New York Mandates Compliance Programs

28 January 2009 Publication
Authors: Lawrence W. Vernaglia Judith A. Waltz

Legal News Alert: Health Care

Providers serving Medicaid patients in New York will soon be required to implement mandatory compliance programs, and those providers that already have such programs may need to make changes in order to comply with the regulations proposed on January 14, 2009 and published in the New York State Register.

Compliance programs have traditionally been voluntary except when the federal government has imposed compliance obligations such as corporate integrity agreements, in order to resolve cases involving allegations of fraud or false claims. New York State’s Office of the Medicaid Inspector General (Medicaid Inspector General) changed that paradigm when it issued the proposed regulations mandating compliance plans for all Medicaid providers in the state. The proposed regulations are now subject to a 45-day public comment period, and all affected providers will be expected to have compliance programs in place between 60 and 90 days after the regulations take effect. New York’s regulations mirror federal requirements and are often used as potential models and best practices for the voluntary compliance and enforcement activities of other states.

The proposed regulations include hospitals, medical equipment service agencies, nursing homes, and mental health facilities. And despite some earlier comments in the trade press, the proposed regulations are not limited to the foregoing providers, but also are applicable to:

… other persons, providers or affiliates who provide care, services, or supplies under the medical assistance program or persons who submit claims for care, services or supplies for or on behalf of another person for which the medical assistance program is …a substantial portion of their business operations. 

The regulations specify that a provider that anticipates submitting or does submit claims of at least $500,000 to the New York medical assistance program in any consecutive 12-month period meets the “substantial portion” test and must have a compliance program.

The regulations were promulgated pursuant to a 2006 amendment to the New York State Social Services Law, which gave the Medicaid Inspector General some flexibility in the implementation. For example, the 2006 statutory amendment did not establish any specific threshold for determining when a substantial portion of an entity’s business was in the Medicaid program. Although the regulations affect a number of activities typically found in compliance plans such as billing and reimbursement requirements, they also add medical necessity, quality of care, governance, and “mandatory reporting” to the matters that a compliance plan must include.

The regulations generally track the elements of an effective compliance plan found in the U.S. Federal Sentencing Guidelines of 1991 as well as many requirements that are incorporated in the U.S. Department of Health & Human Services, Office of Inspector General’s corporate integrity agreements. These include:

  • Establishing standards and procedures
  • Designating a compliance officer with a direct reporting relationship to high-level management
  • Compliance training
  • Monitoring and auditing requirements
  • Disciplinary policies for sanctioning employees who do not abide by the compliance plan
  • Policies for preventing recurrences of violations

The regulations also require that the compliance programs include a policy of non-retaliation; however, the regulations do not require that those covered by it have an exclusion screening program or engage an independent review organization for the performance of audits.

Under the new regulations, compliance programs must include the following:

  • Written materials that explain the goals of the compliance program, the procedures for implementing the program, and how problems are to be investigated and resolved
  • A designated employee responsible for administering the program on a day–to-day basis (such employee’s responsibilities may be combined with other responsibilities)

    • The employee must report directly to the company’s chief executive officer or his or her designee and must report periodically to the governing body
  • A direct line of communication to the employee responsible for the compliance program, accessible to all employees, executives, and governing body members
  • A method for anonymous reporting of compliance issues
  • Compliance training for all employees, executives, and governing body members
  • Orientation for new and existing employees concerning compliance issues
  • Disciplinary policies that include sanctions for failing to report compliance issues, participating in non-compliant behavior, and “encouraging, directing, facilitating, or permitting either passively or actively non-compliant behavior”
  • A system to identify areas of compliance risk specific to those covered by the regulations, including internal and “possibly” external audits
  • A system for investigating and correcting potential compliance problems and ensuring that such problems do not reoccur
  • A system for reporting compliance problems to the Medicaid Inspector General and refunding any overpayments
  • A policy of no intimidation or retaliation for good faith participation in the compliance program

Upon enrollment in the New York medical assistance program, and each December thereafter, each covered entity must certify that an adequate compliance program is in place and in use. Certification may be done via an electronic form to be made available on the Medicaid Inspector General’s Web site.

The Medicaid Inspector General also has the authority to determine whether an entity’s compliance program is satisfactory. If it is not, the entity is subject to sanctions, including revocation of its enrollment in the medical assistance program. It should be noted that, while the regulations state that a program will be satisfactory if it is deemed by the U.S. Department of Health & Human Services (Department) to be compliant with federal standards, it is unclear how this provision will be implemented since the Department does not approve compliance programs. The Medicaid Inspector General also will post compliance program guidance on its Web site for certain types of entities, though no information is presently available about the types of guidance to be issued.

The 2006 amendment and these regulations implementing the law are part of an overall effort by the state to ferret out fraud, waste, and abuse in its medical assistance program in response to criticisms, received before the Medicaid Inspector General’s office was founded, for lacking aggressive oversight and enforcement policies. New York now has significant financial incentives, in the form of supplemental funding from the Centers for Medicare & Medicaid Services (CMS) under a demonstration project designated as the Federal-State Health Reform Partnership (F-SHRP), to ramp up its enforcement activities. Governor David A. Patterson announced that New York had exceeded its first goal under F-SHRP by collecting $551 million in FY 2008 as a result of Medicaid audits, investigations, and program reviews.

New York’s Medicaid Inspector General, James G. Sheehan, a veteran of the U.S. Department of Justice, has managed hundreds of health care fraud matters as Assistant U.S. Attorney for the Eastern District of Pennsylvania. Mr. Sheehan has said that his plan for New York is to continue to focus on traditional audit issues (medical necessity) and to expand scrutiny of quality of care issues. Mr. Sheehan also was on the forefront of efforts to use the False Claims Act to address quality issues.

Providers meeting the $500,000 threshold are estimated to comprise 10 percent of New York’s Medicaid providers and submit 95 percent of the state’s Medicaid claims. By requiring this group to be proactive in identifying, reporting, and returning overpayments, state officials hope to enhance the integrity of its Medicaid program and achieve substantial savings while preserving high quality of care.

The Medical Inspector General’s Web site is

The proposed regulations are available at:

Legal News Alert is part of our ongoing commitment to providing up-to-the minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

Janice A. Anderson
Chicago, Illinois

Joyce E. Gresko
Washington, D.C.

Michael Scarano
San Diego/Del Mar, California

Heidi A. Sorensen
Washington, D.C.

Lawrence W. Vernaglia
Boston, Massachusetts

Cheryl L. Wagonhurst
Los Angeles, California

Judith A. Waltz
San Francisco, California

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