NC Medicaid Providers: “Credible Allegations of Fraud?” YOU ARE GUILTY UNTIL PROVEN INNOCENT!!

“Credible allegations of fraud.”  What does that mean???

As it pertains to Medicaid, “credible allegations of fraud” was first introduced into law by the Affordable Care Act (ACA) in 2010.  The Centers for Medicare and Medicaid (CMS) issued its Final Rule February, 2, 2011, and the Informational Bulletin in March 2011.

As you can see, “credible allegations of fraud,” as pertaining to Medicaid, is a relatively new concept.  But what does it mean?  The ACA does not define “credible allegations of fraud.”

I know what “allegation” means.  I also know allegations are not always true.  I also know allegations can change your life. 

When I was a senior in high school, I had been dating my high school sweetheart for 2 years.  An acquaintance, and an apparently, mean-spirited girl, alleged that my boyfriend cheated on me with another girl.  I was so angered and so hurt that I called up my boyfriend immediately and broke up with him.  For weeks, my boyfriend hounded me, professing his innocence.  But I was not to be swayed.  I refused phone calls, avoided seeing him, and publicly disparaged him to my friends.  20 years later I saw him.  I asked him whether he had really cheated on me, knowing that he had no reason to lie now (he is married with 4 children; I am happily married with one child).  But I was just curious because that allegation that he had cheated changed both our lives.  I am not saying that had it not been for the allegation that he and I would be together…not at all…in fact, I am sure we would have eventually broken up.  The point is that the allegation that he cheated, for good or for bad, changed our lives.  And, to me, he was guilty based on the allegation.

20 years later I found out that the allegation was false.  He never cheated.  But his innocence did not change the consequences of the accusation.  He was guilty until proven innocent.

Similarly (and more importantly), a mere accusation that a Medicaid provider is undergoing abhorrent billing practices or committing Medicaid fraud, and without any proof, can change a provider’s life.  A mere allegation of fraud suspends a Medicaid provider’s reimbursements.  The consequence of which can be dire…You are guilty until proven innocent.  Just like my boyfriend.  The accusation alone made him guilty.

According to 42 C.F.R. 447.90, “This section implements section 1903(i)(2)(C) of the Act which prohibits payment of FFP with respect to items or services furnished by an individual or entity with respect to which there is pending an investigation of a credible allegation of fraud except under specified circumstances.”  FYI: FFP stands for Federal Financial Participation (or Medicaid reimbursements in the vernacular).

Section 1903(i)(2)(C) of the Social Security Act (SSA) states that no payments shall be paid to “any individual or entity to whom the State has failed to suspend payments under the plan during any period when there is pending an investigation of a credible allegation of fraud against the individual or entity, as determined by the State in accordance with regulations promulgated by the Secretary for purposes of section 1862(o) and this subparagraph, unless the State determines in accordance with such regulations there is good cause not to suspend such payment.”

But what does “credible allegation of fraud” mean? Where is the definition?  Not in the SSA.

On March 25, 2011, CMS issued an Informational Bulletin in which “credible allegations of fraud” is defined…sort of…

The Informational Bulletin states, “In the final rule, CMS provides certain bounds around the definition of “credible allegation of fraud” at 42 C.F.R. § 455.2. Generally, a “credible allegation of fraud” may be an allegation that has been verified by a State and that has indicia of reliability that comes from any source. Further, CMS recognizes that different States may have different considerations in determining what may be a “credible allegation of fraud.” Accordingly, CMS believes States should have the flexibility to determine what constitutes a “credible allegation of fraud” consistent with individual State law. However, a credible allegation of fraud, for example, could be a complaint made by an employee of a physician alleging that the physician is engaged in fraudulent billing practices,  i.e., the physician repeatedly bills for services at a higher level than is actually justified by the services rendered to beneficiaries. Upon State review of the physician’s billings, the State may determine that the allegation has indicia of reliability and is, in fact, credible. “

1. An allegation

An allegation by its very definition is “a claim or assertion that someone has done something illegal or wrong, typically one made without proof.” See Wikipedia.  Without proof!!!  Why without proof? Because an allegation is preliminary…an accusation…not a conclusion. Girl alleges my boyfriend cheated on me.

2. Verified by a State

Makes sense to need to be verified…

2. Indicia of reliability

Indicia? Indicia means “distinctive marks: indication.” See  Not quite sure what that means, but indicia of reliability does not sound like a very high threshold.  Nothing like preponderance of the evidence or beyond a reasonable doubt.  Could be as low a threshold as I applied when the girl alleged my boyfriend cheated on me.

3. Comes from any source

Are you kidding me?? So, if I were a Medicaid provider, my ex-husband, out of spite and hatred, could call up Patrick Piggott over at Program Integrity (PI) and accuse me of Medicaid fraud…or the disgruntled employee I fired….or my next door neighbor who is angry about the bush I planted on his property…you get the point.

