The massive changes of the Affordable Care Act (ACA) are well known, but there are other provisions of the ACA that have garnered less attention, despite their significant impact on providers across the country.  Beginning on March 11, 2011, the Medicaid payment suspension rules changed in several important ways.  The impact of this change, which is still emerging, is discussed below.

Mandatory Suspension of Payments

As an initial matter, suspending a provider’s Medicaid payments is no longer discretionary—if there are “credible allegations of fraud,” the state “must” suspend payments, unless the situation falls into one of the good faith exceptions articulated in the regulations, or the state risks losing some of its federal funding.  In some states, that suspension can extend to other entities that are commonly owned.  See, e.g., 130 C.M.R. §450.249(c).

The Burden of Proof is Now Lower to Suspend Providers’ Payments

More significantly, the standard for suspending a provider’s Medicaid payments has been relaxed. Until March 2011, the rule was that the state Medicaid agency “may” withhold Medicaid payments upon receipt of “reliable evidence that the circumstances giving rise to the need for a withholding of payments involved fraud or willful misrepresentation under the Medicaid program.”  42 C.F.R. §455.23 (effective until March 25, 2011).

But under the current federal regulations, and consistent with the ACA, suspension will now result if there is merely a “credible allegation of fraud for which an investigation is pending…”  The public comments further observed: “We believe that State agency investigations, though they may be preliminary in the sense that they lead to a referral to a law enforcement agency for continued investigation, are adequate vehicles by which it may be determined that a credible allegation of fraud exists sufficient to trigger a payment suspension to protect Medicaid funds.”  Vol. 76, No. 22 Federal Register, Feb. 2, 2011, at 5932.

What constitutes a “credible allegation of fraud” is not entirely clear. The regulations provide that “[a] credible allegation of fraud may be an allegation, which has been verified by the State, from any source, including but not limited to the following: (1) fraud hotline complaint. (2) Claims data mining. (3) Patterns identified through provider audits, civil false claims cases, and law enforcement investigations.” 42 C.F.R. §455.2.  The regulations further state that “[a]llegations 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.”  Id.

A March 25, 2011, CMS Bulletin shed additional light on what constitutes a “credible allegation of fraud.”  The Bulletin gives the example of a complaint lodged by an employee that a physician repeatedly bills for services at a higher level than is justified by the services; upon review of the physician’s billings, the state may determine that there are indicia of reliability.  State agencies have struggled somewhat with the definition of “credible allegation of fraud.”  The Office of Inspector General acknowledged this struggle in its recently released report.  (Office of Inspector General, Fiscal Year 2013 Annual Report (OEI-06-13-00340)(March 2014), at 12.

Mandatory Reporting to Law Enforcement.

The March 2011 changes also increased the ramifications of a suspension. Now, when a state Medicaid agency  suspends payments, the state Medicaid agency must make a fraud referral to the Medicaid Fraud Control Unit (“MFCU”).  42 C.F.R. §455.23(d)(1).  CMS recommends that “to limit confusion between informal discussions and formal referrals,” states agencies should consider using a term like “provider notice” in order to distinguish such communications from formal referrals.

Implications for Data Mining

The lowered standard for suspending Medicaid payments—and therefore mandatory referrals to law enforcement—could have even greater impact given regulators’ increased reliance on data mining and predictive analytics.  The new regulations make clear that information gleaned from “claims data mining” can constitute a “credible allegation of fraud.” 42 C.F.R. §455.2.

Length of Suspended Payments

Although the regulations’ goal is to resolve a fraud investigation and suspension promptly, the suspension can last for significant periods of time, running the risk of putting some providers out of business.

The length of these suspensions, and the lack of a clear end date, is problematic for providers, especially when there is a full, versus a partial, suspension.  As the OIG noted in its recent report concerning the suspension payment provisions: “Another challenge involves making determinations in a timely manner.  To ensure prompt suspension of payments, if warranted, Units and State Medicaid agencies must coordinate in a timely manner when determining whether an allegation is credible.”  Office of Inspector General, Fiscal Year 2013 Annual Report (OEI-06-13-00340)(March 2014).  In the meantime, and unlike the parallel Medicare process that does have more definitive time limits on suspensions (e.g. it must be reevaluated every 180 days), there is no definitive limit to a provider’s Medicaid suspension.


There can be no doubt that the combination of new factors—a lower threshold for suspending payments, mandatory referrals to law enforcement, and predictive analytics—will greatly affect providers across the country by generating more suspensions and more investigations.

Michelle R. Peirce is a partner at the law firm of Donoghue Barrett & Singal, P.C. in Boston. She devotes her time equally to complex civil litigation and white collar criminal defense. She was formerly President of the Women’s Bar Association of Massachusetts. You can follow her on LinkedIn and Google+.