BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 1529
AUTHOR: Alquist
AMENDED: March 29, 2012
HEARING DATE: April 18, 2012
CONSULTANT: Bain
SUBJECT : Medi-Cal: providers: fraud.
SUMMARY : Reduces the legal standard the Department of Health
Care Services (DHCS) uses when considering evidence to deny
continued enrollment, suspend a provider, or suspend payments to
a provider to a "credible allegation of fraud;" requires claims
for reimbursement from the Medi-Cal program to identify the
ordering or prescribing provider; requires individuals who
order, refer or prescribe to Medi-Cal beneficiaries to enroll as
Medi-Cal providers; requires individuals enrolling as Medi-Cal
providers to submit fingerprints and their date of birth, and
requires corporations to submit their taxpayer identification
number and all business address locations and post office box
addresses; establishes an application fee for a limited number
of providers seeking to enroll in the Medi-Cal program;
permanently bars providers terminated under Medicare, Medicaid
or the Children's Health Insurance Program (CHIP) from the
Medi-Cal program; allows DHCS to deactivate a Medi-Cal provider
in certain circumstances; requires, if an unannounced site visit
is conducted by DHCS of any enrolled provider, the provider to
permit access to any and all of their provider locations;
requires DHCS to establish a temporary moratorium on enrollment
on providers if the federal government has done so to the same
group of providers; requires DHCS, at minimum, to utilize
federal regulations in determining a provider's or applicant's
categorical risk of fraud; and allows DHCS to enter into
contracts with one or more eligible Medicaid Recovery Audit
Contractors (RACs) under a specified provision of federal law.
1. Overview.
State law governing Medi-Cal and federal law and regulations
contain provisions to address fraud in the Medicaid program. For
example, existing state law requires an applicant or provider
seeking to provide services in the Medi-Cal program, to submit a
complete application package for enrollment, continuing
enrollment, enrollment at a new location or a change in
location. In addition, existing law authorizes DHCS, upon
Continued---
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receipt of reliable evidence of fraud or willful
misrepresentation by a provider, among other things, to withhold
payment for any goods, services, supplies, or merchandise.
Existing law also prohibits DHCS from enrolling any applicant
that has been convicted of any felony or misdemeanor involving
fraud or abuse in any government program.
The Patient Protection and Affordable Care Act (Public Law
111-148), as amended by the Health Care and Education
Reconciliation Act of 2010 (Public Law 111- 152) (collectively
known as the Affordable Care Act or ACA), makes a number of
changes to the Medicare and Medicaid (Medi-Cal in California)
programs and CHIP (Healthy Families Program in California) that
enhance the provider and supplier enrollment process to reduce
fraud, waste, and abuse in the programs. Specifically, the ACA
establishes: (1) procedures under which screening is conducted
for providers of medical or other services and suppliers in the
Medicare program, providers in the Medicaid program, and
providers in CHIP; (2) an application fee to be imposed on some
providers and suppliers; (3) temporary moratoria that the
federal Department of Health and Human Services (DHHS) Secretary
may impose if necessary to prevent or combat fraud, waste, and
abuse under the Medicare and state Medicaid programs and CHIP;
(4) requirements that Medicaid agencies must terminate any
provider that is terminated by Medicare or the state's Medicaid
program; and, (5) requirements for suspensions of payments
pending credible allegations of fraud in both the Medicare and
Medicaid programs.
This bill is sponsored by DHCS to amend California state law
with the ACA-required federal regulations relating to the
screening, enrollment, payment suspensions and sanctions of
state Medicaid providers. DHCS states it is sponsoring this bill
because it does not have the statutory authority to implement
the new federal requirements for the provider screening,
enrollment, sanctions, payment suspensions and overpayments or
underpayments associated with Medicaid providers, and this bill
will ensure that DHCS has the legal authority to implement the
new measures required by federal regulations.
This 55-page bill makes numerous changes. This analysis takes
each major policy area affected by this bill, describes existing
state law, the related federal requirement (if applicable), the
proposed change to state law, and DHCS' rationale for the
proposed change.
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2. Change of standard to credible allegation of fraud in Health
& Safety Code.
Federal regulations require state Medicaid agencies to suspend
all Medicaid payments to a provider after the agency determines
there is "a credible allegation of fraud" for which an
investigation is pending under the Medicaid program against the
individual or entity, unless the agency has good cause not to
suspend payments or to suspend payment only in part. A "credible
allegation of fraud" is defined in federal regulations as an
allegation from any source, including, but not limited to, the
following:
§ Fraud hotline complaints.
§ Claims data mining.
§ Patterns identified through provider audits, civil false
claims cases, and law enforcement investigations. Allegations
are considered to be credible when they have indicia of
reliability and the state Medicaid agency has reviewed all
allegations, facts, and evidence carefully and acts
judiciously on a case-by-case basis. (Indicia of reliability
is not defined in the federal regulations, but the Centers
for Medicare & Medicaid Services ÝCMS] indicates it expects
states to gauge the credibility of allegations after
reviewing all allegations, facts, data, and evidence
carefully and that state action will be exercised judiciously
on a case-by-case basis.)
