Labs Must Respond to New CMS Anti-Fraud Rule

Under enrollment rules, labs and other providers will need to disclose their affiliates’ previous actions

CEO SUMMARY: Clinical labs and pathologists providing tests for patients in Medicare, Medicaid, or Children’s Health Insurance Program should become acquainted with new enrollment rules that go into effect Nov. 4. The new rules allow CMS to revoke or deny enrollment to help stop fraud before it occurs in the federal healthcare programs. CMS intends to identify individuals and organizations that pose an undue risk of fraud based on their current or earlier relationships with previously-sanctioned entities.

ANNOUNCED LAST MONTH, a new rule gives the federal Centers for Medicare and Medicaid Services (CMS) more powers to stop fraud before it happens. Effective Nov. 4, the new rule allows CMS to revoke or deny enrollment if it finds that a provider’s or supplier’s current or previous affiliations pose an undue risk of fraud.

When it announced the rule on Sept. 5, CMS said, “This first-of-its-kind action—stopping fraudsters before they get paid—marks a critical step forward in CMS’ longstanding fight to end ‘pay and chase’ in federal healthcare fraud efforts and replace it with smart, effective, and proactive measures.”

Under the final rule, titled “Program Integrity Enhancements to the Provider Enrollment Process,” CMS established new measures that allow the agency to revoke and deny enrollment in an attempt to stop fraud in the Medicare, Medicaid, and Children’s Health Insurance (CHIP) programs.

One key fraud-fighting element in the new final rule permits CMS to deny or revoke enrollment based on certain current or previous relationships—which CMS calls “affiliations” with “sanctioned entities”—that pose an undue risk of fraud.

A newly-enrolling organization that has an owner or managing employee who is “affiliated” with an organization that previously had its enrollment revoked could be denied enrollment in Medicare, Medicaid, and CHIP, CMS said.

Or, if that organization is already enrolled and is affiliated with an organization or individual that has had enrollment revoked, the already-enrolled entity could have its enrollment revoked because of the problematic affiliation, CMS added.

CMS Administrator Seema Verma praised the new final rule. “For too many years, we have played an expensive and inefficient game of ‘whack-a- mole’ with criminals—going after them one at a time—as they steal from our programs,” she said. “These fraudsters temporarily disappear into complex, hard-to-track webs of criminal entities, and then re-emerge under different corporate names. These criminals engage in the same behaviors again and again.”

The final rule’s affiliation disclosure measure requires enrolling or re-enrolling providers and suppliers to disclose current and previous affiliations (within the past five years) with other providers or suppliers who have been subject to any of the following disclosable events:

  • Has uncollected Medicare, Medicaid, or CHIP debt;
  • Has been or is subject to a payment suspension under a federal healthcare program;
  • Has been excluded by the Office of Inspector General from participation in Medicare, Medicaid, or CHIP;
  • Has had billing privileges denied or revoked.

‘Phased-In’ Approach

The final rule adopts a “phased-in” approach. It means for now, CMS will require disclosures only from enrolling and re-enrolling providers or suppliers that CMS determines have at least one affiliation that has had a disclosable event.

Moreover, even the “phased-in” affiliation disclosure measure will not take effect until after CMS revises its enrollment forms (Forms CMS-855) to facilitate the disclosures, a process that will require further notice and comment rulemaking.

Labs should note that the rule defines “affiliation” broadly to include:

  • A 5% or greater direct or indirect ownership interest.
  • A general or limited partnership interest (regardless of percentage).
  • An interest in which an individual or entity exercises operational or managerial control over, or directly or indirectly conducts, the day-to-day operations of another organization currently or formerly enrolled in Medicare, Medicaid, or CHIP. (Note that the individual or organization can exercise managerial control through a contractual or other type of arrangement and is not required to be a W-2 employee.)
  • An interest in which an individual is acting as an officer or director of a corporation currently or formerly enrolled in Medicare, Medicaid, or CHIP.
  • Any reassignment relationships.

Revoke or Deny

The new rule also allows CMS to revoke or deny Medicare enrollment if it determines that the provider or supplier is currently revoked under a different name, numerical identifier, or business identity, and the applicable re-enrollment bar has not expired.

CMS also can revoke or deny enrollment if a provider or supplier bills for services from a non-compliant practice location, exhibits a pattern of abusive ordering or certifying of Medicare Part A or Part B services or drugs, or has an outstanding debt to CMS that CMS has referred to the Treasury Department.

If a provider or supplier’s enrollment is revoked because of a non-compliant practice location, the revocation will apply to all of the provider’s or supplier’s practice locations, regardless of whether the entity is part of the same enrollment.

In addition, the new rules permit CMS to impose a re-enrollment bar of as long as three years if a provider or supplier submits false or misleading information during enrollment. Also, the new rule expands the bar to re-enrollment in new two ways:

  • If CMS revokes a provider’s enrollment, it can block that provider from re-entering the program for as long as 10 years. Previously, revoked providers were prevented from re-enrolling for three years.
  • If Medicare revokes a provider’s billing privileges for a second time, it can now block that provider from re-entering the program for 20 years.

“We have seen lab companies that commit fraud in one place and then break apart,” said David W. Gee, an attorney with Davis Wright Tremaine in Seattle, who has nearly 30 years of experience advising labs and pathology groups. “Then, they show up again with the same people, but under different names and operate the same fraud in different places. For that reason, there’s some good here.

