Last year, President Bush signed the Deficit Reduction Act of 2005, P.L. 109-171 (DRA), which includes several provisions designed to improve federal and state oversight and enforcement actions against fraud and abuse in the Medicaid program. This new law requires providers that receive $5 million or more in Medicaid reimbursement to implement certain policies and changes by January 1, 2007.
Historically, state agencies have investigated and prosecuted Medicaid false claims violations. With the enactment of the DRA, Congress has increased the level of federal participation in combating fraud, waste and abuse in the Medicaid program. The creation of a federal Medicaid Integrity Program, to be staffed with 100 new federal employees and funded with $50 million to $75 million per year, will result in a substantial increase in Medicaid enforcement activity.
The DRA changes the Medicaid enforcement environment in three significant ways:
- Entities that receive more than $5 million in Medicaid funds per year must provide employee education about false claims recoveries and whistleblower protections.
- Each state that passes a false claims act analogous to the federal False Claims Act will receive a 10 percent increase in its share of Medicaid false claim recoveries.
- Centers for Medicare & Medicaid Services (CMS ) will establish and staff a new Medicaid Integrity Program.
1. Entities that receive more than $5 million in Medicaid funds per year must provide employee education about false claims recoveries and whistleblower protections. The DRA obligates Medicaid providers that receive at least $5 million in annual Medicaid payments to develop a compliance policy, including employee education, that covers the False Claims Act. Compliance programs have been a voluntary initiative for participating providers in both Medicare and Medicaid. Now, under Section 6032 of the DRA, any entity that receives $5 million or more per year from Medicaid must do the following.
a. The entity must establish written policies for all employees (including management) and for all contractors and agents explaining:
- The federal False Claims Act
- Other administrative remedies for false claims under federal law
- Any state civil or criminal penalties for false claims
- The so-called "whistleblower" protections afforded under such laws, including the role of these laws in preventing and detecting fraud, waste and abuse in federal health benefit programs
b. Entities subject to this provision also must provide in their written policies detailed provisions regarding their own policies and procedures for detecting and preventing fraud, waste and abuse.
c. In addition, any such entity that has an employee handbook must include a specific discussion of the fraud and abuse laws, the rights of an employee to be protected as a whistleblower and the entity’s procedures for detecting fraud, waste and abuse.
We caution Medicaid providers that the policies and procedures required under the DRA must be implemented by January 1, 2007, without exception. Accordingly, entities subject to the requirement will have to act quickly to ensure compliance. Recent commentary from federal enforcement agencies in the trade press and at industry conferences leads us to believe that federal and state governments intend to be extremely vigilant in identifying noncompliant behavior after the deadline.
2. Each state that passes a false claims act analogous to the federal False Claims Act will receive a 10 percent increase in its share of Medicaid false claim recoveries. With the enactment of the DRA, Medicaid providers soon will face a significantly strengthened second front in the government’s effort to curb fraud, waste and abuse in the Medicaid program. Specifically, Section 6031 of the DRA provides that if a state enacts a false claims act that is at least as stringent as the federal False Claims Act, the federal government will reduce its share of any Medicaid overpayment by 10 percent for any amount recovered under the state’s false claims act. In other words, the state will be entitled to an additional 10 percent of the amount it otherwise would have received from a recovery under the federal False Claims Act.
Though many states already have their own false claims acts, the DRA offers an enticing incentive to states without one to enact such a law and to states that do have one to amend their law, as necessary, to correspond with the federal False Claims Act. For instance, currently, only a small percentage of those states with false claims act have qui tam provisions. The DRA expressly requires that a state’s false claims act:
a. Establishes liability that benefits the state Medicaid program based on false or fraudulent Medicaid claims, as described the federal False Claims Act.
b. Contains provisions that are at least as effective in rewarding and facilitating qui tam actions (whistleblower suits) as those in the federal False Claims Act.
c. Provides for filing an action under seal for 60 days with review by the state attorney general.
d. Imposes a civil penalty in an amount equal to or greater than the amount authorized by the federal False Claims Act.
To take advantage of the increased recovery share offered under the DRA, states must enact a qualifying false claims act by January 1, 2007, though some exceptions apply.
On August 21, 2006, the Office of Inspector General (OIG) for the Department of Health and Human Services published in the Federal Register a list of specific guidelines that it will consider in determining whether a state’s false claims act satisfies the above requirements. States almost certainly will adhere to these guidelines when enacting or amending their false claims acts. Accordingly, Medicaid providers that are required under the DRA to implement a false claims compliance policy and educational program would be wise to consider carefully the OIG’s guidelines when developing their policies.
3. CMS will establish and staff a new Medicaid Integrity Program. The DRA also requires and appropriates funding for CMS to establish and staff a new Medicaid Integrity Program. This is a novel approach for the federal government in its effort to eliminate fraud, waste and abuse in the Medicaid program. Previously, the federal government primarily delegated this responsibility to state Medicaid Fraud Control Units.
Under Section 6034 of the DRA, CMS must develop a comprehensive five-year plan for ensuring the integrity of the Medicaid program and combating fraud and abuse. Specifically, CMS must enter into contracts with qualified entities to (a) perform reviews of providers that furnish items or services under the Medicaid program to determine whether fraud, waste or abuse has occurred, (b) audit claims made under a state Medicaid program, including cost reports and risk contracts, (c) identify overpayments to individuals or entities receiving federal funds and (d) educate providers and managed care entities regarding payment integrity and quality of care.
The federal government will provide $5 million in 2006, $50 million in 2007 and 2008, and $75 million per year thereafter for the operation of the Medicaid Integrity Program. In addition, the DRA requires CMS to hire 100 additional full-time employees to support and assist the states in combating fraud and abuse in the Medicaid program.
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