Existing state law contains a higher standard than the new
federal standard of "a credible allegation of fraud" for health
care programs administered by DHCS. For example, existing state
law:
§ Requires the DHCS Director, when a letter or order of denial
of continued enrollment or suspension of any type or
duration, based upon fraud or abuse, or when a withholding of
payments, based upon "reliable evidence of fraud or willful
misrepresentation," is issued by DHCS to a provider, to
review the evidence supporting the denial of continued
enrollment, suspension, or withholding of payments.
§ Permits the Director to deny continued enrollment, suspend,
or withhold payments to the provider with respect to those
other health care programs if, in the opinion of the
Director, the evidence shows "a pattern or practice of fraud,
abuse, or willful misrepresentation" that, if replicated in
any other health care program administered by DHCS, could
cause either fiscal loss to the state or harm to any
participant.
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§ Permits the Director to deny the application of an applicant
or provider to participate in any health care program
administered by DHCS when, based upon fraud or abuse, the
applicant or provider has been denied continued enrollment
in, or suspended from, any health care program administered
by DHCS, or has had payments withheld based upon reliable
evidence of fraud or willful misrepresentation in connection
with any health care program administered by DHCS, and
remains ineligible to participate.
This bill :
§ Reduces the legal standard the DHCS Director uses when
considering evidence to deny continued enrollment, suspend
providing Medi-Cal services, or suspend payments to a
provider from a "pattern or practice of fraud, abuse, or
willful misrepresentation" to a "credible allegation of
fraud." In addition, this bill deletes the requirement in
existing law that the Director consider that the fraud, if
replicated in other programs administered by DHCS, could
cause either fiscal loss to the state or harm to any
participant when deciding whether to deny enrollment, suspend
providing Medi-Cal services, or withhold payment.
§ Reduces the legal standard the DHCS Director uses when
deciding whether to deny an application of an applicant or
provider to participate in any health care program
administered by DHCS based upon fraud or abuse when the
provider has been denied continued enrollment or suspended,
from one based on "reliable evidence of fraud or willful
misrepresentation in connection with any health care program
administered by DHCS" to "a credible allegation of fraud."
§ Delete references to "withholding of payments," and replaces
that phrase with "suspension of payments" throughout the bill
to conform to language used in federal regulations.
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA and to
mirror the language in the ACA. Changing "withholding" and
"withholding of payments" to "suspension" and "payment
suspension" is not intended as a substantive change and conforms
to language used in the ACA regulations.
1. Change of standard to credible allegation of fraud specific
to Medi-Cal.
Existing law authorizes DHCS, upon receipt of reliable evidence
that would be admissible under the administrative adjudication
provisions of the Administrative Procedure Act (APA) of fraud or
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willful misrepresentation by a provider under the Medi-Cal
program or the commencement of a suspension, to take specified
actions, including collecting overpayments identified through an
audit or examination and withholding payment
This bill changes the legal standard from "reliable evidence
that would be admissible under the APA of fraud or willful
misrepresentation" to "a credible allegation of fraud." This
bill requires the provider to be temporarily placed under
payment suspension, unless it is determined there is a good
cause exception, as defined, not to suspend the payments or to
suspend them only in part.
Existing state law authorizes DHCS to withhold payment for any
goods, services, supplies, or merchandise. Existing law requires
DHCS to notify the provider within five days of any withholding
of payment under this provision.
This bill allows DHCS to delay notification to the provider by
30 days if it is requested to do so in writing by any law
enforcement agency, which can be renewed in writing up to two
times and in no event, may exceed 90 days. This bill changes
references to "payment withholding" to "payment suspension" and
revises the wording of the notice to the provider.
This bill allows DHCS to lift a payment suspension when a
resolution of an investigation for fraud or abuse occurs.
This bill requires an allegation of fraud to be considered
credible by DHCS if it exhibits indicia of reliability as
recognized by state or federal courts or by other law sufficient
to meet the constitutional prerequisite to a law enforcement
search or seizure of comparable business assets.
This bill requires the Department of Justice (DOJ) and any other
law enforcement agency that has accepted referrals for
investigation from DHCS to submit a report on a quarterly basis
to DHCS listing each referral and stating whether the referral
continues to be under investigation and whether it involves a
credible allegation of fraud. This bill allows DHCS, if DOJ or a
law enforcement agency fails to submit a report, to request the
report from DOJ or the law enforcement agency on no more than a
quarterly basis. This bill requires DOJ or the law enforcement
agency, as applicable, to provide the report within 30 days of
the request.
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This bill exempts from public disclosure under the California
Public Records Act a report, request, or notification submitted,
but permits these records to be disclosed to law enforcement
agencies or other government entities that execute a specified
agreement.
This bill revises the definition of "provider" and would define
"good cause exception" as a reason determined by DHCS that falls
under a specified provision of federal regulations. This bill
defines "law enforcement agency" to include any agency employing
peace officers, as defined in existing law.
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA.
DHCS indicates in the previous 12 months, its Medical Review
Branch has issued 35 Payment Withhold (Payment Suspension)
sanctions.
2. Claims for reimbursement.
Existing state law requires each claim for reimbursement from
the Medi-Cal program to identify the place of services and the
rendering provider.
Federal regulations require the state Medicaid agency to require
all claims for payment for items and services that were ordered
or referred to contain the National Provider Identifier (NPI) of
the physician or other professional who ordered or referred such
items or services.
