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CMS compensates the RACs on a contingency fee basis, based upon the principal amount of collection (or the amount paid back to) a provider. This fee arrangement provides incentives to the RACs to aggressively review and deny claims, including claims that the RAC alleges to be not "medically necessary," an area containing much subjectivity, and a category of denial often highly disputed by the provider. As noted above, in FY 2007, the RACs identified and collected $357.2 million in overpayments, and repaid just $14.3 million in identified underpayments to Medicare providers and suppliers.[5] Thus, approximately 96 percent of the alleged improper payments identified (and collected or returned as appropriate) were overpayments, as opposed to underpayments.

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