Medicare Affiliation Rule Targets Criminal Behavior

Rule also places significant compliance burden on all providers, including labs, pathology groups

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CEO SUMMARY: Under a new federal rule in effect this month, all healthcare providers—including clinical laboratories and pathology groups—will need to scour the records of all officers, directors, and affiliates to identify any that have had negative dealings with CMS or other federal enforcement agencies. Under the rule, the Medicare program is likely to target labs that test for drugs of abuse, such as opioids, and that do genetic testing, said a lawyer who has studied the rule.

AS OF TODAY, A NEW FEDERAL MEDICARE RULE TAKES EFFECT that can bring both benefits and headaches to the nation’s clinical laboratories and anatomic pathology groups.

The rule, Program Integrity Enhancements to the Provider Enrollment Process, is a long-overdue step to help federal officials identify individuals, investors, managers, and others who have defrauded the Medicare program or who were associated with entities that owe Medicare fines that have not been paid.

When a provider enrolls or re-enrolls in Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP), the rule requires that the provider disclose certain affiliates as the rule defines. In this process, however, there are pitfalls to avoid for unwary clinical labs and pathology groups. (See “Labs Must Respond to New CMS Anti-Fraud Rule,” TDR, Oct. 14, 2019.)

For starters, one attorney familiar with the rule predicted that federal officials would target providers, such as clinical laboratories that Medicare has sanctioned in the past. The attorney, Courtney G. Tito, a member of the law firm of McDonald Hopkins, said the federal Centers for Medicare and Medicaid Services (CMS) will seek to identify labs or other providers engaged in such behavior.

“I believe CMS will use data analytics to target providers that are a high enforcement priority and have affiliations with a sanctioned event,” she stated. “This will probably be most true for those labs that run molecular and genetic tests, toxicology tests, and that do testing for drugs of abuse, such as opioids.” Tito represents healthcare providers, including clinical laboratories and pathology groups, in cases involving enrollment revocations, federal and private audits and disputes, and reimbursement issues.

“CMS will likely target toxicology labs and any lab doing anything associated with opioids,” Tito said in an interview with The Dark Report. “Also, CMS probably will target some genetic testing labs because those labs have been targeted recently for federal enforcement.”

In September, the federal Department of Justice announced the results of Operation Double Helix, an investigation that led the DOJ to charge 35 individuals in a $2.1 billion genetic testing scam. At least six lab owners were among those indicted. (See, “DOJ Charges 35 Individuals in $2.1 Billion Genetic Testing Scam,” TDR, Oct. 14, 2019.)

“My guess is that those types of labs would be the areas that CMS would target, but we don’t know that yet—at least not for certain,” added Tito. “It’s logical that CMS would begin with those labs because toxicology labs and opioid testing are prevalent in enforcement now and some of the labs have been cited in recent years.”

CMS to Use Data Analytics

Usually CMS will identify problem providers by requesting records and making demands for refunds of overpayments, she added. In addition, Tito said, CMS probably will use data analytics to identify problem labs under the final Program Integrity Enhancements to the Provider Enrollment Process rule. The goal of the rule is to stop fraud before it happens by preventing unscrupulous providers from enrolling or re-enrolling in Medicare, Medicaid, or CHIP.

As a result of asking federal officials about how CMS identifies clinical laboratories, pathology groups, and other providers that could run afoul of the rule, Tito has learned that CMS uses data analytics to select such providers for further scrutiny. Accordingly, she said, it is likely that CMS will use the same process to determine the initial providers that need to respond to requests for more information under the rule. But Tito is concerned about how CMS will use such data analytics tools.

“Using data analytics can be worrisome because what parameters will CMS use when programming these systems?” she asked. “It’s not entirely clear from the commentary that CMS published with the rule how federal officials will use data to identify labs or other providers for enforcement.

Choice of Data Points

“The problem is that there are no real standards or requirements for what data analytics CMS will use and which data points it will use for its analysis,” she added. “For this process, federal officials can choose whatever data points they want.”

One data point that CMS could use is to review the list of individuals, clinical labs, pathology groups, and other providers that have been excluded from federal healthcare programs, she suggested. “The OIG exclusion lists would be a great place to start to match up the individuals and the entities that have been excluded from participation in the past,” stated Tito.

“Also, any company or entity that’s had a payment suspension, and any provider that has an uncollected overpayment from Medicare, Medicaid, or CHIP, also could be a target,” she continued.

The problem with going after labs and providers that have been targeted in the past is that most providers file appeals when facing payment suspensions from federal healthcare programs. But appeals take so long that many labs and providers do not survive the appeals process if their revenue depends heavily on federal reimbursement, Tito said. Such appeals usually take anywhere from three to 10 years and sometimes run longer, she added.

Another area of concern about the rule is that it imposes a significant burden on all healthcare providers to review the records of all “affiliations,” over the past five years. This review is to include officers and directors to identify any administrators that Medicare, Medicaid, or CHIP has sanctioned, Tito said.

The rule requires clinical labs, pathology groups, and other healthcare providers to review what CMS calls “all required disclosable events” for each officer and director and all of its affiliates over the past five years, Tito explained.

