The Impact of the ACA’s “Allegations of Credible Fraud” Rule on States and Providers

Posted by Joe Stefansky on February 28, 2022 in Fraud,

The Patient Protection and Affordable   Care Act of 2010 (the ACA) brought health care to millions of uninsured Americans. However, in addition to the creation of health coverage options, this expansive act also included many other provisions that often get less press. Among those were certain anti-fraud provisions that were intended to curb fraud in government health care programs such as Medicare and Medicaid. 

An often-overlooked anti-fraud provision relates to payment suspension in the event provider fraud is even suspected. Under the regulations promulgated as a result of the ACA, states are required to immediately stop payments to providers based on a “credible allegation of fraud”   (CAF) and to refer suspected providers to law enforcement for investigation. The Affordable Care Act prohibits federal payment to a state Medicaid program for any amount expended for items or services furnished by an individual or entity to whom a State has failed to suspend payments under the plan during any period when there is a pending investigation of a credible allegation of fraud against the individual or entity. The law does allow a state the discretion to not suspend payment during an investigation if good cause exists.  Medicare regulation also requires a similar suspension where a credible allegations of fraud are raised.  42 CFR § 405.372 is the regulation which sets forth the requirements for suspending Medicare payments. 42 CFR § 455.23 is the regulation mandating suspension of Medicaid payments upon credible allegations of fraud.

A credible allegation of fraud is defined broadly and can come from many sources including complaints, claims data mining, and patterns identified through provider audits, civil false claims cases, and law enforcement investigations. Generally, a “credible allegation of fraud” for purposes of Medicaid may be an allegation that has been verified by a State and can come from any source. CMS provides flexibility to states in determining what may be a credible allegation of fraud consistent with individual State law. Effective in 2016, a fraud hotline tip (as defined by CMS) without further evidence was no longer considered as sufficient evidence for a credible allegation of fraud under federal law.

CMS created a toolkit to assist states to comply with this new requirement by setting forth the steps involved in suspending Medicaid payments based upon pending investigations of credible allegations of fraud to States and other program integrity stakeholders. A preliminary investigation to assess the validity of an allegation of fraud does not itself trigger a payment suspension – that is triggered when the State determines that an allegation of fraud is credible. States are required to report payment suspensions to CMS. CMS has also issued guidance on suspension of payments to Medicare providers based on a credible allegation of fraud.

While the steps outlined by CMS seem straightforward, the suspension of payment to providers can have significant repercussions in the administration and delivery of Medicaid services.  To address this, CMS guidance set forth a number of exceptions when payment suspension by a state can be delayed or not enforced.  Good cause exceptions to Medicaid program payment suspensions by states generally include the following:

  1. Specific requests by law enforcement that State officials not suspend (or continue to suspend) payment.
  2. If a State determines that other available remedies implemented by the State could more effectively or quickly protect Medicaid funds than would implementing (or continuing) a payment suspension.
  3. If a provider furnishes written evidence that persuades the State that a payment suspension should be terminated or imposed only in part.
  4. A determination by the State agency that certain specific criteria are satisfied by which recipient access to items or services would otherwise be jeopardized.
  5. A State may, at its discretion, discontinue an existing suspension to the extent law enforcement declines to cooperate in certifying that a matter continues to be under investigation and therefore warrants continuing the suspension.
  6. A determination by the State agency that payment suspension (in whole or in part) is not in the best interests of the Medicaid program.
  7. The credible allegation focuses solely on a specific type of claim or arises from only a specific business unit of a provider and the State determines that a suspension in part would effectively ensure that potentially fraudulent claims were not continuing to be paid.

Impact on Health Plans and their Contractors

There is broad bi-partisan support for anti-fraud measures in Congress so these provisions were widely supported. However, the full impact of this new tool to combat provider fraud was not immediately evident. Over time, the implications of this new basis for payment suspension were felt by health plans and providers.

  1. Legal Process Concerns. There have been concerns expressed by legal authorities related to the notice requirements. States and CMS can impose payment suspension without prior notice and without providing information to affected providers regarding the basis for suspension. This both prevents providers from being able to defend themselves and as argued by some, does not offer legal due process prior to imposition of what can be staggering financial losses prior to fraud being established. Federal Rule of Civil Procedure 9(b) requires that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.”  This standard is arguably absent when Medicaid providers are accused of fraud based on a “credible allegation” as broadly defined by state or federal law.

    Once directed by the state MFCU or Medicaid program to suspend a provider’s payment, a health plan is required to notify their contracted provider of payment suspension but not allowed to provide any meaningful detail about the state’s basis for this decision, so that the ongoing investigation would not be compromised. CMS template notices for Medicare payment suspension offer versions which both provide detail and one that does not. 
  2. Financial Impact. Under federal regulation, all suspensions are “temporary” but will not end until: (1) the state Medicaid agency or the prosecuting authorities determine that there is insufficient evidence of fraud; or (2) legal proceedings related to the provider’s alleged fraud are completed. Immediately after a state Medicaid agency suspends a provider, it must refer the provider to the state’s MFCU or other law enforcement agency for investigation. If the referral is accepted, “the payment suspension may be continued until such time as the investigation and any associated enforcement proceedings are completed.” Therefore, suspensions can last for years if legal proceedings or the investigative process is drawn out.

