2011: The Year of Compliance – Medicare Payment Suspension Actions

A Medicare payment suspension action can destroy your practice

(January 26, 2011): Medicare payment suspension action can prove disastrous for your practice or home health agency. How did we get to this point? The recent debate over healthcare in this country has drawn attention to healthcare costs as well as the relationship between healthcare providers and the Federal government. With healthcare costs steadily on the rise, the government has been searching for ways to contain costs in Federal and State healthcare programs. These cost control efforts have resulted in a substantial focus on reducing healthcare fraud, which the federal government estimates could account for up to 10% of the country’s annual healthcare expenditures (or approximately $226 billion per year).[1] While the government has always possessed the authority to sanction providers for healthcare fraud and related activities, the newly-enacted Health Care Reform legislation (collectively referred to as the "Affordable Care Act" (ACA)) dramatically expands these regulatory powers. One of the most potent anti-fraud tools available to the government- specifically the Center for Medicare and Medicaid Services (CMS)- is the suspension of payments to providers. This article will provide a brief overview of CMS’s Medicare suspension authority and the requisite procedures, discuss the new relevant provisions of the ACA, and then conclude with some advice for providers seeking to avoid suspension actions.

I. CMS' Medicare Payment Suspension Authorities and Procedures:

Historically, CMS has been empowered to suspend payments to Medicare providers in three circumstances:

Fraud or willful misrepresentation;

An overpayment of an undetermined amount has been identified; or

Payments that have been made (or are scheduled to be made) may be incorrect. (42 C.F.R. §405.371(a)(1).

Suspension actions can be initiated several ways. These include: (1) Suspensions requested by a Medicare contractor (generally recommended by a Zone Program Integrity Contractor (ZPIC) or Program Safeguard Contractor (PSC)), (2) Suspensions initiated by CMS, or (3) Suspensions requested by law enforcement (such as the Office of Inspector General (OIG) or the Department of Justice (DOJ). Typically, the ZPIC or PSC would then provide CMS with a draft Medicare suspension notice, along with a summary of the information upon which the Medicare suspension action has been based. The suspension notice to the health care provider must include

The specific reason for the Medicare suspension;

The extent of the Medicare suspension (such as all claims, certain types of claims, 100% suspension, or partial suspension);

A statement that the Medicare suspension is not appealable;

A statement that CMS has approved of the Medicare suspension action;

The date on which the Medicare suspension will begin;

The items and services subject to the Medicare suspension;

The expected duration of the Medicare suspension action;

A statement that the provider may submit a rebuttal within 15 days of the Medicare suspension letter.

Information on where the provider is to mail the rebuttal. (See generally, CMS, MPIM §

A. CMS’ Role in Approving a Medicare Suspension Action.

Once a Medicare suspension letter has been drafted, CMS will review it and determine whether the provider should be notified before or after the effective date of the Medicare payment suspension. If a provider is targeted for Medicare payment suspension because of fraud, deliberate misrepresentation, or harm to Medicare trust funds, then the provider will be notified of the Medicare payment suspension on or after the effective date. Health care providers who are suspended for all other reasons are notified at least 15 days prior to the suspension taking effect. Notably, the OIG found that only three of the providers suspended during this period were given advance notice. In other words, it appears that all but three providers were suspended with no advance notice, and were likely suspected of fraud or willful misrepresentation.

B. Opportunity to Appeal a Medicare Payment Suspension Action.

Notably, there is not an administrative appeals mechanism available for providers to challenge a suspension action. At most, a provider can submit a "rebuttal" letter to CMS detailing why the proposed Medicare payment suspension should not take effect or should be lifted. A rebuttal letter must be submitted within 15 days of the suspension notice. CMS contractors will then review the provider’s rebuttal, draft a response, and submit the proposed response (along with the provider’s rebuttal) to CMS for approval. From a practical standpoint, it has been our experience that CMS rarely changes its position and cancels the planned Medicare suspension action.

C. Length of Medicare Payment Suspensions.

The length of a Medicare suspension of payments period is usually 180 days, but this can be extended under certain circumstances.

D. Having a Medicare Payment Suspension Action Lifted.

During the suspension period, CMS contractors will request that the provider submit medical records relevant to any suspect claims being examined by CMS. A Medicare contractor (typically a ZPIC or PSC) will then analyze these medical records in order to determine the amount of any improper payments made to the provider, including overpayments. Once the overpayment has been calculated, a provider’s Medicare Administrative Contractor will issue a demand letter to the provider requesting a refund of the overpayment amount. In some instances, once CMS has ascertained the nature and extent of any overpayment, the suspension action will be lifted.

Health care providers may continue to submit claims during a suspension period, but payment action for these claims will not be taken until the ZPIC / PSC can determine the nature and amount of any overpayment that may be owed. Any claims found to qualify for coverage and payment are usually used to offset the amount of the overpayment determined by the ZPIC / PSC. Excess funds are then distributed to the provider.