New Medicare Rule Requires Disclosure of Affiliations, But Could Ensnare Many Providers

EVEN THOUGH THE NEW MEDICARE RULE ON ENROLLMENT AND DISCLOSING AFFILIATIONS is aimed at stopping providers from committing fraud before it happens, the rule will affect all healthcare providers, including clinical laboratories and anatomic pathology groups, said Courtney G. Tito, a healthcare lawyer with McDonald Hopkins.

“CMS is trying to stop the bad guys,” she commented. “These are the individuals and entities who—once they are sanctioned—often shut down their companies. Then, to avoid paying recoupment amounts and penalties assessed by federal regulators, they open another similar operation under a different name.”

Tito identified two ways that a provider trying to comply with the federal rule, called Program Integrity Enhancements to the Provider Enrollment Process, could ensnare unsuspecting clinical labs, pathology groups, or other providers.

“First, what happens if such a provider has a demand to return an overpayment amount and has appealed that decision to return the overpayment?” she asked. “The overpayment could be a technical or paperwork error, for instance. If the provider disputes that overpayment and it is under appeal, those appeals could take three to 10 years to be resolved because there’s such a backlog in CMS’ appeals.

Three Years for Appeals

“Just to get such a case before an administrative law judge can take three years or more,” she continued. “That’s before anyone even looks at that provider’s appeal at the third level of Medicare appeals. Technically, that provider would have an overpayment that it has not repaid while the case is under appeal. If that’s the case, the provider and its managers would need to disclose that fact under this new rule because the provider has an unpaid overpayment while the case is under appeal.

“In a second example, a provider could have an overpayment demand under appeal and—if that provider had any affiliations with what might be called ‘bad’ actors—CMS could characterize that provider as a potential source of undue risk of fraud, waste, and abuse,” explained Tito.

“Under that reasoning, CMS could deny the provider’s request for enrollment or re-enrollment at the same time,” she said. “If that happens, that provider’s enrollment or re-enrollment could get denied or revoked.

Appeal Enrollment Decision

“In this scenario, the provider would have to appeal that enrollment decision as well,” Tito added. “In such a case, the provider would appeal on two fronts because the overpayment appeal would still be pending when the provider then appeals the enrollment or re-enrollment denial or revocation.

“For most providers—especially smaller ones—those two appeals could be devastating,” she suggested. “When CMS flags a provider for a payment suspension, a provider has only 15 days to rebut that suspension. Regardless of whether the provider is successful at terminating the payment suspension, that would be a required disclosure for this provider to comply with the new rule.

“When you look at the enrollment and affiliation rule in this way, it seems like CMS is overreaching,” she concluded. “That can be a problem for honest providers when, in fact, CMS is seeking to limit fraud, waste, and abuse, and to identify individuals and entities that have been subject to events the new rule requires them to disclose.”

Undue Risk of Fraud, Waste

After providers submit that information, CMS will review the facts to determine if that provider poses an undue risk of fraud, waste, or abuse based on any of its relationships with companies or individuals that CMS has sanctioned, she explained.

If any individuals or companies have ever been sanctioned, the lab or pathology group would need to disclose that information to CMS, she said.

“The rule also creates new revocation and denial authorities in an effort to stop waste, fraud, and abuse, including increased re-enrollment bars,” she wrote in a client alert last week, adding that the new rule imposes another burden on providers to maintain information on any affiliations it has had with excluded individuals or companies.

“The final rule imposes a five-year look-back on affiliations, meaning a provider will need to obtain and maintain all required disclosable events from each affiliation and provide that information to CMS for review,” she added. (See “Labs Must Respond to New CMS Anti-Fraud Rule,” TDR, Oct. 14, 2019.)

“It’s not so much that healthcare providers have criminal exposure, but one aim of the rule is to prevent criminal behavior through new enrollment rules,” Tito said.

“CMS is trying to weed out the people who try to shortcut the process to enroll in Medicare, Medicaid, or CHIP, or to re-enroll in any of these programs under different names.

“It’s not infrequent that after CMS cites owners, operators, corporate officers, directors, and other executives at clinical lab companies, these same individuals form other corporate entities that operate in a fraudulent manner,” she commented.

“CMS is requiring compliance with this new rule to prevent these and other shortcuts to get around the Medicare enrollment process,” Tito explained. “This new rule is an effort by CMS to short-circuit fraudulent activity.

“But, in trying to short-circuit this behavior, CMS is creating a burdensome and costly process for all good providers—including those providers who have always been compliant,” she stated. “This new process basically requires providers to be private investigators. Under the rule, providers have to dig through all of their direct and indirect affiliations to see if CMS has sanctioned any of them.”

Burden for Providers

In a commentary, CMS acknowledged that complying with the rule will be burdensome for providers. It therefore adopted a phased-in approach to enforcement of this section of the new rule. In the initial phase, CMS will send requests to targeted providers and those providers will need to comply with the rule fully. Tito suggests, however, that clinical laboratories and anatomic pathology groups start preparing now and suggests the following initial steps:

  • Create a plan and set aside a budget for how to collect and maintain this information,
  • Consider renegotiating contracts to include obligations for affiliates to provide this information and include similar clauses in all new contracts,
  • Watch for sub-regulatory guidance on this topic from CMS, and
  • Seek legal counsel to assist in moving forward.

Contact Courtney Tito at 561-472-2121 or


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