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December 8, 2010

Pharmacy Update; Volume I

Recent federal and state health law changes and initiatives will affect pharmacies in the area of Medicaid reimbursement. Recognizing that health care law is a constantly changing and evolving area, we are providing this overview of recent initiatives and policy developments that will affect Medicaid pharmacy providers in New York.

As we have discussed in prior alerts, under the Federal State Health Reform Partnership (FSHRP) negotiated between New York State and CMS, New York was required to significantly increase its Medicaid audit recoveries over a defined period of time. For federal fiscal year 2011 (ending September 30, 2011), the FSHRP target is $644 million. This requirement, coupled with reduced state and federal revenues, will result in a continued emphasis on markedly increasing audits and other recovery initiatives.

New and continuing initiatives

Medicaid Recovery Audit Contractors–In a continuing effort to increase audit recoveries, the federal Medicaid agency, CMS, has established a Medicaid Recovery Audit Contractors program similar to the audit recovery program in existence for Medicare (RAC). Under this program, private entities will be engaged to conduct audits on behalf of various agencies and receive a percentage of the recovery.

Affordable Care Act–The recent federal health care legislation has specific provisions regarding fraud prevention. An additional $350 million has been allocated over the next ten years to identify fraud and increase audit recoveries through additional initiatives. The legislation provides for increased data sharing among various health programs (Medicaid, Medicare, CHIP, etc.), increased criminal and civil penalties and an expansion of compliance plan requirements.

Compliance Plans–There is a strong continued emphasis on compliance plans and provider self disclosure of identified Medicare and Medicaid overpayments which will focus increasingly on effectiveness over form. The current federal threshold requirement that providers who bill Medicaid in excess of $5 million annually have a compliance program will likely be reduced to a lower threshold level in an effort to cover more providers. In New York, all providers who bill Medicaid at least $500,000 annually are required to have compliance plans and are also required to annually certify by the end of December to the OMIG that a plan exists and is in use. Given the overall increased audit activity, pharmacy providers are urged to effectuate compliance plans which are not only required, but provide an excellent mechanism for preventing errors that could result in large audit findings.

Self-disclosure–Under the Affordable Care Act, Medicare and Medicaid overpayments must be disclosed and returned by a provider within 60 days of discovery or the overpayment would be considered a false claim and be subject to potential recovery under the False Claims Act. That law provides for treble damages and other penalties. A self-disclosure protocol has been published by the OMIG.

Pharmacy policy developments

Third party recoveries–In a recent webinar, OMIG indicated increased emphasis on recoveries and/or denial of claims for Providers who fail to properly bill third party insurers before submitting a claim to Medicaid. See, Pharmacies should ensure that current and accurate information regarding the existence of third party coverage by customers is entered and used when submitting a Medicaid claim and ensure an appropriate procedure exists for updating such information.

Sanctioned providers–A provider who has been excluded from either Medicaid or Medicare cannot be involved in the provision of any medical service paid for by those programs. Federal and state authorities are placing an increased emphasis on enforcing this requirement, a violation of which could result in recoveries and/or sanctions. CMS requires that all providers, such as pharmacies, check the excluded provider lists monthly to ensure that they are not employing or contracting with an excluded individual or entity. Generally, lack of knowledge of the existence of an exclusion previously imposed on an employee or contractor is not an excuse for mitigating liability. Excluded provider lists are available on the OMIG website, the excluded parties list system at, and OIG website at

Hiscock & Barclay, LLP has experience in assisting providers with audits, investigations and compliance initiatives. Should you need assistance with any of these matters, please contact any member of our Health Care and Human Services Practice Area.


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