    For a Medicare or Medicaid provider whose income derives substantially from serving this population, an extended period of suspension can be financially devastating. As noted in legal reviews on this topic, suspension of payments can quickly lead to cascading events such as: losses of office space and infrastructure; staff layoffs; the sale or surrender of office equipment and furnishings and company vehicles; loss of IT and telecommunications investments; and loss of access to credit and working capital.
  3. Suspension as a Credentialling/Contracting Consideration. Exclusion from participation in federally funded health care programs remains the most serious civil sanction that the OIG can impose on a provider or entity. However, the impact of a suspension can have equally serious ramifications for a provider, and without many of the due process protections included in the exclusion process. Under federal regulation effective November 4, 2019, providers  applying to become enrolled or to revalidate enrollment in Medicaid must disclose information about affiliations that it or any of its owners or managing employees or organizations has or has had in the last five years, with a currently or formerly enrolled Medicare, Medicaid or CHIP provider “that has a disclosable event.” A “disclosable event” includes not only federal exclusion but also payment suspensionunder a federal health care program . . . regardless of when the payment suspension occurred or was imposed. Provider credentialling processes routinely require new or renewing providers to disclose not only federal exclusions but also any suspensions, which may jeopardize their participation in health plan network panels.
  4. Health Plan/Provider Relations Impact. No health plan wants to retain a bad actor on its panel. Allegations of fraud may originate with a plan about one of its providers but as noted above, allegations can be received by state and federal regulatory agencies from multiple sources. This can put a health plan in a difficult position when it is not the source of the concern but is required to manage the provider notification process when not fully apprised of the facts or bases of the allegation. Also, when the provider at issue practices in an underserved area, a health plan may find itself advocating for an exception from suspension because access to care may be jeopardized. This can create an awkward position for a health plan if the provider has engaged in questionable practices but is literally the only game in town where access to care must be maintained.

In multiple states, “credible allegation of fraud” state actions have been challenged.  In the two major instances of legal action, the suits did not take issue with the underlying intent of the new law but with how it was implemented by state regulators, the underlying intent of the regulators using it, and the fact that providers were not given the information necessary to defend themselves.

New Mexico

In New Mexico, 15 Medicaid behavioral health providers were referred to the New Mexico Attorney General for investigation after the state’s behavioral health managed care plan suspended their participation in the state’s Medicaid program alleging questionable billing practices.  (At the same time, the state was in the process of contracting with out of state providers for the same services.)  This decision effectively gutted the state’s behavioral health program and drove multiple providers out of business. Ultimately and years later, the state attorney general determined that the suspended providers were not engaged in fraud. However, the damage to the Medicaid behavior health program and to the impacted providers was done. 13 of the 15 were out of business by the time the matter was resolved.  The five organizations that had filed suit against the state were awarded millions in damages as a result. For an in-depth review of the New Mexico cases, please reference the  article, “Unsubstantiated Credible Allegations of Fraud Pose a High Risk to Medicaid Providers: A Lesson from New Mexico.”

District of Columbia

In  ABA, Inc. v. District of Columbia, DC more than half of the Medicaid home health providers were suspended by the District without prior warning. The DC Medicaid Provider Agreement gave the DC regulator broad authority to withhold payments   and did not require any notice for payment suspension.  Because of their contract terms these providers were required to continue providing services until patients could be transferred to a new provider. After a month the providers filed suit to force DC to resume payments, and the court found that the suspension of payments without any fixed timetable for transfer of patients put the providers in an untenable position. DC was ordered to resume payments on a temporary basis.


The intent of the ACA provision, which is to pre-emptively prevent any payment from flowing to a suspect provider, was sound. However, the ripple effect of this well-intentioned provision across the health care industry may not have been fully considered.

What has been made clear is that this fraud prevention tool can be used as a cudgel to cull providers from Medicaid panels in a manner that lacks basic legal rights   such as knowing the factual basis for an adverse action and being afforded due process protections. In those states whose laws offer a right to expedited review, due process and other protections, accused providers have recourse to address accusations. However, not all states offer these. To fully address the issue raised since the ACA went into effect, it will take action by Congress to change the federal laws and regulations that drive the sometimes-inequitable application of this fraud standard.

About Joe Stefansky

About Joe Stefansky

Joe Stefansky has a keen sense of business opportunities in complex problems, using technology to transform difficulty into efficiency. The CEO and founder of Streamline Verify specializes in solving compliance, legal and administrative issues through intuitively designed software that reduces costs and saves time.

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