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CGI Federal Sues HHS over New Contracts and Payment Terms

On May 1, Recovery Audit Contractor (“RAC”) for Region B, CGI Federal, Inc., (“CGI”) filed a lawsuit against the United States Department Health and Human Services (“HHS”) in the United States Court for Federal Claims.

In the lawsuit, CGI seeks an injunction against the HHS’s award of new RAC contracts and to eliminate the new payment terms that prohibit RACs from being paid until after the second level of appeal. The lawsuit comes after CGI’s pre-award bid protests, where CGI asked for a change to the new payment terms, were denied by the Government Accountability Office (“GAO”).

Towards the end of 2013 and the beginning of 2014, CMS sent out a request for quotes (RFQ) for new RAC contracts. The Statement of Work, which accompanied the RFQ, contained most of the changes to which CGI objects. CGI’s main objection is to the changes in the payment terms. Under the current system, RACs bill and receive their contingency fees after the first level of appeal of a claim determination, which takes roughly 120 days. Under the new model, RACs would not receive their contingency fees until after the second level of appeal, which could span anywhere from 120 to over 400 days.

In the lawsuit, CGI claims that the new payment terms violate federal procurement laws because they restrict competition for contracts and are inconsistent with customary commercial practices. On the basis of such allegations, CGI refused to submit an RFQ for the contract as they believe that the new payment terms makes it commercially impracticable for CGI to submit a quote as the new payment terms do not provide it with a tolerable revenue flow model.

It is not expected that the lawsuit will cause a significant delay in CMS awarding the RAC contracts. CMS would like to award the DME/HH RAC contract in May and the A/B RAC contract is expected to be awarded sometime in May or June. The first hearing in the case, scheduled for June 6, will more than likely be centered on the issue of whether the judge should grant injunctive relief. A court may only grant injunctive relief if the court finds that the moving party will suffer irreparable harm if the injunction is not granted. The court must consider and balance the extent of the irreparable harm to the moving party, each party’s likelihood of prevailing at trial, and any other public or private interests implicated by the injunction. Out of respect for the proceedings, there is speculation that CMS may wait to award the A/B region contract until after the court renders its decision on the June 6 hearing.

Wachler & Associates health law attorneys will continue to monitor any further developments regarding the RAC contract awarding and payment processes. If you have any questions pertaining to how the new RAC processes will impact you or your entity, or if you are the subject of a RAC audit, please contact an experienced health care attorney at Wachler & Associates via phone at 248-544-0888 or via email at

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