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November 2016


Proposed Rule to Strengthen State Medicaid Fraud Control Units







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Emma R. Cecil


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Brian F. McEvoy


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A recently published proposed rule expands the functions and responsibilities of state Medicaid Fraud Control Units (MFCUs).

The rule was issued by the Centers for Medicare and Medicaid Services (CMS) and the Office of Inspector General (OIG) on Sept. 20 for MFCUs, which operate under the auspices of State Attorneys General and are separate and distinct from state Medicaid agencies. Overseen by HHS-OIG, MFCUs have authority to investigate and prosecute Medicaid provider fraud in addition to patient abuse or neglect in health care and board and care facilities. As part of its oversight, HHS-OIG must annually recertify each MFCU, assess each MFCU's performance and compliance with federal requirements, and administer a federal grant award to fund a portion of each MFCU's operational costs.

The purpose of the proposed rule, which gives broader investigative and prosecutorial powers to state MFCUs, is two-fold:

  • First, it incorporates statutory changes that have been made since the 1977 amendments to the Social Security Act to provide for federal participation in the costs attributable to establishing and operating state MFCUs.

  • Second, it aligns the current rule with practices and policies that have developed and evolved since the initial version of the rule, codified at 42 C.F.R. Part 1007, was issued in 1978.

With the exception of two prior revisions – the first in 2011 to implement the Affordable Care Act's payment suspension provisions and the second in 2013 to allow federal fiscal participation (FFP) for data mining under certain circumstances – the regulation has not undergone a wholesale revision since its 1978 promulgation.

Specific notable revisions to the MFCU rule include:

  • Investigative and Prosecutorial Authority: Under the new rule, MFCUs would be able to seek approval from the relevant Inspector General to investigate and prosecute violations of state law related to fraud in any aspect of the provision of health care services and activities of providers of such services under any federal health care program, including Medicare, as long as the fraud is primarily related to Medicaid, and would have the option of investigating and prosecuting patient abuse or neglect in board and care facilities, regardless of whether the facilities receive Medicaid payments. Technical amendments to the MFCUs' prosecutorial authority requirement options would also include referrals to other offices with statewide prosecutorial authority, in addition to the State Attorney General. As part of its expanded responsibilities, MFCUs would also be required to submit all convictions to OIG for purposes of program exclusion within 30 days of sentencing and to make information available to, and coordinate with, OIG investigators and attorneys, other federal investigators, and federal prosecutors on Medicaid fraud information and investigations involving the same suspects or allegations.

  • Changes to Definitions of Key Terms: The new rule adds definitions for fraud, abuse of patients, board and care facility, health care facility, misappropriation of patient funds, neglect of patients, and program abuse, and modifies the definition of provider to include all providers who are required to enroll in a state Medicaid program, including ordering and referring physicians. These changes would allow MFCUs to investigate and prosecute providers even if they are not the ones who furnished the items or services for which payment is sought from Medicaid. The definition of patient abuse or neglect would be expanded to include financial abuse, giving MFCUs the power to review complaints related to misappropriation of patient funds.

  • Data Mining and Outreach Activities: The new rule would clarify that, except for MFCUs with OIG approval to conduct data mining, the prohibition of FFP for data mining activities extends only to the cost of activities that are duplicative of state Medicaid agencies' surveillance and utilization review responsibilities. The new rule would further clarify that efforts to increase referrals through program outreach activities, which most MFCUs undertake to identify potential civil or criminal Medicaid fraud, but which are not addressed in the program regulations, are eligible for FFP.  This proposal is aimed at removing from state Medicaid agencies the sole burden of identifying potential fraud and would result in MFCUs being less dependent on referrals from Medicaid agencies.

  • Agreements with State Medicaid Agencies: State MFCU agreements with Medicaid agencies would be required to include provisions establishing regular communication and procedures for coordination, including those involving payment suspension and acceptance or declination of cases. Parties would also be required to review and, if necessary, update their agreements at least every five years.

Comments on the proposed rule must be submitted by 5 p.m. on Nov. 21. Polsinelli will continue to monitor developments in this area.

For More Information

If you have questions regarding this alert, please contact one of the authors, a member of Polsinelli's Health Care Practice, or your Polsinelli attorney.







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