This bill requires that each claim for reimbursement from the
Medi-Cal program to identify the ordering or prescribing
provider (in addition to the rendering provider). In addition,
this bill deletes the statutory requirement that Medi-Cal issue
provider numbers.
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA, and to
delete an obsolete requirement that Medi-Cal issue provider
numbers, as it no longer does so.
3. Provisions requiring additional providers to enroll as
Medi-Cal providers.
Existing state Medi-Cal law defines a "provider" and an
"applicant" and requires applicants and providers seeking to
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enroll in Medi-Cal who are licensed under the Business and
Professions Code, such as physicians, dentists, pharmacists,
optometrists, nurse practitioners, and physician assistants (or
a corporation of such health care providers), to be enrolled as
either an individual provider or as a rendering provider in a
provider group. Existing law does not specifically include
ordering, referring or prescribing individuals within the
definition of applicant or provider.
Federal regulations require state Medicaid agencies to require
all enrolled providers to be screened, and require all ordering
or referring physicians or other professionals providing
services under Medicaid to be enrolled as participating
providers. In meeting this requirement, states can rely on the
results of the provider screening performed by Medicare
contractors, or other states' Medicaid agencies or CHIP.
This bill expands the definitions of "provider" and "applicant"
to include "ordering, referring or prescribing individuals"
within the definition of "provider" and "applicant."
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA. The
practical effect of this change and the NPI requirement
described previously are to require providers who order, refer
or prescribe to a Medi-Cal beneficiary to enroll as a Medi-Cal
provider through the DHCS' Provider Enrollment Division (PED).
An example of an ordering or prescribing provider would be a
physician who orders or prescribes prescription medication,
durable medical equipment (DME), lab work, or diagnostic
imaging.
An example of a referring physician would be when a patient is
evaluated by an ear, nose and throat specialist (a physician)
who determines that patient needs to be evaluated for hearing
aids and refers that patient to audiologist for those services.
When the audiologist submits a claim for their services, the
claim form must include the enrolled NPI of the ear, nose and
throat physician who referred the patient to the audiologist.
Under the federal regulations, in order for the audiologist,
pharmacist, DME provider, lab or imaging provider to be
reimbursed by Medi-Cal, the ordering, referring or prescribing
provider must also be enrolled as a Medi-Cal provider. This
provision is likely to increase the number of providers
enrolling through PED.
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4. Medi-Cal provider application information requirements.
State law requires, in order to be enrolled as a Medi-Cal
provider, or for enrollment as a provider to continue, an
applicant or provider may be required to sign a provider
agreement and to disclose all information as required in federal
Medicaid regulations and any other information required by DHCS.
Federal regulations require specified disclosures, including the
date of birth and Social Security Number (in the case of an
individual) or other tax identification number (in the case of a
corporation), with an ownership or control interest in the
disclosing entity (or fiscal agent or managed care entity) or in
any subcontractor in which the disclosing entity (or fiscal
agent or managed care entity) has a five percent or more
interest.
This bill requires applicants, providers, and persons with an
ownership interest to submit their date of birth, and would
requires corporations with an ownership or control interest, as
defined in federal Medicaid regulations, to submit their
taxpayer identification number and all business address
locations and post office box addresses.
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA.
5. New provider application fee for a limited number of
providers.
Existing state law does not require an enrollment fee as part of
its Medi-Cal provider enrollment process.
Federal regulations require states, beginning on or after March
25, 2011, to collect the applicable application fee prior to
executing a provider agreement from a prospective or
re-enrolling provider. There are several exemptions in the
federal regulations from paying the fee, including the
following:
§ Individual physicians or non-physician practitioners.
§ Providers enrolled in either Medicare or another states'
Medicaid program or CHIP who have paid the applicable
application fee to either a Medicare contractor or another
state.
This bill requires DHCS to collect a Medi-Cal application fee
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for enrollment, revalidation of enrollment, enrollment at a new
location, or a change in location. This bill would prohibit the
application fee from being collected from individual physicians
or non-physician practitioners, from providers that are enrolled
in Medicare or another state's Medicaid or CHIP, from providers
that submit proof that they have paid the applicable fee to a
Medicare contractor or to another state's Medicaid program, or
pursuant to an exemption or waiver pursuant to federal law.
This bill requires the application fee collected to be in the
amount calculated by the federal CMS in effect for the calendar
year during which the application for enrollment is received by
DHCS.
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA.
DHCS indicates the application fee for 2012 is $523, and this
amount is updated annually by the federal government. The
application fee is collected upon enrollment or re-enrollment,
or when an application is submitted to enroll a new location or
to request a change in location. The fee is a one-time fee
(unless the provider relocates), and a provider who has paid the
fee for another state's Medicaid program, another state's CHIP
program or Medicare does not have to pay the fee. DHCS'
preliminary estimate is that it expects to collect minimal
revenue from the fee, likely less than $600,000.
1. Fingerprint requirement.
Existing state law does not require DHCS to deny a Medi-Cal
provider enrollment application for failure to submit
fingerprints.
Federal regulations require state Medicaid agencies to terminate
or deny enrollment if the provider, or any person with a five
percent or greater direct or indirect ownership interest in the
provider, fails to submit sets of fingerprints in a form and
manner to be determined by the
Medicaid agency within 30 days of a CMS or a state Medicaid
agency request, unless the state Medicaid agency determines that
termination or denial of enrollment is not in the best interests
of the Medicaid program and the state Medicaid agency documents
that determination in writing.
