College of Law > Academics > Centers, Institutes & Initiatives > Mary and Michael Jaharis Health Law Institute > e-Pulse Blog > CGI Federal Inc. v. The United States, No. 14-335C (September 2, 2014)

CGI Federal Inc. v. The United States, No. 14-335C (September 2, 2014)

On September 2, 2014, the Court of Federal Claims blocked the Medicare program from awarding new Recovery Audit Contractor (“RAC”) contracts because of a court appeal from CGI Federal Incorporated (“CGI”) that is pending. [1] CGI, the plaintiff, filed a motion on August 27, 2014, to stay the Court of Federal Claims judgment allowing the defendant, the United States, to award the RAC contracts; the motion was granted on September 2, 2014 and the United States has been prevented from proceeding with the contract awards, along with other orders and performance throughout the duration of this appeal. [2] On August 28, 2014, the government filed a response to the appeal and seemed confident the motion to stay the judgment would be denied because the Federal Claims Court initially ruled in the government’s favor on the merits of the case. [3]

RAC contracts are used by the United States Department of Health and Human Services (“HHS”) within the Center for Medicare and Medicaid Services (“CMS”) to review improper claims processed for Medicare fee for service claims. [4] CGI is a Medicare RAC for Region B and covers Minnesota, Wisconsin, Illinois, Indiana, Kentucky, Michigan, and Ohio. [5] CMS provides the RACs with a contingency fee for processing Medicare claims and reporting the improper payments to CMS. [6] The RAC program has been successful in helping CMS recover improper Medicare payments, and in 2011 alone the RACs identified 887,291 improper payments and recouped $939.3 million from the improper payments. [7]  

In this case, CGI brought suit against the United States claiming the January 2014 RAC contracts violated the Federal Acquisition Streamlining Act (“FASA”) and part 12 of the Federal Acquisition Regulation (“FAR”) because the payment terms in the Requests for Quotation, payment to CGI, are inconsistent with customary commercial practice and unduly restrict competition. [8] The government challenged the constitutional standing of CGI, alleging CGI was prevented from bringing the suit for two reasons: (1) CGI had not suffered a direct economic injury and (2) CGI did not object to the RAC contractual terms during the proposal period. [9] The Court dismissed the government’s motion for lack of standing and held the modified payment terms were not in violation of FASA or part 12 of FAR. [10] 

Under the prior RAC contract, RACs would invoice payments immediately after the payer recouped the improperly paid claim. [11] Under the current contract, RACs have to wait a minimum of 120 days before being paid a contingency fee, which is 80 days longer than the prior payment wait period. [12] CGI is alleging the payment wait period is a violation of FASA and part 12 of FAR because the delayed payment terms are inconsistent with customary commercial practice and unduly restrict completion. [13]

The RAC contract provides for an appeal process if the health care provider disputes the finding of an overpayment. [14] The appeals process can include up to five steps: (1) redetermination of the identified payment, (2) appeal to a qualified independent contractor (“QIC”), (3) consideration from an Administrative Law Judge (“ALJ”), (4) appeal to the Medicare Appeals Council (“MAC”), and finally (5) appeal to a United States District Court if the amount in controversy exceeds $1,300. [15] 

Under the January 2014 RAC contracts, RACs had to wait until the claims cleared the second level of appeals and wait an additional 80 days longer than prior contracts to file an invoice. [16] Under the current RAC contract terms if the provider appeal passes the second appeal stage the RAC will have to wait up to 420 days before being compensated for the identification of an improper payment. [17] CMS argued that the purpose of the delayed payment period is to prevent RACs from having to pay back already obtained contingency fees when providers win appeals. [18] 

The Court sided with GCI and found that the payment modification was not within customary commercial standard because when an overpayment is identified the recoupment will occur between 30-60 days after the identification; however, the Court concluded both CMS and RACs were aware of the payment modification and the Court stated it reluctance to supplement its judgment over an agency judgment in determining the contractual needs between an agency and a contracting party. [19] The Court held that the government RAC contract did not violate any statutes or regulations and ruled in favor of the United States. [20] The Court concluded all of the RACs were being equally disadvantaged in the prospect contracts and the decision to modify the payment terms did not violate FASA or FAR. [21]

Nevertheless, because the Court granted the motion to stay the judgment on September 2, 2014, the government cannot award the RAC contracts until the appeal is settled. [22] Commentators have speculated the Federal Circuit will overturn the decision because the Court’s decision to grant CGI’s motion to stay the order awarding the contracts demonstrates the issue can be interpreted in favor of both, CGI and the United States. [23]

Hillary Cook is a current student at DePaul University College of Law in Chicago. Ms. Cook completed her undergraduate degree at the University of Dayton in communication management and political science. She will complete her law degree and certificate in health law in 2016. 


[1] Marcia Seemes, Federal Court Blocks Medicare From Awarding New Recovery Audit Contracts. BLOOMBERG, BNA (Sept. 18, 2014). 

[2] CGI Federal Inc. v. The United States, No. 14-355C (September 2, 2014).

[3] Seemes, supra.

[4] Id.

[5] Id.

[6] Id.

[7] CGI Federal Inc. v. United States, 2014 U.S. Claims LEXIS 842, *3 (Fed. Cir. 2014).

[8] Id. at *2.

[9] Id. at *24. The Court reasoned the Tucker Act allows a Court to, “render judgment on an action by an interested party by objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract, or to a proposed award…or any alleged violation of a statute or regulations in connection with a Federal procurement or a proposed procurement.” 28 U.S.C. §1491(b)(1)(2012). 

[10] Id. at *38.

[11] Id. at *14

[12] Id.

[13] Seemes, supra.

[14] CGI Federal Inc., 2014 U.S. Claims LEXIS at *1.