II. Recent Analysis of Prior Medicare Payment Suspension Actions Taken:

On November 1, 2010, the OIG released a report for CMS entitled The Use of Payment Suspensions to Prevent Inappropriate Medicare Payments.[3] The goal of this report was to evaluate CMS’ use of suspension actions taken in 2007 and 2008 and assess CMS’ procedures for implementing payment suspension actions. OIG analyzed 253 payment suspensions made during these two years.

A. General Overview of Medicare Payment Suspension Actions Taken in 2007 and 2008.

The OIG found that 85% of the providers suspended in 2007 and 2008 were Medicare Part B providers. Additionally, 79% of these providers were located in four states: Florida, California, Michigan, and Puerto Rico. They further found that CMS contractors generally complied with the suspension "notice" requirements set forth in CMS rules and regulations, providing all of the required elements in the suspension notice in 96% of the actions examined. Notably, only 16% of the providers suspended submitted a "rebuttal" to the suspension notice. Notably, the average length of time before CMS approved a proposed suspension was four calendar days, and more than half of these suspensions were extended. Notably, the report explained that many suspensions are extended because CMS contractors needed additional time to calculate overpayments for reasons ranging from delayed receipt of medical records[4] to the complexity of the analysis required. As OIG found, the median overpayments assessed in connection with payment suspension actions taken were quite large. The OIG found the following:

Overpayments Assessed in Connection with Medicare Payment Suspension Actions Taken During 2007 and 2008
Type of Health Care Provider Number of Providers Suspended Median Alleged Overpayment Assessed
Part A 21 $1,645,026
Part B – DMEPOS 57 $1,237,153
Part B –non-DMEPOS 65 $1,072,338

B. Reasons for Medicare Payment Suspension Actions.

OIG reported that the great majority of suspensions that took place between 2007 and 2008 "exhibited characteristics that suggest fraud." In fact, payment suspensions taken during this period were almost all used "as a tool to fight fraud." The OIG based this conclusion on the following:

"99% of suspension notices were sent to the provider on or after the effective suspension date, indicating that fraud was a consideration in the suspension action."

"74% of suspended providers supplied information suggesting questionable billing patterns, such as spikes in multiple claims submitted for the same beneficiary or extensive services provided within a very short time frame."

"63% of suspensions involved complaints or information from beneficiaries raising concerns about services they never received or that were medically unnecessary."

C. CMS Guidance on Medicare Payment Suspensions Has Been Inconsistent.

The OIG noted some documents supplied by the CMS to provide guidance on payment suspensions are inconsistent or incomplete. Some information that the OIG identified as needing revision includes:

"The CMS Program Integrity Manual (PIM) mandates that contractors requesting suspension submit to CMS a draft of the suspension notice along with "other supportive information" when requesting suspension. However, the manual fails to define or provide examples for the phrase "other supportive information.""

" The model suspension notice contained in the PIM has not been updated since 2000. Accordingly, the notice provides an incorrect summary of the suspension process."

The OIG report concluded that, based on the data reviewed, Medicare payment suspensions were used almost exclusively as a tool to fight fraud in 2007 and 2008. The report did not offer any recommendations, but it did note that the PPACA dramatically expanded CMS’s authority to suspend Medicare payments.

III. Health Care Reform and Medicare Payment Suspensions:

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively referred to as the Affordable Care Act or "ACA"), was signed into law on March 23, 2010. Among its provision, the ACA further expanded CMS’ ability to take payment suspension actions. In addition to the three suspension criteria discussed above, ACA now permitted CMS to suspend payments based on credible allegations of fraud unless there is good cause not to suspend such payments. The seemingly vague language and potentially broad scope of this rule has many providers concerned about the threat of payment suspensions.

A. Proposed Regulations.

The ACA requires the Secretary, HHS to prepare new regulations implementing the provisions of the ACA, including the new payment suspension rules. On September 23, 2010, HHS issued a proposed regulation which defines a "credible allegation of fraud" as allegations from any source, including:

"Fraud hotline complaints."

"Claims data mining."

"Provider audits."

"Civil false claims cases."

"Law enforcement investigations."

As set out in the Proposed Rule, an allegation is "credible" when it has an "indicia of reliability". Unfortunately, HHS does not supply any additional guidance as to the meaning of potentially vague terms, such as "source" or "indicia of reliability." Indeed, HHS even appears to concede the ambiguity of these terms; the proposed regulation states "Many issues related to this definition will need to be determined on a case-by-case basis by looking at all the factors, circumstances, and issues at hand".

