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Continued: Fraud in New Mexico

September 9, 2013
by Dennis Grantham, Editor-In-Chief
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Prescient legal analysis or “blueprint” for takeover?  

Three years ago, Congress adopted an important, but low-profile provision into the Affordable Care Act. The provision says states "must suspend all Medicaid payments to a provider after the agency determines there is a credible allegation of fraud for which an investigation is pending . . . unless the agency has good cause not to." States that fail to do so are threatened with the loss of their FFP (“federal financial participation” or federal “match”) for the payments in question. In New Mexico, the FFP amounts to 7 of every 10 Medicare dollars paid.  

But regulatory guidance around this provision of the ACA has caused providers worry, since the mechanism for Medicaid payment suspensions changes the way that “due process” — the traditional right of an accused to understand and respond to allegations of wrongdoing — works. Essentially, state Medicaid authorities now have wide discretion to judge the reliability of provider fraud allegations and act accordingly, up to and including a payment halt.

In public statements and court arguments, HSD maintains that its handling of the Medicaid payment freeze is strictly "by the book.” In a 2012 paper, HSD counsel Larry Heyeck analyzed the ACA’s revised payment provisions. This paper, "Payment Holds due to Credible Allegations of Fraud," was subsequently accepted for publication in the December 2012 issue of The Health Lawyer and shared department-wide.)

In the paper, Heyeck reviewed both the new ACA provision (42 C.F.R, Section 455.23) and CMS regulatory guidance. His analysis not only explained the new circumstances under which Medicaid payments could be halted, but anticipated both the problems, and solutions, for the problems that might occur in the aftermath of a payment freeze.  

Under the new law and regulations, Heyeck observed that “the threshold level of certainty” required by a state authority to initiate a payment halt — a “credible allegation of fraud” — is “significantly lower than the 'reliable evidence' threshold of previous law.” Once such an allegation is judged to be credible, he writes that the state faces “a mandatory requirement” to halt payments or risk losing its FFP. He predicts that the new rule means “state Medicaid agencies will be forced to withhold payments … on more providers than ever before” and that “many providers will suffer cash-flow shortages and may ultimately be forced to close.”

Heyeck’s interpretation continues, translating the new regulation into a series of mandates, detailing how states must initiate the payment suspensions, how allegations should be referred to the state’s Medicaid Fraud Control Unit, when providers should be informed of the allegations (after the suspension), and what they must be told about the allegations (a general description). He allows that a provider may appeal a payment halt based on a “good cause” exception, but notes that providers, “without knowledge of specific charges,” are unlikely to argue effectively.  

But his analysis doesn’t stop there. It also foresees the need for states to set up transitional funding and transitional management entities, or “receivers,” as a means of ensuring service continuity should cash-strapped providers close their doors. Today, that funding is a reality: HSD is reallocating an estimated $17 million to pay the costs of five transition management teams from Arizona through yearend. These transitions typically begin with an agency-wide job fair in which former employees are invited to reapply for their old jobs with the new agency organization. Many, but not all former employees are rehired — HSD reported a 90% rehire rate — with the state footing the costs of transition.

In a public forum held to discuss the transition of Hogares, one of the 15 affected agencies, New Mexico State Senator Jerry Ortiz y Pino, MSW, described Heyeck’s analysis as a “blueprint for what’s going on now,” adding, “it’s pretty clear that the administration was planning this as far back as a year ago.” Ortiz y Pino suggested at the same forum that the payment suspension is part of a larger plan to replace local behavioral health providers so that five new managed care organizations can run the system more economically starting next year.

Jana Sperling, who served as OptumHealth New Mexico’s vice president for of consumer and family affairs until November 2012, agrees. She asserts that the 15 agencies and CEOs facing fraud allegations were targeted for audits in part because of their strong political and community ties, both locally and at the state level. In the runup to the state’s January 2014 launch of Centennial Care — which has contracted the responsibility for administering the state’s Medicaid Expansion to five regionally-based managed care organizations — she maintains that “if you replace fifteen influential agencies with five entities that don’t have any history in New Mexico, it will be easier to tell them what to do.”

HSD’s Kennicott denied that the state had a “nefarious” plan with regard to bringing in out-of-state transition management teams, but acknowledged that the state “needed backup plans in place to ensure continuity of care for consumers, which remains our number one priority.”

Latitude for exceptions

The ACA’s new payment provisions were intended to put teeth into federal and state fraud prevention and recovery efforts. They have certainly done so, but not without some confusion, says attorney Falcone.