The Deficit Reduction Act of 2005 (DRA), which President Bush signed into law on February 8, 2006, makes significant changes in a number of areas of the federal budget. Of particular note to health care providers are the provisions relating to Medicare and Medicaid in Titles V and VI. These provisions make a number of significant changes to the Medicare and Medicaid programs. Among the "hot-button" areas addressed in the DRA are: gainsharing, specialty hospitals, ownership of "capped rental" durable medical equipment, payments for oxygen equipment, outpatient therapy caps, payments for imaging services, and various changes intended to combat Medicaid fraud and increase false claims recoveries. Together, these changes are projected to reduce Medicare and Medicaid spending by nearly $11 billion over five years.

The focus of this article is on the various changes intended to combat Medicaid fraud and increase false claims recoveries.

Encouraging Enactment of State False Claims Acts
Section 6031 of the DRA creates financial incentives for states to enact laws that are analogous to the federal False Claims Act. Under current law, states are required to repay the federal share of any provider overpayments that they discover, regardless of whether the state has recovered the overpayments from the provider. The DRA provides that the federal share that states must repay to the federal government is reduced by 10 percentage points for states with false claims acts analogous to the federal False Claims Act.

Specifically, a state false claims act must be determined by the OIG to meet the following criteria:

Establish liability to the state for false or fraudulent claims described in the federal False Claims Act with respect to Medicaid payments;
Contain provisions that are at least as effective in rewarding qui tam relators or whistleblowers as in the federal False Claims Act (currently 15 to 30 percent of the government's recovery);
Contain a requirement for filing an action under seal for 60 days for review by the state Attorney General; and
Contain a civil penalty that is not less than the amount authorized by the federal False Claims Act (currently $5,500 to $11,000 per claim plus up to three times the government's damages).

The DRA makes clear that it does not preclude states from enacting laws that are broader than the federal False Claims Act. The effective date of section 6031 is January 1, 2007.

Currently, 22 states and the District of Columbia have some form of state false claims act applicable to Medicaid. In addition, legislation is pending in at least 10 states. Given the financial incentives created by the DRA, it seems likely that all of the states will enact false claims act statutes that are analogous to the federal False Claims Act.

Employee Education about False Claims Recovery
Section 6032 of the DRA imposes new conditions of participation on entities that receive or make annual Medicaid payments of at least $5 million. Specifically, the new Medicaid conditions of participation require entities to:

Establish written policies for all employees, agents, and contractors that provide detailed information about the federal False Claims Act, administrative remedies for false claims and statements, state laws that create civil or criminal penalties for false claims and statements, and whistleblower protections under such laws;
Include in such written policies detailed information regarding the entity's policies and procedures for detecting and preventing fraud, waste, and abuse;
Include in any employee handbook a specific discussion of the laws mentioned above, the rights of employees to be protected as whistleblowers, and the entity's policies and procedures for detecting and preventing fraud, waste, and abuse.

The effective date of section 6032 is January 1, 2007. However, where a change in state law is required, the effective date would essentially be extended to the first day of the first calendar quarter after the close of the first regular session of the state legislature after the date of enactment of the bill.

The original version of section 6032 contained an additional requirement that entities provide mandatory training at the time of hire for all employees, agents, and contractors. The training was to cover the laws mentioned above, the rights of employees to be protected as whistleblowers, and the entity's policies and procedures for detecting and preventing fraud, waste, and abuse. This provision was eliminated in the final version of the DRA. Thus, actual training is not required, although written policies and handbook provisions are.

In light of these changes to the Medicaid conditions of participation, any health care provider that receives at least $5 million from Medicaid should take steps to develop policies and procedures and handbook provisions that address these requirements. While we are hopeful that the government will provide some additional regulatory guidance as to exactly what is required, the timing of such regulations is unclear.

Medicaid Integrity Program
Section 6034 of the DRA creates a Medicaid Integrity Program at the federal level to coordinate efforts to safeguard the Medicaid program, ensure that Medicaid funds are spent properly, and recover Medicaid funds when they have not been spent properly. The new law also authorizes specific funds for CMS to operate the Medicaid Integrity Program and for OIG to dedicate to Medicaid activities.

The specific activities assigned to the Medicaid Integrity Program are as follows:

Review of actions of individuals and entities furnishing services for which payments may be made under a state Medicaid program to determine whether fraud, waste, or abuse has occurred or is likely to occur, or whether such actions have a potential to result in inappropriate expenditures.
Audit of claims for services reimbursed under Medicaid as well as cost reports, consulting contracts, and risk contracts.
Identify overpayments to individuals or entities receiving Medicaid funds.
Education of providers, managed care entities, beneficiaries, and other individuals with respect to payment integrity and quality of care.

CMS is authorized to enter into contracts with private contractors to accomplish the goals of the Medicaid Integrity Program.

In accordance with DRA requirements for the new Medicaid Integrity Program, CMS has established a comprehensive plan for combating waste, fraud, and abuse and maintaining the integrity of the Medicaid program. The plan was developed in consultation with the Attorney General, the FBI, the Comptroller General, the OIG, and state officials responsible for controlling provider fraud and abuse under state Medicaid programs, and must be updated every five years.

The new law also requires HHS to increase CMS staffing devoted to protecting the integrity of the Medicaid program. This staffing increase calls for 100 full-time equivalent employees whose duties consist solely of protecting the integrity of the Medicaid program and providing support and assistance to states in their efforts to combat fraud and abuse.

Finally, section 6034 expands the Medicare-Medicaid Data Match Program (Medi- Medi Program) on a national basis. Previously, this program had operated on a pilot basis in eight states. The Medi-Medi Program uses combined claims data from the Medicare and Medicaid programs to identify billing anomalies and patterns that suggest the existence of fraud and abuse. The results of the Medi-Medi program are shared among federal and state authorities.