Why is it important what the definition is of “credible allegation of fraud?”

As a Medicaid attorney, I represent Medicaid providers (duh).  The point is that I have seen the dire consequences, first-hand, to many, many a Medicaid provider accused of “credible allegations of fraud.”  Here are a few, real-life examples (names have been changed to protect the innocent):

  • Provider Leroy is accused of “credible allegations of fraud.”  Leroy is placed on prepayment review and all Medicaid reimbursements are suspended.  Leroy provides residential services (the people he serves actually live in his home because of severe mental illnesses).  Without Medicaid reimbursements, Leroy cannot pay the mortgage, his staff’s hourly wages, or anything else.  He acquires a $200,000 loan to help him through, and the interest is high.  He truly thinks that he will get off prepayment review and save his company and his Medicaid recipients from not having a home or Medicaid mental health services.  After 6 months of barely sliding by, Leroy receives a Notice of Termination terminating his Medicaid contract with the State.  (It is important to note that the termination was based of a faulty audit by an inept contractor).  He declares bankruptcy and all the Medicaid recipients are discharged to the homes that could not care for them in the first place.  The “credible allegation of fraud?” It came from a disgruntled employee.
  • Provider Lacey receives a Tentative Notice of Overpayment (TNO) in the amount of over $2 million based on “credible allegations of fraud.”  Provider Lacey (after her initial heart attack) hires Attorney Clueless.  Clueless appeals the TNO and gets the overpayment amount reduced to $1.5 million.  Lacey does not have $1.5 million and asks Clueless to appeal again.  Clueless fails to appeal the overpayment by the appeal deadline, and Lacey gets a judgment entered against her and her company.  Lacey’s husband is sick and tired of hearing about the Medicaid audit and abandons her and her two children.  Lacey declares bankruptcy.  Lacey used to support herself and her family.  Now North Carolina does.  The “credible allegation of fraud?” Lacey’s husband (apparently he had issues WAY before he left).
  • Provider Larry receives notice from a managed care organization (MCO) terminating his Medicaid contract based on “credible allegations of fraud” and demanding a $700,000 recoupment.  Larry also hires Clueless.  Clueless files a lawsuit against the Department of Health and Human Services (DHHS) and the MCO.  Clueless did some homework and actually makes a good argument in court.  But by the time Clueless gets to court, 4 months has passed and Larry racked up $50,000 in legal fees.  Larry can’t pay the attorney fees.  Clueless withdraws as counsel.  Larry goes bankrupt.  The 400 Medicaid recipients that his company serviced do not receive the health care needed.  The “credible allegation of fraud?” One of his own recipients receiving substance abuse services in a state of incoherence while on crack cocaine.
  • Provider Lucy receives notice from the Medicaid Investigative Department  (MID) that she is under criminal investigation based on a “credible allegation of fraud.”  Lucy does not have enough money to hire an attorney, so she opts for the public defender, who knows nothing about Medicaid and is also named Clueless.  The public defender did not even review Lucy documentation because she did not understand the complex system of Medicaid.  Clueless provided poor representation, and Lucy was sentenced to 5 years in prison.  Lucy said, “I was the first in my family to get a PhD and the first to go to jail.”  The “credible allegation of fraud?”  Her local competitor.
  • 15 providers in New Mexico, based on “credible allegations of fraud,” have their Medicaid reimbursements suspended.  The 15 providers cannot pay staff, rent on buildings, and other bills.  The State of New Mexico brings in Arizona providers to replace the 15 Medicaid providers.  The Arizona provider takes over the 15 providers’ buildings, most staff and all consumers.  The 15 providers are out of business.  Without a trial.  Without even reviewing the evidence against them.  Based on a mere allegation of fraud, 15 providers go bankrupt…lose their careers…are unemployed… The “credible allegation of fraud?” Unknown.

Remember “credible allegation of fraud” is preliminary, and, at times, without any proof, yet the consequences are dire. 

Innocent until proven guilty is a bedrock principle in the American justice system.  Yet, innocent until proven guilty does not apply to Medicaid providers.  Our founding fathers created the concept of innocent until proven guilty.  While innocent until proven guilty is not explicitly codified in the Bill of Rights, the presumption of innocence is widely held to follow from the 5th, 6th, and 14th amendments. See also Coffin v. United States and In re Winship.

Here’s the problem….presumption of innocence only applies to criminal law.  Even when the consequences of a civil action is so monumental, so dire, so irreparable, the presumption of innocence does not apply.

So “credible allegation of fraud?”  It does not matter what the definition is.  The fact is that if ANYBODY alleges a “credible allegation of fraud” against you, you are guilty.  You are my boyfriend who never cheated on me, but a girl alleged that he did cheat. 

No evidence…You are GUILTY based on the ALLEGATION of fraud!