This bill requires DHCS to deny an application package for
failure to submit fingerprints as required by federal
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regulations. This bill requires DHCS to deactivate a provider
and all business addresses of an applicant or provider whose
application is denied because of failure to submit fingerprints,
and requires DHCS to remove the applicant or provider from
enrollment in the Medi-Cal program.
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA.
2. Resubmitted Medi-Cal provider applications.
Existing state law requires DHCS, if a Medi-Cal application
package that was noticed as incomplete is not resubmitted with
all requested information and documentation within 60 days of
the date on the DHCS notice, to deny the application package.
Existing law allows the applicant or provider to reapply by
submitting a new application package that is required to be
reviewed de novo (starting over as a new application). Existing
state law makes a provider subject to deactivation of the
provider's number and all of the business addresses used by the
provider if the failure to resubmit is by a provider applying
for continued enrollment.
This bill allows DHCS to deactivate the provider's number and
all of the business addresses used by the provider in the
circumstances described above. In addition, this bill allows
DHCS to deactivate any currently enrolled provider, and not just
providers applying for continued enrollment.
Note: DHCS indicates the purpose of this change and the change
to background checks described below is to implement an ACA
requirement and to provide DHCS discretion in implementing that
requirement so that DHCS would not have to deactivate an
existing provider with multiple locations (such as a chain
pharmacy that is opening a new store) when the provider fails to
complete an application for a new location. DHCS indicates
federal regulations give DHCS discretion in these situations
based on a DHCS determination that the deactivation would not be
in the best interest of the Medi-Cal program.
3. Background checks, inspections or visits.
Existing state law requires DHCS, if DHCS exercises its
authority to conduct background checks, pre-enrollment
inspections, or unannounced visits, to provide the applicant or
provider with notice from DHCS after the conclusion of the
background check, pre-enrollment inspection, or unannounced
visit of either of the following:
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§ The applicant or provider is granted provisional provider
status for a period of 12 months, effective from the date on
the notice.
§ Discrepancies or failure to meet program requirements, as
prescribed by DHCS, have been found to exist during the
pre-enrollment period.
The notice is required to identify the discrepancies or
failures, whether remediation can be made, and if so, the time
period within which remediation must be accomplished. Failure to
remedy discrepancies and failures, or notification that
remediation is not available, results in denial of the
application. The applicant or provider may reapply by submitting
a new application package that is required to be reviewed de
novo.
Existing state law makes a provider subject to deactivation of
the provider's number and all of the business addresses used by
the provider if the failure to remedy is by a provider applying
for continued enrollment.
This bill would bill instead allow DHCS to deactivate the
provider's number and all of the business addresses used by the
provider, instead of making the provider subject to
deactivation. In addition, DHCS would be allowed to deactivate
any currently enrolled provider, and not just providers applying
for continued enrollment.
1. Provider termination based on termination in Medicare or
another state's Medicaid or CHIP program.
Federal regulations require the state Medicaid agency to deny
enrollment or terminate the enrollment of any provider that is
terminated on or after January 1, 2011, under Medicare, or the
Medicaid program or CHIP of any other state.
This bill prohibits DHCS from enrolling providers in the
Medi-Cal program if it is discovered that a provider has been
terminated under Medicare, or under Medicaid or a CHIP program
of another state. This bill requires DHCS to terminate such a
provider. This includes deactivation of the provider's numbers
and all business addresses used to obtain reimbursement from the
Medi-Cal program.
Existing state law prohibits an applicant or provider from
reapplying for enrollment or continued enrollment in the
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Medi-Cal program, or for participation in any health care
program administered by DHCS or its agents or contractors, for a
period of three years from the date an application package is
denied or provisional provider status is terminated. Under
existing law, there are exceptions to this three-year bar that
permanently prevent a provider from enrollment.
This bill allows a provider terminated under Medicare, Medicaid
or CHIP to reapply to be a Medi-Cal provider only when a
temporary suspension is lifted after a resolution of an
investigation for fraud or abuse occurs.
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA.
2. Temporary suspension.
Existing law requires, if it is discovered that a provider is
under investigation by DHCS or any state, local, or federal
government law enforcement agency for fraud or abuse, that
provider to be subject to temporary suspension from the Medi-Cal
program. This includes temporary deactivation of the provider's
number, including all business addresses used by the provider to
obtain reimbursement from the Medi-Cal program.
Existing state law requires the DHCS Director to notify the
provider in writing of the temporary suspension and deactivation
of the provider's number, which takes effect 15 days from the
date of the notification.
This bill allows DHCS to lift a temporary suspension when a
resolution of an investigation for fraud or abuse (as defined
below) occurs.
Note: DHCS indicates in the previous 12 months, its Medical
Review Branch has issued 77 temporary suspensions.
3. Definition of "resolution of an investigation for fraud or
abuse."
Existing state law does not define "resolution of an
investigation for fraud or abuse."
Federal regulations define "resolution of an investigation" to
state that an investigation of credible allegations of fraud
will be considered resolved when legal action is terminated by
settlement, judgment, or dismissal, or when the case is closed
or dropped because of insufficient evidence to support the
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allegations of fraud.
