Over the past few years, the number of fraud investigations and without notice Medicaid payment holds initiated by the Texas Health and Human Services Commission-Office of the Inspector General (THHSC-OIG or Commission) has risen dramatically. This has been accompanied by public outcry on the part of Medicaid providers who have been hit with indefinite payment holds based on little or no evidence, payment holds which can stay in place indefinitely while the Office of the Inspector General conducts its full, and often lengthy investigation.

One of the more important health care bills passed by the 83rd Texas Legislature imparts much needed revisions to the statutes governing the THHSC- Office of the Inspector General’s authority to impose without notice payment holds on Medicaid providers accused of fraud. The statutory changes by the Texas Legislature reflect an intense lobbying effort by Medicaid providers to add greater transparency, clearer standards, and more robust due process to without notice payment holds.

Pursuant to the Patient Protection and Affordable Care Act, more colloquially known as "Obamacare," states are required to withhold Medicaid payments to providers upon receipt of a "credible allegation of fraud." In Texas, responsibility for civil and administrative prosecution of Medicaid fraud rests with THHSC-Office of the Inspector General. Criminal investigation and prosecution for Medicaid fraud falls on the shoulders of the Medicaid Fraud Unit of the Texas Attorney General’s Office. Oftentimes both of these agencies will pursue civil and criminal legal actions in concert.

Prior to the passage of the recent legislation there was no statutory definition of what constituted a "credible allegation of fraud," nor guidance on what kind evidence or preliminary investigation was required before the Office of the Inspector General could impose a without notice payment hold. Because of this, the THHSC-OIG was relatively unfettered in deciding when to impose a payment hold and many Medicaid providers complained this frequently resulted in payment holds being initiated based on little or no evidence of actual fraud.

More importantly, under the prior law a Medicaid provider who was the subject of a without notice payment hold had little to no opportunity to challenge the hold prior to the informal conference or contested case proceeding which would only occur after the completion of a full investigation by THHSC-OIG’s. This full investigatory and administrative process can in many instances take one or more years.

Thus, even if the provider is eventually vindicated, or later settles their case through a partial repayment of the money received from Medicaid, in the interim the provider is denied all Medicaid reimbursement for ongoing care and services. For many providers, such as physician or dental practices catering to Medicaid patients, this is effectively a death sentence as they are forced to indefinitely shoulder the costs of providing care while continuing to pay overhead and satisfy payroll with only an uncertain hope of later reimbursement after their case is resolved and the payment hold removed. The new legislation remedies many of these defects by explicitly defining what constitutes a credible allegation of fraud, outlining the procedure the Commission is required to follow prior to making this determination, and affording an expedited informal conference and/or contested case hearing to a Medicaid provider who is the subject of a without notice payment hold.

Under the new statute distinct definitions are created for both an "allegation of fraud" and a "credible allegation of fraud." Significantly, these definitions make clear that an allegation of fraud can only be deemed credible after a careful case-by-case review that examines all allegations, facts, and evidence; a tip to the fraud hotline, claims data analysis, provider audit, or active law enforcement investigation in-and-of-themselves do not constitute a credible fraud allegation. Although much will depend on how these new standards are implemented by the THHSC-OIG, this is a helpful development as in the past many payment holds have been based entirely on one of the above listed factors which have now been deemed insufficient in the absence of further evidence of fraud.

In addition to better defining what constitutes a "credible allegation of fraud," and perhaps more importantly, what does not, the Texas Legislature now mandates that the Office of the Inspector General conduct a preliminary investigation prior to imposing a payment hold or proceeding to a full investigation. This preliminary investigation culminates in the generation of a report containing the underlying allegation, the evidence reviewed, the procedures used to conduct the investigation, the findings, and a determination of whether a full investigation is warranted. The revised statute also mandates that the Commission retain separate physician and dental directors who must ensure any investigative findings based on the necessity or quality of care be reviewed by a qualified expert. Although the actual impact of these provisions will largely depend on how they are implemented by the THHSC-OIG, ideally these changes will impart additional rigor to the process the Office of the Inspector General uses to screen fraud and abuse allegations for further investigation and the possible imposition of a payment hold.

Of greatest value, the Legislature has afforded Medicaid providers who are the subject of a without notice payment hold an expedited hearings process to either challenge this status or quickly settle their case. The new statutes mandate that the Commission include a recitation of a provider’s procedural rights concurrent with notice that a payment hold has been imposed. These rights include the option to either immediately proceed to a contested case hearing at the State Office of Administrative Hearings within sixty days receipt of the notice letter or convene an informal conference with the option for a later contested case hearing should the informal conference fail to resolve their case. This development is significant as it allows the subject of a Medicaid payment hold to promptly challenge their status. Given this new check on their authority, the THHSC-Office of the Inspector General will likely spend more time building a case for fraud prior to deciding to implement a without notice payment hold.

