Medicare Payment Suspensions Emerge as a Key Tool in Federal Anti-Fraud Efforts — Focus on California Hospices

Medicare payment suspensions result in a cessation of payments for Medicare services until the suspension is resolved, typically several months after the initial action to suspend. Payments withheld will then be released after recoupment of any determined overpayments. The Trump Administration has stated that it will aggressively use its authority (created by the 2010 Affordable Care Act) to suspend payments based upon a credible allegation of fraud. Below we set forth the context for such suspensions, as well as the key parameters for such actions. 

Trump Administration Focus on Fraud, Waste, and Abuse 

In a March 16, 2026 Executive Order, the Trump Administration launched an interagency Task Force to Eliminate Fraud, targeting transactions and processes in federal benefit programs “that are most susceptible to fraud schemes.” Recent enforcement activity in California as part of this anti-fraud initiative highlights the Administration’s increasing reliance on aggressive program-integrity tools to combat suspected health care fraud.

Approximately one month after the Task Force’s launch, federal authorities reportedly targeted an estimated $600 million in suspected fraudulent spending by suspending payments to 447 hospices and 23 home health agencies in Southern California, signaling a heightened willingness to take swift administrative action against providers perceived to pose fraud risks. Earlier, in an April 2, 2026 press release, the U.S. Department of Justice (DOJ) announced that eight California defendants were arrested on federal charges for allegedly participating in a scheme to defraud the nation’s health care system of more than $50 million, including through the operation of sham hospice facilities that submitted Medicare claims for beneficiaries who were not terminally ill.

These large-scale actions underscore the government’s growing willingness to aggressively combat suspected fraud, waste, and abuse in federally funded health care programs. For providers and suppliers in the health care sector, particularly in California, the recent hospice actions are a stark reminder that fraud enforcement is no longer limited to post-investigation recoupments or False Claims Act (FCA) litigation; it increasingly includes immediate operational measures.

Payment Suspensions as an Emerging Enforcement Priority

This broader enforcement posture is also reflected in DOJ and the U.S. Department of Health & Human Services’ (HHS) increasing focus on payment suspensions as a fraud-fighting tool. Previously, in a July 2, 2025, press release, HHS and DOJ announced a new “DOJ-HHS False Claims Act Working Group” (the Working Group) and identified multiple priority enforcement areas for the Working Group to address health care fraud and abuse. The press release also encourages the submission of tips and complaints on waste and mismanagement. Membership in the Working Group includes leadership from the HHS Office of General Counsel, the Centers for Medicare & Medicaid Services (CMS) Center for Program Integrity, the Office of Counsel to the HHS Office of Inspector General (OIG), and DOJ’s Civil Division. 

As pertinent to this discussion, DOJ’s 2025 press release noted that as part of its efforts, the Working Group “shall discuss considerations bearing on whether HHS should implement a payment suspension pursuant to 42 C. F.R. § 405.370….” Although CMS has several bases upon which it can impose payment suspensions, including “reliable information that an overpayment exists,” 42 C.F.R. § 405.371, its most significant suspension tool is a suspension based on a “credible allegation of fraud.” See our prior blog titled “DOJ-HHS False Claims Act Working Group: Focus on Medicare Payment Suspensions.”

What Is a Medicare Payment Suspension?

As defined by 42 C.F.R. § 405.370, a Medicare payment suspension is the withholding of payment by a Medicare contractor from a provider or supplier of an approved Medicare payment amount before a determination of the amount of an overpayment exists, or until the resolution of an investigation of a credible allegation of fraud. A payment suspension may be applied against part or all of Medicare payments. 42 C.F.R. § 405.371(a). Notice to the provider or supplier may be waived if harm to the Medicare Trust Funds is suspected. 42 C.F.R. § 405.372. There is no administrative appeal process to challenge the imposition of a suspension. 42 C.F.R. § 405.374.

What Is a Credible Allegation of Fraud?

One basis for a Medicare payment suspension is a “credible allegation of fraud.” This basis for payment suspension was added by the Affordable Care Act and codified at 42 U.S.C. § 1395y(o) for Medicare, with a Medicaid corollary at 42 U.S.C. § 1396b(i)(2). The term is not defined in the statute, although the statute provides that “a fraud hotline tip (as defined by the Secretary) without further evidence shall not be treated as sufficient evidence for a credible allegation of fraud.” 42 U.S.C. § 1395y(o)(4).

