Update on the Medicare Hospice PPEO Audit Initiative and its Risks

/ Home Health & Hospice / By

(November 3, 2025): During 2024 and 2025, hospice agencies have remained under the government’s enforcement microscope. One survey found that more than one-half of all Medicare hospices reported undergoing more than one audit at the same time. These audits have led to substantial administrative burdens and payment delays.[1] Over the past year, our attorneys have represented multiple hospice agencies nationwide that have been reviewed as part of the Centers for Medicare and Medicaid Services’ (CMS’s) “Provisional Period of Enhanced Oversight” (PPEO) audit initiative. Aimed at curbing Medicare fraud, waste, and abuse, the hospice PPEO audit program has emerged as a key tool for CMS to help ensure that “new”[2] Medicare hospice providers meet stringent compliance standards right from the start. For hospice agencies, grasping the intricacies of the PPEO audit process and its associated risks are essential. This article examines the Medicare PPEO audit process, outlining its regulatory foundations, and the prevalent reasons for denial cited by PPEO audit contractors.

I. Overview of the Hospice PPEO Audit Program:

Under Section 1866(j)(3)(A) of the Social Security Act,[3] the Secretary, Department of Health and Human Services (HHS), has the authority to designate categories of providers or suppliers to receive enhanced oversight. This authority has been further delegated to the CMS Administrator. In 2022, CMS noted that the number of hospices enrolled in the Medicare program significantly increased in the states of Arizona, California, Nevada, and Texas. As CMS subsequently stated, this surge raised “serious concerns about market saturation.”[4] In response, CMS instructed the Medicare Administrative Contractors (MACs) responsible for administering the hospice programs in the four targeted states to initiate enhanced oversight over newly enrolled hospices. This enhanced oversight has included medical reviews that have been conducted by MAC personnel on both a prepayment and postpayment basis on claims submitted by newly enrolled hospice providers[5] as part of the CMS’s PPEO audit initiative.

II. Agencies Targeted under the Hospice PPEO Audit Initiative:

Under the current hospice PPEO audit initiative, newly enrolled hospice agencies are subject to review. Notably, the term “newly enrolled” or “new provider” is quite broad. It includes the following categories of hospice agencies:

  • Newly Enrolled Hospice Agencies. If your hospice received Medicare enrollment approval on or after July 13, 2023, newly enrolled hospices in the states of Arizona, California, Nevada, and Texas will be subject to enhanced oversight under the hospice PPEO audit initiative.[6], [7]
  • Change of Ownership that Meets Requirements of 42 C.F.R. § 489.18. If a certified hospice provider in one of the four targeted states submits a “Change of Ownership” (CHOW) application that meets the regulatory requirements set out under 42 C.F.R. §489.18, the provider is considered to be a new hospice and its claims are subject to review under the hospice PPEO audit initiative.[8]
  • 100% Ownership Change by Submitting a Change of Information Request. If a certified hospice in one of the four targeted states undergoes a 100% ownership change and submits a “Change of Information” request pursuant to 42 C.F.R. §424.516, the hospice will be subject to review under the hospice PPEO audit initiative.[9]
  • Hospices that have Reactivated their Medicare Enrollment and Billing Privileges. Hospices in the four targeted states that have reactivated their billing privileges (in accordance with the requirements of 42 C.F.R. §424.540), are subject to review under the hospice PPEO audit initiative.[10]

By regulation, the effective date of a provisional period of enhanced oversight is the date on which a newly enrolled hospice submits its first claim to the Medicare program.[11] It is not the date that CMS approved the hospice’s enrollment application. Hospice PPEO audits can last from 30 days to one year,[12] during which CMS may impose prepayment medical review and payment caps.

III. Top Denial Reasons in Hospice PPEO Audits:

To assess the primary bases for denial, we have examined the hospice audit activities of Palmetto GBA in Texas.[13] With respect to the PPEO audit program, the following reasons for denial have been regularly cited by Palmetto GBA when reviewing Texas hospice claims:

Texas Hospice PPEO Denial Reasons Cited by Palmetto GBA

Percent of Total Hospice Claim Denials Denial Code(s) Denial Description Partial List of Recommendations to Avoid these Denial Reasons
43% 5FF36
5CF36		 Documentation Submitted Does Not Support Prognosis of Six Months or Less To qualify for coverage and payment, a Medicare beneficiary must have been diagnosed with a terminal illness and a life expectancy of six months or less. To properly document this prognosis and avoid denial, Palmetto GBA recommends the following:

