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May 29, 2012

Suspension of Medicaid Payments

This Legal Alert will describe a new federal initiative that is required to be adopted by all State Medicaid programs. Under Section 6402(h) of the Affordable Care Act, State Medicaid programs will be required to completely suspend all Medicaid payments to a provider during the conduct of an investigation which involves "a credible allegation of fraud." New York is currently reviewing this requirement in an effort to ascertain the manner in which it should be implemented. Before we provide details on this new requirement, we wish to describe the current process by which New York State Medicaid can withhold payments from providers.

Current system to withhold payments

Currently, the determination to implement a withhold is discretionary. Under state regulations at 18 NYCRR 518.7, the Office of Medicaid Inspector General (OMIG) can initiate a withhold in an appropriate amount where the OMIG "has reliable information that a provider is involved in fraud or willful misrepresentation involving claims . . . or has abused the program or has committed an unacceptable practice." The OMIG must provide a notice to the provider no more than five days after the commencement of the withhold and the provider has the right to provide written arguments to the OMIG to contest the withhold.
Where the withhold is initiated prior to the issuance of a draft audit report, the draft report must be issued within 90 days of the withhold; in cases where the withhold is issued after the draft report and before the final report, the final audit report must be issued within 90 days of the withhold. Although specifically silent on this issue, the regulations and related Court decisions imply that at the very least, the failure of the OMIG to comply with these time requirements mandates the cessation of the withhold. The provider also has the right to challenge the withhold in a proceeding in state court and the provider can also request that the OMIG reduce the rate of withhold due to "hardship." The OMIG can initiate a withhold at the request of a law enforcement agency such as the Attorney General's Office.

Suspension of payment requirement

Once implemented, States will be required to fully suspend Medicaid payments to providers without notice pending an investigation of a credible allegation of fraud. A credible allegation of fraud is an allegation that has been verified by the State and has "an indicia of reliability that comes from any source." Mere billing errors would generally not rise to the level of "an allegation of fraud." Where fraud is a possibility, these cases will be referred by the OMIG to the Attorney General's Office, generally. The State has the option of imposing only a partial suspension of payment if the State believes there is good cause that a total suspension is disproportionate to the scope of the alleged fraud.

Since there are no advance notice requirements, the provider will only learn of this action after the fact and upon receipt of its weekly MMIS payment remittance statement. There are several circumstances under which a State can determine that good cause exists for not suspending payments. These include a request by a law enforcement agency to not suspend the payment, a concern that suspension would jeopardize a recipient's access to a medical item or service, a determination that suspension is not in the best interest of the Medicaid program or upon receipt of written evidence from the provider that the suspension should be terminated or only partially implemented.

This new procedure can be extremely onerous and will require the development of further guidelines by the OMIG. We will keep you apprised of continuing developments including the effective date of this initiative once it is established. As with any sudden withholding of Medicaid payments, any provider whose payment is suspended should immediately consult with counsel, as the general basis for either of these actions can be an allegation of fraud.

Robert Tengeler is Of Counsel to Hiscock & Barclay and a former New York State Assistant Medicaid Inspector General. During his State service, Mr. Tengeler supervised the conducting of Medicaid audits and investigations and drafted many program integrity-related laws and regulations regarding health care providers, including school districts, counties, physicians, nursing homes and pharmacies. He can be contacted at (518) 429-4289 or at


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