This bill defines "resolution of an investigation for fraud or
abuse" to mean there is no documentation to indicate either that
a charge or accusation has been filed against the provider and
either (1) the investigation has not been active at any time
during the previous 12 months; or (2) DHCS has been unable, for
a period of 12 months, to contact an investigator or responsible
representative of any agency investigating the provider.
Note: DHCS indicates the purpose of including this proposed
definition is to provide clarity on when it would lift a
sanction upon closure of a case without making a finding or
taking action. The proposed definition includes a 12-month limit
(which is not included in the federal regulations or state law).
The 12-month limit was included in the proposed definition for
two reasons: (1) to limit DHCS' broad authority so it could end
a withhold, suspension or deactivation of a provider; and (2)
because the vast majority of cases are closed by the Medi-Cal
Fraud Control Unit (MFCU) within 355 days.
4. Categorical risk levels.
Existing state law does not designate providers based on their
level of risk.
Federal regulations require a state Medicaid agency to screen
all initial applications, including
applications for a new practice location, and any applications
received in response to a re-enrollment or revalidation of
enrollment request based on a categorical risk level of
''limited,''
''moderate,'' or ''high.''
This bill states that provider types are designated as
"limited," "moderate," or "high" categorical risk by the federal
government pursuant to a specified provision of federal
regulations. This bill requires DHCS, at minimum, to utilize
the federal regulations in determining a provider's or
applicant's categorical risk.
This bill requires DHCS, if DHCS designates a provider as a
"high" categorical risk, to conduct a criminal background check
and to require submission of a set of fingerprints in accordance
with a specified provision of the Penal Code. This bill
requires, if fingerprints are required, providers and any person
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with a five-percent direct or indirect ownership interest in the
provider to submit fingerprints in a manner determined by the
DHCS within 30 days of the request.
This bill requires DHCS, in accordance with a specified
provision of federal regulations, to designate a provider as a
"high" categorical risk if any of the following occur:
§ DHCS imposes a payment suspension based on a credible
allegation of fraud, waste, or abuse.
§ The provider has an existing Medicaid overpayment.
§ The provider has been excluded by the federal Office of
the Inspector General or another state's Medicaid program
within the previous 10 years.
§ CMS lifted a temporary moratorium within the previous six
months for the particular provider type submitting the
application, the applicant would have been prevented from
enrolling based on that previous moratorium, and the
applicant applies for enrollment as a provider at any time
within six months from the date the moratorium was lifted.
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA.
1. Discrepancies during pre-enrollment period affects all of
provider's business locations.
Existing state law allows DHCS, if discrepancies are found to
exist during the pre-enrollment period, to conduct additional
inspections prior to enrollment. Under existing law, the failure
to remedy discrepancies as prescribed by the Director may result
in denial of the application for enrollment.
This bill allows DHCS, if a provider failed to remediate
discrepancies as prescribed by the Director, to deactivate all
of the provider's business addresses.
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA.
2. Moratorium on enrollment of providers.
Existing state law permits DHCS to implement a 180-day
moratorium on the enrollment of providers in a specific provider
service category, on a statewide basis or within a geographic
area when the Director determines this action is necessary to
safeguard public funds or to maintain the fiscal integrity of
the program. Existing law authorizes DHCS to extend or repeat
moratorium when the Director determines this action is necessary
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to safeguard public funds or to maintain the fiscal integrity of
the program. Existing law prohibits a moratorium from being
implemented on the enrollment of licensed and unlicensed
clinics, and individuals who are health care providers licensed
or certified under the Business and Professions Code, such as
physicians, pharmacists, physician assistants, optometrists, and
chiropractors.
Federal regulations require Medicaid agencies to impose
temporary moratoria on the enrollment of new providers, or
provider types identified by the Secretary of DHHS as posing an
increased risk to the Medicaid program. The Medicaid agency is
not required to impose such a moratorium if the Medicaid agency
determines that imposition of a temporary moratorium would
adversely affect beneficiaries' access to medical assistance. If
a Medicaid agency makes such a determination, the Medicaid
agency must notify the Secretary of DHHS in writing.
Federal regulations authorize Medicaid agencies to impose
temporary moratoria on enrollment of new providers, or impose
numerical caps or other limits that the Medicaid agency
identifies as having a significant potential for fraud, waste,
or abuse and that the Secretary of DHHS has identified as being
at high risk for fraud, waste, or abuse. Before implementing the
moratoria, caps, or other limits, the Medicaid agency must
determine that its action would not adversely impact
beneficiaries' access to medical assistance.
Federal regulations require the federal Secretary of DHHS to
consult with any affected Medicaid agency regarding imposition
of temporary moratoria on enrollment of new providers or
provider types prior to imposition of the moratoria.
The Medicaid agency must notify the Secretary in writing in the
event the Medicaid agency seeks to impose such moratoria,
including all details of the moratoria, and obtain the
Secretary's concurrence with the imposition of the moratoria.