In implementing regulations at 42 C.F.R. § 405.370, CMS defines a “credible allegation of fraud” as an allegation of fraud from any source, including but not limited to the following: (1) fraud hotline tips [defined as a complaint or other communications submitted through a fraud reporting phone number or website intended for the same purpose, e.g., the HHS-OIG Hotline] verified by further evidence; (2) claims data mining; and (3) patterns identified through provider audits, FCA cases, and investigations.

By statute, HHS must consult with HHS-OIG in determining whether there is a credible allegation of fraud against a provider of services or supplier. 42 U.S.C. § 1395y(o)(2). 

In its Program Integrity Manual, CMS notes that fraud suspensions may also be used for “reasons not typically viewed within the context of false claims,” e.g., a determination by the Quality Improvement Organization (QIO) that diagnosis-related groups have been upcoded, suspected violations of the physician self-referral law, and credible allegations of kickbacks underlying medically necessary items or services. CMS Program Integrity Manual, Ch. 8, § 8.3.1.1. 

Similar provisions apply to state Medicaid programs (although Medicaid is not addressed in 42 U.S.C. § 405.370, the provision cited in the press release as the basis for Working Group’s consideration). The state Medicaid agency must suspend all Medicaid payments to a provider after the agency determines there is a credible allegation of fraud for which an investigation is pending under the Medicaid program against an individual or entity unless the agency has good cause to not suspend payments or to suspend payment only in part. 42 C.F.R. § 455.23; see also 42 C.F.R. § 447.90 (Federal Financial Participation funding).

How Long Do Medicare Payment Suspensions Last?

Medicare payment suspensions are generally expected to last no longer than 18 months, although the period may be extended if the case has been referred to, and is being considered by, HHS-OIG, or if DOJ submits a written request to continue the suspension. CMS must evaluate whether there is good cause not to continue a suspension every 180 days after the initiation of the suspension. See 42 C.F.R. § 405.372(d).

Can the Imposition of a Medicare Payment Suspension Be Appealed?

As noted above, there is no administrative process to appeal a suspension. 42 C.F.R. § 405.374. Providers and suppliers can submit a rebuttal, and CMS will consider evidence of “good cause” that would justify discontinuation of the suspension. The lack of a formal appeal process has resulted in multiple court actions seeking temporary restraining orders or other injunctive relief. These actions are often unsuccessful due to jurisdictional challenges, although some bankruptcy court actions have been successful in limited circumstances. 

How Should Providers or Suppliers Respond if Notified of a Medicare Payment Suspension? 

• Act immediately to identify options: the process for rebuttal moves very quickly. Rebuttal is unlikely to be successful, but the provider or supplier should consider putting a response on the record to start a dialogue with CMS to address the suspension.
• CMS has some latitude to suspend payments in part rather than in full — there may be a way to limit the suspension to a certain stratification or even percentage of payments, especially if there is a beneficiary access issue. See CMS Program Integrity Manual, Ch. 8, § 8.3.1.1 for a discussion of “good cause” exceptions. 
• Identify the concerns behind the “credible allegation” and craft a response, e.g., analyze patient charts requested for review and be able to defend them. 
• There may be some latitude for emergency releases of funds upon a showing of extreme need, e.g., meeting payroll. 

Conclusion

As the Trump Administration ramps up its enforcement efforts against fraud, waste, and abuse, providers and suppliers are now expressly on notice to expect that governmental enforcers will place increased reliance on payment suspensions, most likely those based on credible allegations of fraud. Suspensions in some cases may be imposed without advance notice, and there is no pathway for appeal, although an opportunity for rebuttal is offered. Providers and suppliers subject to such suspensions may face months without Medicare payments. However, in appropriate situations they may be able to work with government enforcers to expedite the process and/or limit the scope. Providers and suppliers facing payment suspensions should be prepared to act quickly to respond, and the advice of experienced counsel is recommended. 

At Foley, we are actively advising providers across the country on how to respond to this evolving legal landscape. From policy development and compliance strategy to enforcement defense, we are here to help. Please reach out to the authors, your Foley relationship partner, or to our Health Care Practice Group and Health Care & Life Sciences Sector with any questions.