Why State Medicaid Agencies Shouldn’t Use “Temporary” Withholding Actions as a Substitute for Terminating a Provider Agreement (a Follow-Up).

Here’s a quick follow-up to the last post.  I wrote:

(Note:  I’m not saying that the agency intends to use temporary suspension or withholding as a weapon to close down providers, just that it’s the way it works out sometimes.  I’m also not saying that it would be a bad thing to give state agencies the ability to come in and shut down providers altogether when there is sufficient evidence of fraud, just that it’s not or shouldn’t be the purpose of temporary suspension.)

I probably should say a little more about this.  I’m sure some of you are probably thinking “but if there’s reliable evidence or a credible allegation that a provider is defrauding the state Medicaid agency, why shouldn’t the agency shut them down during the pendency of the investigation?”.

My answer may surprise you.  I agree!  There should be a mechanism to terminate or revoke a provider’s Medicaid participation agreement when we have solid evidence of fraud.  But there already is.  Federal law provides that regulators can exclude providers from Medicaid for (among many other things) fraud.  Turning to Colorado specifically, Section 8.076.5 of the Department of Health Care Policy and Financing’s regulations allow it to terminate a provider’s participation agreement for “good cause,” which includes (also among other things) false representation and/or fraud.  Section 8.076.5.D(3) even says that HCPF can terminate immediately without notice where “[t]he termination is imperatively necessary for the preservation of the public health, safety, or welfare and observance of the requirements of notice would be contrary to the public interest.”

But there’s a big difference between the provider exclusion sanction and a temporary suspension remedy.  Perhaps paradoxically, providers facing a fraud-related termination have significantly more protection, both from a procedural standpoint as well as a substantive one.  Section 8.050 of HCPF’s regulations sets forth a detailed procedural regime governing provider appeals of adverse agency actions, specifically including the termination of a provider agreement.  It also includes notice and hearing requirements before the Office of Administrative Courts, as well as a provision contemplating that the presiding ALJ can stay the adverse action (termination) pending the appeal.

Section 8.076.4, on the other hand, has none of these due process protections.  It merely contemplates that notice of withholding or suspension must advise the provider that it can submit written evidence to the department.  (Which, incidentally, is all that is required by 42 CFR § 455.23.)

To be sure, Section 8.076.4.A provides that providers will have appeal rights upon request, and at least as of a few years ago (when I was representing it), it was HCPF’s practice to refer withholding appeals to an ALJ – which is substantially more due process than required by federal law or provided by many states, I should add.  But what the agency has to prove in a suspension withholding action is entirely different than what it must prove in a termination proceeding.  Under the state APA (specifically C.R.S. § 24-4-105), HCPF has the burden of proof to show that its action (whether that’s withholding or termination) is warranted.  So in the termination context, it must show that the provider committed false representation or fraud.  In the temporary withholding context, though, it only needs to show that there is reliable evidence of fraud (or a credible allegation of fraud under the current version of 42 CFR § 455.23).

Do you see the distinction?  Let’s say that HCPF (or any other state Medicaid agency – virtually all of them have similar provisions, though some use the old “reliable evidence of fraud” language, whereas others have switched to the more expansive “credible allegation of fraud terminology)) comes in and investigates a provider and notices that half of the patient files are missing.  It’s hard to dispute that this meets the “reliable evidence” or “credible allegation” standards, regardless of which one applies in the particular state.  But what if the files are missing because the provider keeps the N through Z files in a different file cabinet, and the temporary receptionist who let the investigators in didn’t realize it at the time?  It seems clear in that case, when the ALJ actually makes a factual finding, he or she almost certainly will conclude that there is no fraud (at least based on the missing files).  So you have a case where there clearly is some reliable evidence or credible allegation of fraud, though ultimately, the evidence taken on the whole should end up exonerating the provider.

Obviously, that’s an extreme case, and if there really was a perfectly innocuous – and uncontroverted – explanation for the otherwise “reliable evidence” or “credible allegation” of fraud, any state Medicaid agency would immediately rescind the temporary suspension or withholding, or the ALJ would stay it.  But there certainly are a lot of hypotheticals where it’s a closer call, or where the provider might be able to convince an ALJ – but not Medicaid investigators and regulators – that it didn’t commit fraud, reliable evidence and/or credible allegation aside.  In those cases, the distinction between proving fraud and proving that you have reliable evidence (or credible allegation) of fraud can be enormous.

So that’s why – in my opinion – it’s problematic for state Medicaid agencies to use temporary suspension withholding actions as a substitute for provider termination.  They often afford the provider less procedural protection, and they always have a much lower effective burden of proof.  Stay tuned for a future post on what I’d suggest to correct this issue.