The Medicaid agency must impose the moratorium for an initial
period of six months, and can extend the moratorium in six-month
increments if necessary. Each time the moratorium is extended,
the Medicaid agency must document in writing the necessity for
extending the moratorium
This bill requires DHCS, if the Secretary of the DHHS
establishes a temporary moratorium on enrollment as described in
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federal regulations, to establish a corresponding moratorium
covering the same period and provider types, even if those
provider types would not ordinarily be subject to a moratorium
under existing state law, unless DHCS determines that the
imposition of the moratorium will adversely impact
beneficiaries' access to medical assistance. This bill prohibits
a federal moratorium adopted under this provision from being
subject to any provision of existing state law requiring a
Director's determinations regarding safeguards of public funds
and program integrity or other prerequisites that are necessary
to implement a state-initiated moratorium.
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA.
DHCS currently has three moratoria that have been
administratively imposed: Non-pharmacist owned, non-chain
pharmacies in Los Angeles County; DME providers in four counties
(Los Angeles, Riverside, Orange and San Bernardino counties) and
out-of-state; and all clinical labs.
3. Unannounced visits.
Existing state law allows DHCS to make unannounced visits to any
applicant or to any provider for the purpose of determining
whether enrollment, continued enrollment, or certification is
warranted, or as necessary for the administration of the
Medi-Cal program.
At the time of the visit, the applicant or provider is required
to demonstrate an established place of business appropriate and
adequate for the services billed or claimed to the Medi-Cal
program, as relevant to his or her scope of practice, as
indicated by, but not limited to, the following:
§ Being open and available to the general public.
§ Having regularly established and posted business hours.
§ Having adequate supplies in stock on the premises.
§ Meeting all local laws and ordinances regarding business
licensing and operations.
§ Having the necessary equipment and facilities to carry out
day-to-day business.
Unannounced visits are prohibited for some providers, including
licensed and unlicensed clinics, health facilities (hospitals,
skilled nursing facilities) and individuals who are certified
health care providers licensed or certified under the Business
and Professions Code (such as physicians, pharmacists, physician
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17
assistants, optometrists, chiropractors) unless DHCS has reason
to believe that the provider will defraud or abuse the Medi-Cal
program or lacks the organizational or administrative capacity
to provide services under the program.
Federal regulations require Medicaid agencies to conduct
pre-enrollment and post-enrollment site visits of providers who
are designated as ''moderate'' or ''high'' categorical risks to
Medicaid. The purpose of the site visit is to verify that the
information submitted to the Medicaid agency is accurate and to
determine compliance with federal and state enrollment
requirements. Under the regulations, states must require any
enrolled provider to permit CMS, its agents, its designated
contractors, or the Medicaid agency to conduct unannounced
on-site inspections of any and all provider locations.
This bill requires enrolled providers, if an unannounced site
visit is conducted by DHCS, to permit access to any and all of
their provider locations. This bill requires DHCS, if a provider
fails to permit access for any site visit, to deny the
provider's application, and requires the provider to be subject
to deactivation.
Note: DHCS indicates the purpose of the above-described changes
is to comply with the regulations implementing the ACA.
1. Appeals.
Existing state law requires any applicant whose application for
enrollment as a provider is denied, or any provider who has been
denied continued enrollment, denied for a new location,
temporarily suspended, has had payments withheld, has had one or
more business addresses deactivated, has been terminated, or who
has had a civil penalty imposed can appeal this action by
submitting a written appeal, including any supporting evidence,
to the Director or the Director's designee.
Under existing law, if the appeal relates to withholding of
payment, the appeal to the Director or the Director's designee
is required to be limited to the issue of the reliability of the
evidence supporting the withhold, and is prohibited from
encompassing fraud or abuse.
This bill requires the appeal for a suspension of payment to be
limited to the credibility of the allegation supporting the
payment suspension, and prohibits it from encompassing an
SB 1529 | Page 18
investigation or adjudication of the allegation.
DHCS indicates the intent of existing law and the proposed
changes are to keep the provider focused on information relevant
to the appeal, and to make the standard of review clearer for
the hearing officer (DHCS indicates many of the hearing officers
are auditor staff without formal legal training). DHCS indicates
the system is intended to be user-friendly to small businesses
and health care providers proceeding without a lawyer.
2. Authority for DHCS to implement specified provisions through
provider bulletins or similar instructions.
Existing state law allows the DHCS Director, in consultation
with interested parties, through regulation, to adopt, readopt,
repeal, or amend additional measures to prevent or curtail fraud
and abuse. Regulations adopted, readopted, repealed, or amended
under this provision are deemed to be emergency regulations in
accordance with the APA. Existing law deems these regulations as
an emergency, and existing law exempts these regulations from
review by the Office of Administrative Law.
Existing law allows the Director, without taking regulatory
action under the APA, to implement, interpret, or make specific
specified provisions of existing law dealing with Medi-Cal
provider enrollment, including by means of a provider bulletin
or similar instruction. In doing so, DHCS is required to notify
and consult with interested parties and appropriate stakeholders
in
implementing, interpreting, or making specific those provisions,
including all of the following:
§ Notifying provider representatives of the proposed action
or change, including providing notice at least 10 business
days prior to the meeting described below.
§ Scheduling at least one meeting with interested parties
and appropriate stakeholders to discuss the action or
change.
§ Allowing for written input regarding the action or change.
§ Providing at least 30 days' advance notice of the
effective date of the action or change.
This bill allows DHCS to implement the application fee and
provider classification based on fraud risk provisions of this
bill through provider bulletins or other similar instructions
without taking regulatory action under the APA.