  • Ensure a legible signature is present on all documentation necessary to support the six-month prognosis.
  • Submit documentation for review to provide clear evidence that the beneficiary has a six-month or fewer prognoses, which supports hospice appropriateness at the time the benefit is elected and continues to be hospice appropriate for the dates of service billed.
  • Palmetto GBA has several Local Coverage Determinations (LCDs) guidance publications for some non-cancer diagnoses. Providers should carefully review the diagnosis-specific LCD and ensure that the coverage requirements set out in the guidance are met and documented.
  • If documenting weight loss to demonstrate a decline in condition, include how much weight was lost over what period of time, past and current nutritional status, current weight, and any related interventions.
  • Document any comorbidity, which may further support the terminal condition of the beneficiary and the continuing appropriateness of hospice care.
    References.[14]
14% 56900 Requested Records Not Submitted Timely Under this denial reason, the hospice services billed will not qualify for coverage and payment if the documentation requested by Palmetto has not been submitted for review in a timely fashion. To avoid this denial code, Palmetto GBA recommends the following:

  • Be aware of the due date and the need to submit medical records within time period stated in the document request.
  • Submit the medical records as soon as the document request is received.
  • Monitor the status of your claims in Direct Data Entry (DDE) and begin gathering the medical records as soon as the claim goes to the location of SB6001.
  • Return the medical records to the address on the document request sent by Palmetto. Be sure to include the appropriate mail code or station number. This ensures that your responses are promptly routed to the medical review department. Fax and electronic data submissions may also be accepted – review the request for documents to confirm how the materials may be submitted to the CMS contractor.
  • Gather all of the information needed for the claim and submit it all at one time.
  • Attach a copy of the document request to the responsive materials to be sent to the PPOE contractor.
  • If responding to multiple requests, separate each response and attach a copy of the document request to each individual set of medical records. Make sure each set of medical records is individually identifiable and bound securely to ensure that no documentation is detached or lost.
  • Do not mail packages collect on demand (COD). Palmetto will not accept them.
    References.[15]
10% 5TH99 Billing Errors Under this denial reason, the hospice services billed were determined by the PPOE contractor to not qualify for coverage because the charges have allegedly been billed in error. To avoid this type of denial, Palmetto GBA recommends the following:

  • Ensure accuracy of billing before submitting the claim(s) to Medicare.
  • Submit a corrected UB92 with an 817 or 827 bill type when billing errors are discovered by the hospice agency. If the claim has been selected for medical review, submit the hardcopy corrected UB92 with the records to Palmetto GBA.
    References.[16]
5% 5FFTF
5CFTF		 Face-to-Face Encounter Requirements Not Met Unfortunately, the failure to meet face-to-face encounter requirements is a long-standing reason for denial. To avoid denials on this basis, Palmetto GBA recommends the following:

  • The face-to-face encounter must occur no more than 30 calendar days before the start of the third benefit period and no more than 30 calendar days before every subsequent benefit period thereafter. Specific documentation related to face-to-face encounter requirements must be submitted for review.
  • The hospice physician or nurse practitioner who performs the encounter must attest in writing that he or she had a face-to-face encounter with the patient, including the date of the encounter.
  • The attestation, its accompanying signature, and the date signed, must be a separate and distinct section of, or an addendum to, the recertification form, and must be clearly titled.
  • When a nurse practitioner or non-certifying hospice physician performs the encounter, the attestation must state that the clinical findings of that visit were provided to the certifying physician for use in determining whether the patient continues to have a life expectancy of six months or less, should the illness run its normal course.
  • As a final point with respect to face-to-face requirements, we recommend that you review the FY 2026 Hospice Final Rule.[17] Among its various provisions, the Final Rule finalizes changes to the admission to hospice regulations and the hospice face-to-face attestation requirements under the certification of terminal illness regulations.
    References.[18]
5% 5FFH9
5CFH9		 Physician Narrative Statement Not Present or Not Valid Under this reason, hospice claims have been denied because the physician's narrative statement is not present or, is not valid. To avoid denial under this basis, Palmetto GBA recommends the following:

  • The physician must include a brief narrative explanation of the clinical findings that support a life expectancy of six months or less as part of the certification and recertification forms, or as an addendum to the certification and recertification forms.
  • If the narrative is part of the certification or recertification form, then the narrative must be located immediately prior to the physician’s signature.
  • If the narrative exists as an addendum to the certification or recertification form, in addition to the physician’s signature on the certification or recertification form, the physician must also sign immediately following the narrative in the addendum.
  • The narrative shall include a statement directly above the physician's signature attesting that by signing, the physician confirms that he/she composed the narrative based on his/her review of the patient’s medical record or, if applicable, his or her examination of the patient.
  • The narrative must reflect the patient’s individual circumstances and cannot contain check boxes or standard language used for all patients.
    References.[19]

IV. Collateral Consequences of a Hospice PPEO Audit:

Hospice PPEO audits are more rigorous and less tolerant of coverage and documentation errors than other audit types, such as the current Targeted Probe and Educate (TPE) audits that are currently focusing on home health agencies, hospices, and other Medicare providers. While TPE audits have emphasized provider education and facilitated improvement, hospices that fail a single PPEO audit with fewer than ten claims often find their Medicare billing privileges at risk of being revoked despite PPEO being a multi-round audit process, similar to TPE. Claims denials issued in connection with TPE audit or an audit by a Unified Program Integrity Contractor (UPIC) have multiple opportunities to challenge an adverse finding. Unfortunately, that isn’t the case with hospice PPEO audits. Depending on the CMS contractor overseeing the audits, a hospice agency may only be given a single opportunity to show that its claims qualify for coverage and payment. As our attorneys have seen in hospice PPEO audit cases, Palmetto GBA often conducts a second probe sample audit before proposing that a Texas provider’s billing privileges be revoked. Unfortunately, that isn’t normally the case with California hospice PPEO audits conducted by National Government Services (NGS). NGS often conducts an extremely small sample audit of hospice claims. If a hospice fails this audit, it will more than likely find that the contractor proposes to revoke its Medicare billing privileges. No opportunity to take corrective action is typically permitted by NGS. Agencies can still appeal the denials, but they are going to be doing so during the revocation period.

As of June 2025, CMS contractors administering the PPEO audit initiative have revoked the Medicare billing privileges of 122 hospice agencies in the four states subject to enhanced oversight.

Enhanced Oversight and Enforcement[20]

New hospices and other providers are being subjected to PPEO audits - Liles Parker

Based on the success of the hospice PPEO audit program, CMS is now in the process of expanding this initiative to cover other categories of providers.

V. Reducing Your Hospice Agency’s Risk:

Medicare’s hospice PPEO audit initiative represents a significant shift in regulatory oversight, particularly for affected hospice providers and other newly-enrolled Medicare participating providers. With its stringent requirements, rapid timelines, and potential for severe collateral consequences (often involving the revocation of a hospice’s Medicare billing privileges), it is now more critical than ever that your hospice take proactive steps to better ensure that your claims properly qualify for coverage and payment.

  • Steps to Take Before an Audit is Initiated. Hospice agencies must invest in robust compliance program efforts, maintain meticulous documentation, and foster a culture of continuous improvement in order to proactively prepare for PPEO, TPE, or UPIC audits. In the case of hospice agencies, it isn’t a matter of “Will my hospice’s claims be audited?” Instead, it is a matter of when your organization will be subjected to one or more hospice audit initiatives.
  • How Will Our Hospice Learn of a PPEO Audit? If your hospice’s claims are subjected to review as part of the PPEO audit initiative, you will likely be notified by mail that your hospice is being placed under enhanced oversight. The letter will detail the effective date and duration of the enhanced oversight period, notifying the hospice that CMS will be conducting a medical review of specific claims. As soon as you receive this letter, we strongly recommend that you contact experienced legal counsel for assistance.
Christin Thompson is an experienced health care regulatory lawyer at Liles Parker

Liles Parker attorneys have handled multiple hospice PPEO audits and associated Medicare billing privilege revocation matters. If your hospice claims are under review, get experienced help. Give us a call at +1 (800) 475-1906 or +1 (202) 298-8750 for a free consultation. We represent hospice agencies nationwide in PPEO, TPE, and UPIC audits.

