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Medicare reimbursement of Part A services has historically and primarily been handled by private insurance companies under contract with the Centers for Medicare and Medicaid Services (CMS). Historically, these companies were referred to as “fiscal intermediaries.” Beginning in 2006, CMS began transitioning the role and title of fiscal intermediaries (sometimes referred to as “FI” or just “intermediary”) to the more global term for all contractors (including carriers and Durable Medical Equipment Regional Carriers, or DMERCs), called “Medicare Administrative Contractors” (“MACs”). The transition has been slow to take hold. Excerpt from James F. Flynn, Medicare Part A, Fundamentals of Health Law (American Health Lawyers Association Nov. 2011).

In addition to processing claims, Medicare also uses contractors for program integrity activities including auditing providers and suppliers and reviewing claims for medical necessity.


Section 306 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 [MMA] directed the Department of Health and Human Services (HHS) to conduct a demonstration program using [Recovery Audit Contractors] RACs to identify overpayments and underpayments, and to recoup overpayments in the Medicare program. The demonstration program began in 2005 in California, Florida and New York, the three states with the highest Medicare expenditures. The program was expanded in 2007 to include Massachusetts, South Carolina and Arizona.

The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of the 3-Year Demonstration, June 2008, p. 11, The RAC demonstration program proved highly successful for CMS, resulting in a net savings of $693.6 million returned to the Medicare trust funds. The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of the 3-Year Demonstration, June 2008, p. 18,

Section 302 of the Tax Relief and Health Care Act of 2006 established the RAC permanent program. 42 U.S.C. §1395ddd (2006). The statute called for expansion of the program to all 50 states by no later than January 1, 2010. Id. The RAC Permanent Program defined four RAC jurisdictions, Regions A through D, with one RAC assigned to each region. The RACs are paid on a contingency fee basis but are required to refund the contingency fee if an overpayment determination is overturned at any level of the appeal process.

Excerpt from Andrew B. Wachler, False Claims and Overpayments, Fundamentals of Health Law (American Health Lawyers Association Nov. 2011).

Section 911 of the MMA directed implementation of Medicare Fee-For-Service Contracting Reform. As a result of these changes, seven program integrity zones were created based on the newly-established MAC jurisdictions. New entities entitled Zone Program Integrity Contractors (ZPICs) were created to perform program integrity functions in these zones for Medicare Parts A, B, Durable Medical Equipment Prosthetics, Orthotics, and Supplies, Home Health and Hospice and Medicare-Medicaid data matching. Medicare Part C and D program integrity efforts are handled separately by one national contractor known as the Medicare Drug Integrity Contractor (MEDIC) (Health Integrity, LLC is the current MEDIC). The ZPICs and the MEDIC work under the direction of the Center for Program Integrity(CPI) in CMS.


The primary goal of ZPICs is to investigate instances of suspected fraud, waste, and abuse. ZPICs develop investigations early, and in a timely manner, take immediate action to ensure that Medicare Trust Fund monies are not inappropriately paid. They also identify any improper payments that are to be recouped by the MAC.

From CMS, The Role of the Zone Program Integrity Contractors (ZPICs), Formerly the Program Safeguard Contractors (PSCs), MLN Matters (Feb. 29, 2012), available at