California's Medi-Cal Program Implements Affordable Care Act Fraud, Waste, and Abuse Provisions

27 November 2012 Publication
Authors: Judith A. Waltz Anil Shankar

Legal News Alert: Health Care

On September 29, 2012, California Governor Jerry Brown signed into law a bill that gives the California Department of Health Care Services (DHCS), the state agency which implements the California Medi-Cal (Medicaid) program, the authority to implement certain fraud, waste, and abuse requirements of the 2010 federal Patient Protection and Affordable Care Act (commonly referenced as the federal health care reform law). The California legislation, S.B. 1529, was introduced in February 2012, and adds multiple provisions to the existing California Welfare & Institutions Code fraud and abuse provisions. DHCS has already announced that the target date for full implementation of the new requirements will be January 1, 2013.

Enrollment Risk Categories. All Medi-Cal providers and suppliers will be affected by at least some of these new provisions. DHCS will now screen a provider or other applicant based on a categorical risk level that Medicare contractors are currently required to use for assessment. Federal law designates specific provider types within three categories: “limited” categorical risk, “moderate” categorical risk, and “high” categorical risk. If DHCS designates a provider as a high categorical risk, it must conduct a criminal background check (including a fingerprint check), among other screening procedures. Prospective home health agencies and prospective durable medical equipment (DME) suppliers are both designated as high categorical risk. DHCS also will designate a provider as a high categorical risk if any of four conditions exist: (1) payment suspension that is based on a credible allegation of fraud, waste, or abuse; (2) existing Medicaid overpayment based on fraud, waste, or abuse; (3) exclusion by the federal Office of the Inspector General or another state’s Medicaid program within the previous 10 years; or (4) a moratorium was lifted within the previous six months prior to applying and the provider would have been prevented from enrolling due to the moratorium.

New Enrollment Enforcement Authorities. DHCS also will have new permissive authority to deny or deactivate the enrollment of any prospective provider or agent if the provider, agent, or managing employee fails to submit accurate information and fails to cooperate with the enrollment screening process. Additionally, if a provider has been terminated under Medicare, Medicaid, or the Children's Health Insurance Program in another state, DHCS would be prohibited from enrolling the provider in Medi-Cal or would be required to terminate the provider from Medi-Cal if that provider is already enrolled.

Payment Suspension Based on Credible Allegation of Fraud. The new law adds a requirement for temporary payment suspension upon receipt of a "credible allegation of fraud," with a pending investigation under the Medi-Cal program against a provider, unless there is good cause not to suspend the payments or to suspend them only in part.

Moratoria. If the Secretary of the United States Department of Health and Human Services establishes a temporary moratorium on enrollment, DHCS must now establish a corresponding moratorium covering the same period and provider types unless it determines that a moratorium will adversely affect beneficiaries’ access to medical assistance. DHCS also has existing authority to impose moratoria, and has done so on a regular basis in recent years. CMS approved existing Medi-Cal moratoria on June 19, 2012.

Application Fee. This bill also requires DHCS to collect an application fee for enrollment, including enrollment at a new location or a change in location, in the amount calculated by the Centers for Medicare and Medicaid Services (CMS).

Recovery Audit Contractors. DHCS also may now enter into contracts with eligible Medicaid Recovery Audit Contractors pursuant to federal law, which requires these contractual relationships for the purpose of identifying underpayments and overpayments and recouping overpayments made to any entity under the plan or waiver. This authority was made retroactively effective as of January 2012.

Timing. As indicated above, DHCS has indicated that it plans to have most provisions implemented by January 1, 2013. Since the state plan amendment (SPA) necessary to implement certain sections of the bill is not yet approved by CMS, many of the new law's provisions will technically not become operative until the effective date of that SPA, although it is likely that CMS will retrospectively approve the prior effective date. Once the implementing SPA is approved, the California Director of Health Services will execute a declaration, which will be posted on DHCS’s Web site, stating that the approval has been obtained and notes the effective dates of the SPA. The SPA was submitted to CMS on March 30, 2012.


Providers should familiarize themselves with the new laws and take steps to prepare themselves for compliance. Any provider enrollment application or revalidation should be closely reviewed by a high-level employee or agent associated with the provider to assure that submissions are complete and accurate. Some of the changes to the law provide harsher penalties for noncompliance with parts of the code that were already in place. (For example, DHCS was already authorized to make unannounced visits to any applicant; now, if the provider does not permit access to any and all of their provider locations during these visits, an enrollment application will be denied and an existing provider will be subject to deactivation.) Providers must be cognizant of the risks associated with sanctions by other state Medicaid programs and the collateral impact on California Medi-Cal enrollment. 

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

Judith A. Waltz
San Francisco, California

Danna Carmi
Los Angeles, California

Michael Scarano
San Diego, California

Anil Shankar
Los Angeles, California

Elizabeth S. Elson
Los Angeles, California

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