Need help?  Give us a call.  Our experienced health lawyers are also Certified Professional Coders (CPCs) and / or Certified Medical Reimbursement Specialists (CMRSs).  Christin Thompson has extensive experience representing hospice agencies in connection with PPEO, TPE, and UPIC program integrity audits.  Additionally, several of our attorneys have held significant positions as Federal prosecutors with the U.S. Department of Justice. For a free consultation, please give us a call: +1 (800) 475-1906.

  • [1] Hospice News. “Nearly 53% of Hospices Undergo Multiple Audits Simultaneously.” (March 12, 2024). As the article discusses, in a survey of 133 hospices:

    “A majority of providers who responded to the survey indicated that they have undergone more than one audit simultaneously. Most commonly, this was a Targeted Probe and Educate (TPE) in conjunction with a Supplemental Medical Review Contractor (SMRC) . . . About 52.9% reported having multiple audits, each of a different type, within six months of one another, and 31% said they were required to submit the same charts for each of these audits.”

  • [2] Pursuant to 42 CFR §424.540(a), the “Deactivation of Medicare Billing Privileges,” a provider participating in the Medicare program can have their billing privileges deactivated for several reasons. The steps for a provider to have their billing privileges reactivated are outlined in 42 CFR §424.540(b). Importantly, hospice agencies (and other providers) that are reactivating after being in a deactivated state are considered to be “newly enrolling.” As such, they are subject to enhanced oversight under CMS’s hospice PPEO audit initiative. See 88 Fed. Reg. 77676 (November 13, 2023).
  • [3] Under Section 1866(j)(3)(A) of the Social Security Act, the Secretary, Department of Health and Human Services (HHS), has the authority to establish procedures for providing enhanced oversight for new providers and suppliers. As the statute provides:

    (3) Provisional period of enhanced oversight for new providers of services and suppliers.
    (A) In general.—The Secretary shall establish procedures to provide for a provisional period of not less than 30 days and not more than 1 year during which new providers of medical or other items or services and suppliers, as the Secretary determines appropriate, including categories of providers or suppliers, would be subject to enhanced oversight, such as prepayment review and payment caps, under the program under this title, the Medicaid program under title XIX. and the CHIP program under title XXI. (emphasis added).

  • [4] MLM 7867599, titled “Period of Enhanced Oversight for New Hospices in Arizona, California, Nevada, & Texas.” (June 2024).
  • [5] CMS Press Release titled “CMS is Taking Action to Address Benefit Integrity Issues Related to Hospice Care.” (August 22, 2023).
  • [6] If a hospice agency has submitted a Medicare enrollment application before July 13, 2025, but has not received a final approval letter by that date, the hospice will be subject to PPEO audit. See MLM 7867599, Page 2.
  • [7] 42 C.F.R. §424.527(a)(1).
  • [8] 42 C.F.R. §424.527(a)(2).
  • [9] 42 C.F.R. §424.527(a)(3).
  • [10] 42 C.F.R. §424.527(a)(4).
  • [11] 42 C.F.R. §424.527(b).
  • [12] Section 1866(j)(3)(A) of the Social Security Act.
  • [13] Over the last five years, Palmetto GBA has published the results of multiple hospice audits, including, but not limited to, postpayment medical audits, Targeted Probe and Educate (TPE) program audits, prepayment reviews of high-risk hospice claims, and prepayment PPEO reviews.
  • [14] CMS Internet-Only Manual (IOM), Pub. 100-02, Medicare Benefit Policy Manual, Chapter 9, Sections 10 and 40; CMS IOM, Pub. 100-04, Medicare Claims Processing Manual, Chapter 11, Section 10; and Palmetto GBA LCDs.
  • [15] See CMS IOM, Pub. 100-04, Medicare Claims Processing Manual, Chapter 34 and CMS IOM, Pub. 100-08, Medicare Program Integrity Manual, Chapter 3, Section 3.2.3.2.
  • [16] CMS IOM, Pub. 100-04, Medicare Claim Processing Manual, Chapter 11, Section 30.3.
  • [17] FY 2026 Hospice Final Rule.
  • [18] 42 Code of Federal Regulations (CFR), Section 418.22
    CMS IOM, Pub. 100-02, Medicare Benefit Policy Manual, Chapter 9, Section 20.1.
  • [19] 42 CFR, Section 418.22, and CMS IOM, Pub. 100-02, Medicare Benefit Policy Manual, Chapter 9, Section 20.1.
  • [20] Hospice | CMS.GOV/FRAUD. Fast Facts (July 2025).