“Even if there is no fraud in the lab’s past or in its owners’ or managing employees’ past, all labs would still need to comply with the new rules and perhaps hire attorneys or other advisers familiar with the final rule to ensure that they comply as required.

“In the phase-in period, one of CMS’ first orders of business will be to make some changes to the 855 Medicare Provider/ Supplier Enrollment Applications form,” Gee said. “CMS has to revamp each of the enrollment forms.

How Clinical Laboratories May Be Challenged to Identify ‘Problematic’ Owners or Managers

CLINICAL LABORATORIES AND ANATOMIC PATHOLOGY GROUPS FACE one significant challenge under Medicare’s new anti-fraud rules. They must identify owners or managing employees with disclosable events in their past.

Caitlin Forsyth, an attorney with the law firm of Davis Wright Tremaine, explained why doing so is challenging. “Imagine a situation in which the CEO of your lab is, or formerly was, a practicing pathologist whose Medicare enrollment was revoked at one time because he accidentally put his FedEx mailbox as the practice location on his Medicare enrollment application,” she said. “Under the new rules, your lab would need to know about this moment in your CEO’s history and—if and when CMS requests you report—you must disclose it on your enrollment application.

“Enrolling in Medicare, Medicaid, and CHIP is already fairly burdensome for laboratories and pathology groups to ensure their reporting to CMS is accurate and complete under the new rules,” noted Forsythe, who serves as general regulatory counsel for clinical, molecular, and toxicology laboratories. “Compounding the problem is the fact that what CMS considers to be an ‘owner’ can be anyone or any company with a 5% or more direct or indirect ownership interest in the enrolled provider or supplier.

“Labs should be concerned, because a revocation of Medicare enrollment could be caused by a minor clerical error,” explained Forsyth. “I’ve seen people who do the enrollment paperwork make honest mistakes or fail to submit the enrollment paperwork in time when responding to a request for revalidation, for example.

“It was already an unfortunate outcome for any provider’s enrollment to be revoked for a clerical error,” she added. “Now, any person or entity that had a managing or ownership interest in the revoked provider would need to disclose that fact to all the practices to which it is currently affiliated with, so that they can report the disclosable event.

“Also, under the new rules, CMS could revoke the current practice’s enrollment if it determines—seemingly in its sole discretion—that the practice’s affiliation with the revoked provider poses an undue risk of fraud,” Forsyth noted.

“Theoretically, the rule could have a chain effect, especially with a large pathology practice that has multiple enrollments with a common, complicated ownership structure, with lots of owners holding 5% or more ownership interests,” she concluded. “If one enrollment is revoked, the fact of that revocation will now need to be disclosed on all enrollments where any of the revoked practice’s owners are listed.”

Additional Time to Prepare

“Also, most labs and pathology groups will have additional time to prepare since during the phase-in period CMS will require disclosures only from enrolling and re-enrolling labs and pathology groups that CMS determines have had at least one affiliation that has had a disclosable event,” he advised.

“But if CMS determines your lab or any of your lab’s owners, officers, or directors had an affiliation with a provider or supplier that’s had a disclosable event, then CMS will require you to identify and disclose all of your affiliations that have had disclosable events,” Gee said. “That means you’ll need to review and work through each of the affiliations of your company and each of your company’s owners and managing employees during the past five years. Then, you’ll have to ferret out whether any of those affiliations also involved a disclosable event at any time in the past.

“Although most labs won’t have any obligation during the phase-in period to begin the exhaustive inquiry to determine whether they have any reportable affiliations, there are steps they can take now,” he suggested.

“First, it is essential for labs and pathology groups to understand the four types of conduct that constitute ‘disclosable events’ involving Medicare, Medicaid, or CHIP,” Gee said. “They are:

  • Uncollected debts
  • Payment suspension
  • Exclusion, and
  • Denied or revoked billing privileges.

“Second, labs and pathology practices also must become familiar with the expanded range of additional ‘affiliations’ they must now have on their radar,” he said. “Labs should begin to identify all of their firm’s own affiliations during the past five years, meaning all direct and indirect owners holding 5% or greater interest in their firm, any partnership between their firm and another, any relationship in which their firm has management or operational control over another provider or supplier, and any reassignment arrangements.

“Then, labs and pathology groups essentially must repeat that same inquiry with each of the firm’s officers, directors, and owners, and whether any of the firm’s officers, directors, and owners have served in the past five years as an officer or director of an entity that is or was enrolled in Medicare, Medicaid, or CHIP.

“Once labs and pathology groups are aware of the expanded range of their ‘affiliations,’ they will want to proactively identify any ‘disclosable events’ and avoid any new affiliations with persons and entities that have had disclosable events,” Gee advised. Labs also may want to identify and sever any such relationships as soon as possible.

Proactive Separation

“Taking that step alone may help them avoid the need for disclosure if the five-year clock runs out before the new rule is fully implemented,” he said. “Even if the clock doesn’t run out, the proactive separation should serve as a mitigating factor in CMS’ assessment of whether the affiliation poses an undue risk of fraud.

“Labs and pathology groups not online need to run a check with the Office of Inspector General on the new people they hire or engage as contractors, a process most labs already undertake faithfully,” Gee explained. “You’ve got to look at your current (and former) owners and managers and anyone with operational or managerial control. Then, you’ve got to determine whether any of them has a problematic affiliation.”

Contact David Gee at or 206-757-8059; Caitlin Forsyth at or 206-757-8159.


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