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December 14, 2022

NYS Medicaid Audit Reform Stymied: Future Improvements Promised

A bill dubbed the OMIG Reform Bill (Senate Bill S4486/Assembly Bill A7889A), which unanimously passed both houses on May 25, 2022, was recently vetoed by NYS Governor Kathy Hochul.  The bill was the progeny of prior reform efforts. In 2011, the legislature passed similar, and in some respects more aggressive, audit reform legislation that then-Governor Cuomo vetoed approximately three months later. 

The new reform bill would have injected some much-needed moderation in the New York State Office of the Medicaid Inspector General (OMIG) provider audit process by:

(1) Giving providers more time before commencement of post-audit recoupment 
(2) Providing a three-year cooling-off period between OMIG audits of the same claims or payments 
(3) Prohibiting OMIG from retroactively applying revised Medicaid standards 
(4) Setting new disclosure requirements and standards for OMIG’s extrapolation methodology
(5) Critically, limiting recovery from providers for administrative or technical defects and giving providers an opportunity to correct defects and resubmit claims

Governor Hochul, in her memo to the assembly, explained that she is “constrained to veto this bill” based upon concerns regarding the bill’s impact on the state’s ability to collect overpayments and the resulting liability of the state for any federal share of those overpayments.  States are required to refund the Centers for Medicare & Medicaid Services (CMS) for the federal share of any overpayment under the Medicaid program. Governor Hochul also stated her concern that the bill would impact OMIG’s ability to identify fraud in the Medicaid program. 

In recognition of providers’ concerns, however, Governor Hochul’s memo promises reform by directing OMIG to, among other things:

(1) Engage the provider community
(2) Review the agency’s processes and identify areas for improvement 
(3) Consider the financial impacts on providers and commit to program integrity activities that “assures continuity of care for Medicaid recipients” 
(4) Assess opportunities to report on provider requests for financial hardship and the impacts of enforcement actions

Since OMIG audits notoriously result in substantial recoupments from health care and human services providers in New York State for minor defects in documentation or administrative processes, the OMIG Reform Bill would have provided significant and needed relief. These recoupments are often without regard for the provider’s good faith and the clear medical necessity of the services rendered. Medicaid reimbursements rates, which are the lowest in the health care and human services industries, and current auditing standards often imperil the solvency of well-meaning providers. OMIG routinely extrapolates its findings against a provider’s entire Medicaid receivables within a given period and does so even where the error rate is comparatively low, such as when there are only a few samples where the error is present, something even Medicare audit contractors have been legally prohibited from doing as stated in the Medicare Program Integrity Manual.

The veto of the OMIG Reform Bill comes at an uncertain time for New York State’s Medicaid program. New York State Medicaid providers contend with uncertainty about OMIG’s audit priorities as OMIG’s Work Plan for 2022, which flags upcoming areas of focus for OMIG, is still pending. OMIG has also faced a spate of critical headlines and developments, including a drumbeat of scrutiny from the Office of the New York State Comptroller and the Office of the Inspector General for the United States Department of Health and Human Services. Barclay Damon issued an alert regarding one of these agency findings in 2021, and just this fall, New York Medicaid was subject to an $84 million recoupment for failing to properly monitor the Medicaid medical transportation program. 

Despite these issues, some reforms have been achieved through successful litigation of findings. For example, Barclay Damon’s Health Care Controversies Team obtained a recent decision limiting OMIG’s ability to conduct “system match” audits, which held providers liable for electronic data errors without regard for a provider’s underlying documentation.  

New York State is accountable to CMS for any overpayment findings under federal Medicaid rules, and New York State’s liability is often triggered upon issuance of the draft audit report. For this and other reasons, providers often benefit from addressing potential audit findings as early in the process as possible. If you are facing payor or governmental audit liabilities, contact the attorneys on Barclay Damon’s Health Care Controversies Team for a free consultation to see how we can assist you. 

If you have any questions regarding the content of this alert, please contact Linda Clark, Health Care Controversies Team leader, at; Michael Scott-Kristansen, special counsel, at; or another member of the firm’s Health Care Controversies Team. 

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