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From Health Reform WK-EDGE, April 24, 2019

Credible allegation of fraud against provider justified suspension of Medicaid payments

George Basharis, J.D.

The allegation of fraud against an Arizona health care provider was credible, and the suspension of Medicaid payments based on the fraud charges was proper.

An allegation of fraud against Rehab Arizona, LLC (RAZ), a health care provider of rehabilitative therapies, was credible and justified the suspension of Medicaid payments to RAZ, the Arizona Court of Appeals has determined. The Arizona Health Care Cost Containment System (AHCCCS), the state agency that administers health care programs to Arizona’s eligible indigent population, had the legal authority to impose the suspension of payments pending further investigation into the fraud charges, and the court found no abuse of discretion by AHCCCS for its decision not to lift the suspension (Rehab Arizona, L.L.C. v. Arizona Health Care Cost Containment System, April 9, 2019, Jones, P.).

RAZ contracted with AHCCCS to provide services to AHCCS members. Under the Participating Provider Agreement, RAZ agreed not to bill with another provider’s number except in certain situations. In 2017, AHCCCS referred RAZ to the Arizona Attorney General for engaging in fraudulent billing practices by submitting claims seeking reimbursement for services supposedly performed by another practitioner. After the AG began a criminal investigation into RAZ’s billing practices, AHCCCS imposed a temporary suspension of Medicaid payments pending further investigation of a credible allegation of fraud against RAZ. In response, RAZ terminated its former compliance officer and submitted affidavits showing its intention to comply with the provider agreement.

Legal authority. RAZ contended that AHCCCS lacked the legal authority to suspend payments to RAZ. RAZ argued that the federal regulation authorizing a payment suspension (42 C.F.R. § 455.23), exceeded the scope of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and violated the Tenth Amendment. RAZ argued that the ACA’s requirement that HHS withhold payments to states when applicable does not mean that states are required to withhold payments to providers.

The court noted that Arizona law authorizes AHCCCS to supervise the "[e]stablishment and management of a system to prevent fraud by members, subcontracted providers of care, contractors and noncontracting providers." AHCCCS may adopt rules for the withholding or forfeiture of payments to a contractor that does not comply with a provision of the contractor’s contract. Further, AHCCCS can impose sanctions on a contractor for violating any provision of its contract. The court also noted that under the ACA, states must suspend payments when a credible allegation of fraud is made, unless the state is aware of good cause not to suspend payments.

Credible allegation of fraud. RAZ contended the suspension of payments should be lifted because there was no fraud. However, the court determined that there was substantial evidence supporting the existence of a credible allegation of fraud, including witnesses’ testimony and written communications by the provider whose name RAZ used for alleged fraudulent billing purposes. RAZ then argued that even if the payment suspension was lawful, AHCCCS abused its discretion by failing to lift the suspension for good cause. RAZ contended there was good cause because its prior practices resulted from a good faith misunderstanding of AHCCCS requirements and because it has since demonstrated a commitment to future compliance.

However, according to the court, neither of these circumstances constitute good cause under the regulation. Raz also argued that the payment suspension jeopardizes beneficiary access to items or services, but although approximately fifty percent of RAZ’s patients were AHCCCS-eligible members, the record did not reflects that RAZ is "the sole source of essential specialized services in a community." The court also disregarded RAZ’s argument that payment is not in the best interest of the Medicaid program. Finally, RAZ contended the duration of the investigation constitutes good cause to lift the suspension. The court noted that the duration of an investigation does not fall within the definitions of good cause under the regulation, and further, because RAZ failed to develop the argument at the administrative hearing, it is waived.

The case is No. 1 CA-CV 18-0511.

Attorneys: Timothy A. Nelson (The Nelson Law Group, PLLC) for Rehab Arizona, LLC. Logan T. Johnston III (Johnston Law Offices, PLC) for Arizona Health Care Cost Containment System.

Companies: Rehab Arizona, LLC; Arizona Health Care Cost Containment System

Cases: CaseDecisions AgencyNews FraudNews MedicaidNews ProgramIntegrityNews ArizonaNews NewsFeed

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