On February 2, 2011, the Centers for Medicare and Medicaid Services (“CMS”) published a new rule (“Final Rule”) authorized by the Affordable Care Act (“ACA”), that among other things, gives state Medicaid agencies authority to temporarily suspend payments to providers and suppliers in advance of a finding of fraud. The Final Rule amends 42 C.F.R. § 455.23 and became effective March 25, 2011.
The Final Rule implements section 6402(h) of the ACA, which establishes requirements for suspension of Medicare and/or Medicaid payments to providers pending an investigation involving “credible allegations of fraud.” This article will concentrate on Medicaid suspension of payments.
State Medicaid agencies have long been authorized to withhold payments in cases of alleged fraud or willful misrepresentation. The ACA now mandates that States shall not receive Federal Financial Participation in cases where they fail to suspend Medicaid payments during any period when there is pending an investigation of a credible allegation of fraud against an individual or entity, as determined by the State, unless the State determines that good cause exists not to suspend such payments.
There are several significant changes to 42 C.F.R. § 455.23 that a provider and its counsel should realize. First, the amendment lowers the threshold level of evidence necessary to suspend payments. The prior regulations required “receipt of reliable evidence” while the Final Rule now requires only a “credible allegation.” “Credible allegation of fraud” are considered to be credible “when they have indicia of reliability and the State Medicaid agency has reviewed all allegations, facts, and evidence carefully and acts judiciously on a case-by-case basis.” Allegation is defined to include allegations “verified by the State from any source.”
The Final Rule also clarifies that an investigation need not originate with a law enforcement agency in order to satisfy the requirement for a “pending investigation.” Investigations conducted by State Medicaid agencies are sufficient to trigger a payment suspension. Additionally, now when a State Medicaid agency investigation leads to the initiation of a payment suspension, the Medicaid agency must make a formal, written referral to its Medicaid Fraud Control Unit (“MFCU”), or, where a State does not have a MFCU, to an appropriate law enforcement agency. If the MFCU or other law enforcement agency accepts the referral for investigation, the payment suspension may continue under the standards established under the Final Rule.
The Final Rule establishes several “good cause” exceptions by which the State may decide not to suspend payments or decides to discontinue a payment suspension previously imposed. The good cause exceptions include: (1) the State determines that suspension should be removed based upon the submission of written evidence; (2) recipient access to items or services would be jeopardized by a payment suspension because either the provider is the sole community physician or the sole source of essential specialized services in a community; or the provider serves a large number of recipients within an HRSA designated medically underserved area; or (3) law enforcement declines to certify that a matter continues to be under investigation.
The "good cause" exception that permits the State to determine that a suspension should be removed based upon the submission of written evidence is already a source of intense debate. The questions that arise include how much written "evidence" is sufficient and who determines the quality of the written evidence? Another issue in this context is once written evidence is submitted how long does Medicaid have to respond or does it have to respond at all?
A State may also find good cause exists to suspend payments in part or convert a payment suspension previously imposed in whole to only one in part. The reasons to suspend payments in part are similar to the reasons to suspend payments in whole, but also include circumstances where an investigation is solely and definitively centered on only a specific type of claim, or arises from only a specific business unit of a provider.
Another uncertainty is the duration of the Medicaid payment suspension. Although the Final Rule states the suspension is only temporary, the Final Rule lacks any specificity regarding how long the suspension may last. The rule simply states suspension of payment will not continue after either the agency or prosecuting authorities determine that there is insufficient evidence of fraud by the provider or legal proceedings related to the provider’s alleged fraud are completed.
Although the Final Rule requires that a provider may request, and must be granted, administrative review where State law so requires, as a matter of first hand experience, obtaining administrative review is often times fraught with delay and a source of heated debate. First, the Final Rule does not provide how quickly an administrative review must occur. This is critically important considering the suspension of Medicaid payments occurs without advance notice and without the opportunity for the provider to present its case prior to the suspension of payments. The state's idea of "timely" administrative review is entirely different than a provider's idea of timely. A provider wants, and often needs, an administrative review immediately, which is simply not in Medicaid's time frame.
Additionally, the Final Rule does not define the meaning of "administrative review." Does the term simply mean an internal administrative review by Medicaid or does it include the right to a fair hearing in front of an administrative law judge?
The amendments to the Medicaid payment suspension regulations raise many frustrating issues. First, the State may suspend Medicaid payments without advanced notice to providers. Medicaid only has to notify the provider within five days after initiating a payment suspension. The regulations are broad and vaguely-defined and do not provide a well defined procedure for Medicaid providers to defend themselves. But perhaps the harshest provision is the lack of clarity relating to the duration of the suspension of payments. The suspension of Medicaid payments without prior notice and an opportunity for a hearing seems to contradict all notions of due process.
Jim Hoover is a partner in the Health Care Practice Group at Burr & Forman LLP and exclusively represents healthcare providers in regulatory and litigation matters.