This new regulation contains one important limitation, namely the "good cause" exception. Even in cases involving credible allegations of fraud, CMS may continue payments if there exists some good cause for doing so. In the proposed regulation, HHS gives several examples of what could constitute "good cause’ under this standard:

The possibility that payment suspension will alert a violator to an investigation or inquiry;

The possibility that payment suspension will expose whistleblowers or confidential sources;

Where payment suspension may jeopardize beneficiary access to necessary items or services;

Where remedies other than payment suspension available to CMS are more expeditions or effective in protecting Medicare funds; or

Where payment suspension would "not be in the best interests of the Medicare program."

Aside from its broad sweep and built-in exception, this new credible allegation of fraud rule is distinct from the other bases for payment suspensions in three critical respects. To begin with, CMS is required to consult with OIG in determining whether a credible allegation of fraud exists. This collaboration is not required before CMS suspends payment on any other basis, and OIG has no formal role in imposing such suspensions. Additionally, as discussed above, the other suspension criteria have 180-day time limits (which, under certain circumstances, can be extended), while the credible allegation of fraud rule does not have any such time restrictions. Suspensions could remain effective indefinitely as OIG conducts its investigation into the fraud allegations. Finally, a payment suspension for a credible allegation of fraud may be lifted upon the resolution of the fraud investigation, which occurs when "a legal action is terminated by settlement, judgment, dismissal, or [dropped for lack of evidence]." Conversely, payment suspensions for other reasons are terminated upon refund of any assessed overpayment to CMS.

IV. Recommendations for Providers:

Medicare payment suspensions can dramatically impact and disrupt a provider’s healthcare practice. Based on the report published by OIG and in consideration of the new regulations promulgated by HHS, below are some recommendations for avoiding suspension actions.

A. Engage Experienced Legal Counsel.

In light of both the seriousness and complexity presented, it is strongly recommended that providers facing a payment suspension action immediately engage experienced counsel. As you will recall, almost all of the suspension actions pursued by Medicare contractors, OIG and DOJ involve allegations of fraud or deliberate misrepresentation. Therefore, care should be taken to ensure that the rights of the health care provider and its staff are properly protected.

B. Submit a Rebuttal.

The OIG report noted that only 16% of providers suspended between 2007 and 2008 submitted a rebuttal to the suspension notification. While a rebuttal does not guarantee that CMS will not proceed with the suspension, it does give the provider an opportunity to explain any of the potential mistakes or errors that drew the attention of CMS. Additionally, it is critical to keep in mind that suspension actions are not appealable; once a suspension is imposed, there is no recourse for the provider. A rebuttal is a provider’s only opportunity to be heard prior to imposition of the suspension.

C. Timely Provide Medical Records When Requested by CMS.

As discussed above, once a suspension has been imposed CMS will request medical records from the provider in order to evaluate the related claims for any potential overpayments. In the OIG report, the authors noted that suspensions were often extended beyond the initial 180-day time period for a variety of reasons, one of which was the provider’s failure to timely submit medical records. It is possible that providers who comply with CMS medical records requests as soon as possible will see their cases resolved more quickly and their suspensions lifted without any extension. Additionally, providers should thoroughly organize medical records for complex cases so that CMS contractors can review the records more efficiently and therefore resolve the suspension action.

D. Credible Allegations of Fraud Can Originate from Practically Anywhere.

Because the proposed regulations regarding credible allegations of fraud are exceedingly broad and vague, it is difficult to supply guidance to providers concerned about compliance with this new rule. However, one important principle to keep in mind is that, under the definition proposed by HHS, a credible allegation can come from any source. This includes patients, employees, or other providers. Therefore, it is extremely important for providers to be conscientious so that their conduct does not give rise to any inferences of fraud.

Robert Liles Healthcare Lawyer

Robert W. Liles and other Liles Parker attorneys have extensive experience representing health care providers in connection with a wide variety of administrative, civil and criminal health care fraud enforcement matters -- including Medicare suspension of payment actions. Should you have questions regarding this article, please give us a call. Initial consultations are free. Robert can be reached at 1 (800) 475-1906.

  • [1] Federal Bureau of Investigation, Financial Crimes Report to the Public 2007, available at http://www.fbi.gov/stats-services/publications/fcs_report2007/.
  • [2] For example, if a government official is unable to complete an examination of information submitted by a suspended provider or the Department of Justice is investigating potential criminal charges or civil actions, then the suspension may be extended for 180 days. If OIG is considering administrative action against the provider- such as exclusion from participation in Medicare or the assessment of civil monetary penalties- then the suspension may be extended indefinitely.
  • [3] Center for Medicare and Medicaid Services, The Use of Payment Suspensions to Prevent Inappropriate Medicare Payments, Report No. OEI-01-09-00180 (Nov. 2010).
  • [4] The report states that 55% of suspended providers never provided CMS contractors with any medical records at all.