On September 20, 2016, CMS and the OIG jointly published a proposed rule, available here, to amend the largely unchanged 1978 regulation governing State Medicaid Fraud Control Units (MFCUs).  Since the initial issuance of the rule, statutory changes and a number of program and policy changes have occurred.  CMS and the OIG propose to incorporate the statutory changes into the regulation and align the rule with practices and policies that have developed over the last 30 years.  Because the majority of the proposed rule simply codifies longstanding existing provisions and practices, industry impact is likely minimal.  The rule does, however, contain provisions beyond existing practices that modify staffing requirements and expand MFCU prosecutorial authority.  Comments on the proposed rule are due by November 21, 2016. 

Statutory Changes – The proposed rule incorporates several statutory changes that have been enacted since 1977.  The rule purports to:

• Raise the Federal matching rate for ongoing operating costs from 50 to 75 percent;
• Establish a Medicaid State plan requirement that states operate effective MFCUs;
• Create standards regarding MFCU operation;
• Permit MFCUs to seek approval from the Inspector General to investigate and prosecute violations of State law related to health care fraud under any Federal health care program, if it is primarily related to Medicaid; and
• Provide MFCUs the option to investigate and prosecute patient abuse and neglect, regardless of whether the facility received Medicaid payments.

Staffing Requirements – The existing regulations prohibit federal fiscal participation (FFP) in expenditures for any management, investigative, professional or legal function that is not performed by a full-time employee.  In accordance with current OIG policy, the proposed rule would allow FFP for any full-time or part-time employee who devotes “exclusive effort” to the MFCU.  The proposed rule defines “exclusive effort” as a duty within the MFCU intended to last for at least one year.  MFCU employees on detail or assignment from another agency would not be permitted to allocate time to both the MFCU and the employee’s home agency.  However, MFCU professional employees would be permitted to obtain outside employment or perform temporary assignments with some restriction.  The rule clarifies that investigation and prosecution functions of the MFCU may not be outsourced.  The proposed rule also requires MFCUs to employ a director to supervise all MFCU employees and require that MFCUs provide training for professional employees on Medicaid fraud and patient abuse and neglect matters.

Prosecutorial Authority – Technical amendments to prosecutorial authority have been proposed in the rule that permit the prosecution of patient abuse and neglect.  Under the proposed rule, MFCUs also maintain authority to make referrals to other offices with statewide prosecutorial authority and the State Attorney General.

Agreement with Medicaid Agency – The proposed rule requires that the memorandum of understanding (MOU) between the MFCU and Medicaid agency establish terms for consistent communication between the parties.  The parties must further review and update, if necessary, the MOU no less than every five years.

Definitional Changes – The proposed rule adds a definition for “fraud” to clarify that MFCUs have authority to investigate “any and all aspects of fraud” which include any action for which criminal or civil penalties may be imposed under State law.  CMS and the OIG continue to disallow FFP for investigations and expenditures for program abuse, which has been defined in the proposed rule as activities that do not meet civil or criminal penalty requirements and constitute only improper provider practices.  If overpayments have been identified with respect to program abuse, the MFCU is encouraged to refer the matter to the state Medicaid agency.

The proposed rule clarifies that a “health care facility,” which falls within the investigative scope of MFCU responsibilities, is a provider who receives payments under Medicaid and “furnishes food, shelter, and some other treatment or services to four or more persons unrelated to the proprietor in an inpatient setting.”  The definition of “provider” has also been modified to incorporate any provider required to enroll in a State Medicaid program including ordering and referring physicians.  Therefore, providers not furnishing the service in question can be subject to MFCU investigation and prosecution.  

To clarify MFCU duties regarding patient abuse and neglect, “abuse of patients” has been defined as willful infliction of injury, unreasonably confinement, intimidation or punishment with resulting physical or financial harm, pain or mental anguish.  “Neglect of patients” has been defined to mean willful failure to provide goods and services necessary to avoid physical harm, mental anguish, or mental illness.  Furthermore, the proposed definitions include acts that may constitute a crime under State law.