On Tuesday, September 20, 2016, CMS published a proposed rule in the Federal Register to bolster the current State Medicaid Fraud Control Units (MFCUs or Units).  MFCUs investigate and prosecute Medicaid fraud, including provider fraud, patient abuse, and neglect in health care facilities. MFCUs operate in 49 States and the District of Columbia. The MFCUs, typically a part of the State Attorney General’s office, use teams of investigators, attorneys, and auditors; are single, identifiable entities; and must be separate and distinct from the State Medicaid agency.  The OIG oversees the MFCUs, annually recertifies each MFCU, assesses each MFCU’s performance and compliance with Federal requirements, and administers a Federal grant award to fund a portion of each MFCU’s costs.

The proposed rule largely codifies statutory changes to the MFCU program that were made since the first MFCU regulation was issued in 1978.  The MFCU rule has not been fully revised in about 30 years, even though many statutory changes have affected MFCUs during this time period. Specifically, the proposed rule incorporates the following statutory changes:  (1) increasing the Federal matching rate for ongoing operating costs from 50 percent to 75 percent, (2) creating a Medicaid State plan requirement that a State must operate an effective MFCU, (3) developing standards under which MFCUs must be operated, (4) allowing MFCUs to seek approval from the Inspector General to investigate and prosecute violations of State law related to health care fraud 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 (5) giving MFCUs the option to investigate and prosecute patient abuse or neglect in board and care facilities, regardless of whether the facilities receive Medicaid payments.

Some of the major provisions of the proposed rule include:

Staffing Requirements

  • The proposed rule states that Units may employ professional employees, including consultants or other employees with specialized knowledge and skills, and administrative and support staff, on a full or part-time basis as long as these employees devote their “exclusive effort” to Unit functions. Additionally, a MFCU must employ a director and that all MFCU employees must be under the direction and supervision of this director. The rule proposes that MFCU professional employees may also obtain outside employment with some restriction. The proposed rule clarifies that the investigation and prosecution functions of the Unit may not be outsourced through consultant agreements or other contracts. The rule proposes to require that MFCUs provide training for professional employees on Medicaid fraud and patient abuse and neglect matters.

Agreement with Medicaid Agency

  • The proposed rule states that the agreement or memorandum of understanding (MOU) between MFCUs and the Medicaid agency must establish terms for regular communication between the parties, and procedures for coordination, such as for payment suspension and the acceptance or rejection of cases. Furthermore, the proposed rule states that the parties review and if necessary, update the MOU no less frequently than every five years.

Functions and Responsibilities

  • The proposed rule requires that MFCUs submit all convictions to OIG, for purposes of program exclusion, within 30 days of sentencing or as soon as possible if there are any court delays. Furthermore, the proposed rule clarifies that the MCFUs should make information available to and coordinate with OIG investigators and attorneys, Federal prosecutors, and other Federal investigators on Medicaid fraud information and investigations where the same suspect or allegation is involved.

Changes to Key Definitions

  • The proposed rule clarifies the definition of “program abuse,” in terms of the Federal Financial Participation (FFP) in MFCU expenses, to include only those improper provider practices that fall short of acts for which civil or criminal penalties are warranted. Currently, the regulations at § 1007.19(e)(1) prohibits FFP in MFCU expenditures for investigation of cases involving program abuse or other failures to comply with applicable laws and regulations when these cases do not involve “substantial allegations or other indications of fraud.” The proposed rule explains that for cases where overpayment has been identified but the MFCU has determined that neither civil nor criminal enforcement action is warranted, the MFCU should refer the case to the State Medicaid agency and not use the FFP.
  • In order to make clear the duties of the MFCUs, the rule proposes to add definitions of the terms “abuse of patients” and “neglect of patients.” The rule proposes to define “abuse of patients” to mean willful infliction of injury, unreasonable confinement, intimidation or punishment with resulting physical or financial harm, pain or mental anguish. The rule aims to define “neglect of patients” to mean willful failure to provide goods and services necessary to avoid physical harm, mental anguish, or mental illness. Additionally, these two proposed definitions also include those acts that are considered criminal violations under applicable State law.

Prosecutorial Authority

  • The proposed rule aims to make technical amendments to the prosecutorial authority options to include the prosecution of patient abuse and neglect. Also, the proposed rule aims to include within this prosecutorial authority, the ability to make referrals to other offices with statewide prosecutorial authority, in addition to the State Attorney General.

  • Since the proposed rule is mostly codifying existing practices and statutory requirements, the impact on the industry is likely minimal. Comments on the proposed rule must be submitted by 5 pm on November 21, 2016.