About kemanuel

Medicare and Medicaid Regulatory Compliance Litigator

Posted on October 22, 2013, in Affordable Care Act, CMS, Credible Allegations of Fraud, Division of Medical Assistance, Due process, Extrapolations, Federal Government, Federal Law, Health Care Providers and Services, Injunctions, Innocent Until Proven Guilty, Legal Analysis, Legal Remedies for Medicaid Providers, Legislation, MCO, Medicaid, Medicaid Audits, Medicaid Contracts, Medicaid Recipients, Medicaid Recoupment, Medicaid Reimbursements, Medicaid Services, Mental Health, Mental Illness, NC, NC DHHS, New Mexico, North Carolina, Obamacare, Post-Payment Reviews, Prepayment Review, Program Integrity, Provider Medicaid Contracts, Tentative Notices of Overpayment, Termination of Medicaid Contract, Washington D.C. and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. 8 Comments.

  1. I absolutely love your newsletter & advocacy for providers, especially as I am currently a private provider trying to survive in the NC Medicaid system!
    With that said, I’d like to point out that for years and years, many unethical providers billed for services not rendered, billed over 24 hours PLUS of “therapy” in a single day, and generally bilked the state out of millions of dollars (especially with the old “Community Support”, “HRI” and “CBI” service definitions!) There was absolutely no oversight of possible fraudulent claims prior to the creation of the Program Integrity unit, unless there were numerous complaints, and the claims actually showed something was “wrong”…(again, billing for 36 hours of 1 hour therapy sessions in a single day…?)
    I worked in Program Integrity with Patrick Piggot when it first started up, and he is one of the most ethical individuals I have had the pleasure to know. There are many complaints made….and the unit understands that some of these are unfounded. But in my time there, I never knew the unit to “target” anyone, and investigations were conducted in the most ethical manner.
    I cannot speak to what the contracted entity is doing….that was implemented after I returned to community Mental Health. But blatant fraud was (and continues to be) an issue….and those are MY tax dollars! Some of the (very obvious) cases of fraud would anger any taxpayer, and certainly any advocate of mental health. There has to be some accountability & oversight…maybe we haven’t hit the ideal manner yet of how to accomplish this, but this is one area of state oversight that was long overdue….

  2. palladiumsubbie

    I have a very serious problem with this and view it as a base violation of substantive due process. Whether or not one is innocent until proven guilty in matters of civil law, this is egregious and needs to be addressed. Additionally, this acts as an additional disincentive to providers actually helping Medicaid patients; not only are the rates of reimbursement garbage, but you stand a significant chance of having your payments halted, your contract terminated, fines levied, and suffering criminal prosecution…because a ‘credible allegation’ has been made against you?! What is the process to determine credibility? Are there clearly defined criteria to establish what qualifies as a credible allegation? Who audits and reviews the process?

    Are there criminal penalties for those who falsely issue such allegations? It seems like the accuser should at least have to testify sufficiently for it to qualify as perjury (if untrue) for the allegations in question qualify as credible. It seems like right now they’re basing significant penalties on the testimony of someone who doesn’t even qualify as a confidential informant, much less a confidential reliable informant!

    This law is putrescent! Does the state define credibility? If they don’t, it would seem to be unConstitutionally* vague. I’m really, really outraged by this! The more I think about it, the worse it gets!

    I wouldn’t object to this if the rule was:

    1. An allegation is made.
    2. It is found to be credible.
    3. A preliminary investigation takes place, and evidence of the reported criminal behavior is found.
    4. A judge reviews the evidence and issues a temporary order to halt payments.
    5. Arrangements are made for the patients who would otherwise be denied care during the review.
    6. Payments are halted.
    7. A complete investigation takes place.
    8. In the event the investigation reveals no criminal activity, the provider is reinstated.
    9. In the event the investigation reveals no criminal activity, the provider is also reimbursed for the profits lost during the period during which they were closed to Medicaid patients.
    10. In the event the investigation reveals criminal activity, the person engaged in such fraud is prosecuted.
    11. In the event the allegations are deemed to be false, an investigation is launched to determine whether or not the person who falsely reported the fraudulent behavior did so out of malice.
    12. In the event the allegations are deemed to have been a falsehood reported out of malice, the reporter is prosecuted and hopefully imprisoned.

    Why do I include number 9? Because the MCOs have a vested interest in reducing available services and the provider should not suffer losses for false allegations. Slander and libel are not things against which one should have to incur losses when it is the state that controls whether or not the losses take place.

    *Sorry – that’s an affectation. I always capitalize the word Constitution when it refers to the Constitution of the United States of America (yes, even when there is a preceding suffix).

    • Well said, Dennis! Here in NC, many, many providers are going out of business. This is wide-spread and Medicaid recipients are not getting the mental helath care needed.

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