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19
Note: DHCS indicates the use of provider bulletins instead of
regulations allows for a more efficient and expeditious process,
and public comment is required under that process under existing
law.
1. Meet and confer.
Existing law requires DHCS to develop, in consultation with
provider representatives, including, but not limited to,
physician, pharmacy, and medical supplies providers, a process
that enables a provider to meet and confer with the appropriate
DHCS officials within 30 days after the issuance of a letter
notifying the provider of a withholding of payment or a
temporary suspension for the purpose of presenting and
discussing information and evidence that may impact DHCS'
decision to modify or terminate the sanction.
This bill deletes the 30-day requirement. This bill change
references from "withhold of payments" to "payment suspension."
Note: DHCS indicates this provision is clean-up to the "meet
and confer" language that would no longer require the provider
to notify DHCS within 30 days that the provider wishes to meet
and confer. DHCS indicates requiring DHCS to meet and confer
within 30 days of the sanction implies that the provider must
make the request in some time less than 30 days. Were DHCS to
implement this provision, DHCS indicates it would have to
promulgate regulations giving providers a deadline to submit a
request that would leave DHCS sufficient time to organize the
meet and confer before the statutory deadline. DHCS' states
that, many providers wait to file their requests in order to
retain counsel and perform internal fact-finding, and while DHCS
welcomes promptly-filed requests and is willing to meet
promptly, DHCS sees no need to force providers into a shorter
timeframe.
2. Recovery audit contractors.
Existing state law does not specifically authorize DHCS to enter
into contracts with RACs.
Existing federal law requires states, not later than December
31, 2010, to establish a program under which the state contracts
with one or more RAC for the purpose of identifying
underpayments and overpayments and recouping overpayments under
the Medicaid State Plan. The state must provide assurances
satisfactory to the Secretary that, under such contracts,
SB 1529 | Page 20
payment must be made to such a contractor only from amounts
recovered, and from the amounts recovered, payments are required
to be made on a contingent basis for collecting overpayments,
and may be made in such amounts as the state may specify for
identifying underpayments.
This bill permits DHCS to enter into contracts with one or more
eligible Medicaid RACs under the above described provision of
federal law. This requirement takes effect January 1, 2012. In
implementing this provision, DHCS would be exempt from a
specified provision of law that limits personal service
contracts.
Note: DHCS indicates this provision is to comply with the ACA,
and the RAC program will mirror what Medicare is doing where a
contractor is hired via a Request for Proposal procurement to
perform parallel audit services along with state audit efforts.
DHCS indicates it needs an exemption from the personal service
contract requirement because the federal regulation requires it
to secure a "third-party" contractor to perform audit services
(separate from state efforts).
California submitted a RAC State Plan Amendment (SPA) in
December 2010, which was approved in February 2011.
3. Note on conditional operation of specified provisions of
this bill.
The Medicaid State Plan is the officially-recognized document
describing the nature and scope of state Medicaid programs and
is required under federal law. Changes to the Medicaid State
Plan are known as SPAs and are submitted by the state to DHHS
for approval.
This bill contains language in certain sections of this bill
that the amendments to those code sections become operative on
the effective date of the SPA necessary to implement the change
and a declaration by the DHCS Director that states that this
approval has been obtained with the effective date of the SPA.
The affected existing code sections that this bill amends would,
in effect, sunset and be replaced when the changes made by this
bill take effect.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
SB 1529 | Page
21
1.Author's statement. According to the author, SB 1529 would
conform state Medi-Cal fraud law to provisions within the
federal Affordable Care Act. By conforming state law to
federal law in the areas of screening, enrollment, and
sanctions of Medi-Cal providers, DHCS will have more tools to
address and curb Medi-Cal fraud. If California does not comply
with federal regulations, there is the potential loss of
federal financial participation program wide.
2.Medi-Cal Payment Error Study. DHCS has conducted five payment
error studies (known as Medi-Cal Payment Error Study or MPES).
The most recent study from 2009 found that 94.55 percent of
payments to fee-for-service Medi-Cal providers in 2009 were
billed appropriately and paid accurately. In terms of dollars,
the projected potential losses in 2009 totaled $1.07 billion.
The potential provider fraud rate, which is a part of the
overall payment error rate, has also declined significantly,
from 3.23 percent in 2005, to 1.16 percent in 2009. In terms
of dollars, the potential losses from fraud have dropped from
$542 million cited in MPES 2005 (total Medi-Cal budget in
2004-05 was $31 billion) to $228 million cited in MPES 2009
(total Medi-Cal budget in 2008-09 was $40 billion). The 2009
MPES findings are based upon a random sample of 1,149 Medi-Cal
fee-for-service claims paid during the fourth quarter of 2009
(October 1 through December 31) and is organized by provider
type.
3.Support. This bill is sponsored by DHCS to align California's
state law with the ACA-related changes to federal regulations,
as it relates to screening, enrollment, payment suspensions,
overpayment recovery and sanctions of Medi-Cal providers. DHCS
states this bill would provide DHCS with the authority to
establish procedures for California to comply with ACA
provisions required by federal regulations. DHCS states CMS
believes the new screening requirements will move Medicare and
Medicaid from a "pay and chase" model to one that will prevent
fraudulent providers from enrolling as Medicare and Medicaid
providers. DHCS continues that the intent of this bill is to
prevent fraud from occurring in the Medi-Cal program, and the
federal regulations require states to implement these measures
and ensure compliance. Currently, California statutes provide
authority to DHCS and other state departments to take actions
to protect the fiscal integrity of the Medi-Cal program but
the new federal regulatory requirements are not provided for
in existing California statutes or regulations. Therefore,
California statute must be amended in order for the state to
SB 1529 | Page 22
have the necessary legal authority and comply with federal
requirements. DHCS states this bill would make only the
minimally-required amendments to existing law to gain the
statutory authority to carry out the federal requirements.
