal is a review conducted by a RAC reviewer who was not associated with the initial review or issuance of the final technical denial.

(4) A second-level appeal, if necessary, is conducted by HHSC or its contractor through the Medicaid Program Appeals Procedures process under §354.2217 of this title (relating to Provider Appeals and Reviews).

(5) A request for a first-level appeal must be timely and complete as specified in the notice of review results or notice of a final technical denial. A request for first-level appeal is timely if it is received by the RAC within 30 calendar days from receipt of the notice of review results or notice of a final technical denial.

(6) A request for a second-level appeal must be timely and complete as specified in the notice of first-level appeal results. Notwithstanding §354.2217 of this title, a request for a second-level appeal is timely if it is received by HHSC within 30 calendar days from the date of the notice of first-level appeal results.

(7) A notice of review results or a notice of final technical denial becomes final and unappealable 30 calendar days after receipt of the notice, unless the RAC has received a timely and complete request for a first-level appeal. A notice of first-level appeal results becomes final and unappealable 30 calendar days after receipt of the notice, unless HHSC has received a timely and complete request for a second-level appeal. A notice of second-level appeal results becomes final and unappealable upon the provider's receipt of the second-level appeal results notice.

(8) An overpayment may be recovered from the provider or the MCO when the results of the RAC review are final as stated in paragraph (7) of this subsection.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 9, 2026.

TRD-202604330

Stephanie Tourk

Deputy Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: November 22, 2026

For further information, please call: (512) 221-7320

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