Given California has had standards of participation more rigid
than the federal requirements in the past, minimal changes to
California codes are necessary for a majority of the new
requirements established by the regulations. As the state
Medicaid agency, if DHCS does not comply with the regulations,
there is the potential loss of federal financial participation
program-wide.
4.Oppose unless amended. The California Medical Association
(CMA) writes it is opposed to this bill unless it is amended.
CMA writes that it understands that the bulk of the content of
this bill was contained in the ACA and its implementing
regulations, and that it is necessary to make changes to
California statute to comport with these new federal
requirements. CMA states that, though it supports efforts to
stem fraud, if these efforts are overly punitive, could
severely impact the financial solvency of a medical practice,
and CMA urges they be used sparingly and with the utmost
discretion. CMA indicates there appears to be some room in the
ACA's provisions that allow some flexibility for states in
their interpretation of the code, and CMA is currently
drafting amendments to ensure that the bill's requirements are
as targeted as possible in order to avoid the unintended but
potentially significant impacts this bill could have on
individual physician offices seeing a high volume of Medi-Cal
and Medicare patients.
5.Author's amendments.
a. This bill deletes the word "temporary" from two sections
of law (Sections 14043.2 and 14043.7) dealing with the
"temporary deactivation" of a provider number. DHCS
indicates this deletion was made inadvertently and the
author intends to propose amendments to restore this word.
In addition, DHCS would like to include the word
"referring" (as in "referring provider") to Section
14043.15(b)(3).
b. This bill also narrows the definition of "provider" and
"applicant" in the Health and Safety Code Section 100185.5
to limit their applicability to only Medi-Cal providers and
applicants, and not to providers and applicants to other
health care programs administered by DHCS, as is required
under existing law. The author intends to offer amendments
SB 1529 | Page
23
to continue to apply these revised definitions to other
programs administered by DHCS.
6.Policy issues.
a. Bill drafting. This bill is intended to align
California's state law with federal regulations relating to
the screening, enrollment, payment suspensions, overpayment
recovery and sanctions of Medi-Cal providers. DHCS states
this bill would amend California statute to provide DHCS
with the authority to establish procedures for California
to comply with these ACA provisions and related federal
regulations.
However, the requirements of this bill in state law are not
drafted contingent upon a requirement in federal law or
regulations, and would remain in effect if the ACA is
struck down. If this bill were not implementing federal
requirements, the Legislature, individuals representing
Medi-Cal beneficiaries, and Medi-Cal health care providers
would likely have a different view of some of the
requirements of this bill. One way to address this issue
would be to include language in this bill that makes its
ACA-related changes contingent upon a requirement in
federal law or regulation, either as an amendment now, or
following the results of the Supreme Court decision
expected later this year.
b. Credible allegation of fraud. In Section 1, this bill
amends the Health and Safety Code to implement federal
requirements for a payment suspension based on a "credible
allegation of fraud." However, the language in this bill
using the legal standard of "credible allegation of fraud"
appears to apply more broadly than the federal requirement
that it apply to a payment suspension. For example, this
bill would apply the "credible allegation of fraud"
standard to the denial of continued enrollment, the
suspension of providing services, and the denial of an
application, which seems to go beyond the federal
regulations. In addition, this section of law applies to
other health care programs administered by DHCS, and not
just the Medi-Cal program. To clarify the intent of DHCS to
have this bill implement the ACA and its related
regulations, committee staff recommends amendments to
either delete this provision of this bill or to limit the
"credible allegation of fraud" standard to the ACA
SB 1529 | Page 24
requirement.
c. Applicability of bill to Medi-Cal managed care health
care providers. One of the questions raised by health care
provider associations whose members provide services to
Medi-Cal beneficiaries is whether this bill applies to
managed care health care providers (in addition to
fee-for-service ÝFFS] Medi-Cal health care providers). DHCS
indicates it is still evaluating the full impact of the ACA
on managed care and how the regulations apply to managed
care providers. However, DHCS indicates this bill does not
impact managed care providers because the enrollment
statutes that are being amended are specific to FFS
providers. DHCS indicates the conflicting information from
CMS is in regard to whether an ordering, referring, or
prescribing provider is required to be on a FFS claim when
that claim is a carved-out service for a managed care
beneficiary (a carved-out service is reimbursed outside of
managed care). Based on January 2012 discussions with CMS,
DHCS states that if a managed care enrolled beneficiary
were to be referred by, or were to receive an order for
carved-out goods or services from a Medi-Cal managed care
network provider, that provider would not have to be
enrolled in Med-Cal as an ordering/referring provider.
SUPPORT AND OPPOSITION :
Support: Department of Health Care Services (sponsor)
California Advocates of Nursing Home Reform
Oppose: California Medical Association (unless amended)
-- END -