Based on my experience representing Medicaid providers before the Office of the Inspector General and the Medicaid Fraud Control Unit, I view these statutory revisions as a positive step towards remedying abuses of the payment hold process. I have seen many clients devastated by a without notice payment hold due to the absence of any ready legal means to challenge this status prior to the completion of the Commission’s full investigation. The new definitions and standards applicable to a preliminary investigation should also lead to more deliberation by the THHSC-OIG before the agency decides to initiate a hold.

If you are under investigation for Medicaid fraud or abuse by the Office of the Inspector General, it is imperative to contact an experienced attorney as soon as possible. The threat of a without notice payment hold is very real and the amount of money in controversy is typically significant. Moreover, the OIG often turns these cases over to the Medicaid Fraud Control Unit for possible criminal scrutiny. Medicaid fraud is a serious offense, carries significant prison time, and is often a career ender for a health care provider or business owner. It is crucial to find competent and experienced legal counsel at the very start of the matter as these cases have a tendency to quickly snowball and important legal rights can be unknowingly waived by the client or counsel unfamiliar with the applicable law and OIG process.


Once the Department of Health and Human Services, Office of the Inspector General decides to exclude a physician or nurse from participation in the Medicare and Medicaid programs, that health care professional’s career and employment options grow considerably narrower. For a physician in an institutional setting that accepts patients from these programs, this will likely render them unemployable. Exclusion can easily cause a similar mortal blow to a laboriously-built private practice. Nurses will likewise find their options for employment in the health care field considerably shrink if not disappear.


Fortunately for physicians, and at least in theory nurses, they may be able to obtain an exclusion waiver as the “sole community physician” in their area. 42 C.F.R. § 402.308. The law defines sole community physician as “a physician who is the only physician who provides primary care services to Federal or State health care program beneficiaries within a defined service area.” Id. at  § 1001.2(d). In broad outline, the law permits the OIG to waive a physician’s exclusion if they find that their exclusion would cause hardship to local Medicare/Medicaid beneficiaries. “Hardship” in turn can be found where that physician is the sole community physician or “the sole source of essential specialized services in the Medicare community.” Id. at § 402.308.


As an example, I am currently representing a physician from a rural area who would almost certainly be excluded if there was no waiver provision. But, this physician is the only source for at least one hundred miles in all directions for certain basic medical imaging and diagnostic studies as well as essential heart and vascular procedures. Our strategy has been to develop evidence and documentation establishing his status as a sole community physician which can then be used if and when OIG decides in favor of exclusion.


Procedurally, the way this process works is indirect. A physician cannot present their argument and evidence directly to the Office of Inspector General and ask for a waiver. The law is drawn such that only another state or federal agency can appeal for a waiver as to a particular physician. This means that the physician must make their case to the applicable agency who then, if they agree, applies for a waiver with the OIG. Typically, the OIG will accept the judgment of the waiver-seeking agency, but there is no law that says they must.  


The waiver provision underlines the need for any physician facing a possible Medicare/Medicaid exclusion to speak with an experienced attorney so that they can properly weigh their options. This is an unforgiving area of the law and only the right attorney can steer a physician through the pitfalls to an outcome where they can still successfully practice medicine.


A recurring scenario in my office goes like this: A physician contacts me about a letter they have received from the Office of the Inspector General stating that they are investigating whether or not the doctor has been involved in conduct that warrants exclusion from the Medicare and Medicaid programs. Oftentimes this concerns the physician’s plea of guilty or nolo contendre to a crime involving these or other government programs or that has some other connection to health care. This is very frustrating to both me and the physician as under federal law even if they do not directly involve a federal program, if any of these crimes is a felony, the client has a serious chance of being summarily excluded.


Under the Social Security Act, the Office of the Inspector General must exclude a physician from Medicare and Medicaid participation for:


  • Conviction for any criminal offense related to a federal or state health care program;
  • Conviction for a crime relating to patient abuse;
  • Conviction for a felony connected to health care and involving fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct; and
  • Conviction for a felony involving a controlled substance.


42 U.S.C. § 1320(a)(7).


The last two exclusion rules are the result of Congressional lobbying efforts by the OIG aimed at cutting down federal payments to “bad” physicians thereby saving program costs. The end product has been a set of broadly drafted laws that permit the OIG to exclude a physician who has been convicted for any of a wide array of crimes that can somehow be related back to health care. It should also press properly informed physicians into more carefully weighing their options when considering a plea.


Keep in mind that under the applicable federal law even a plea of nolo contendre will amount to a felony conviction. The same applies to pleas involving probation, community supervision, or deferred adjudication. Perhaps most important to remember is that an exclusion under any of the four grounds outlined above is both mandatory and for a minimum of five years. The impact on a physician’s practice and employment prospects caused by a five year exclusion is generally devastating if not fatal. Also note that under federal law, if a physician is excluded from one federal program, they are automatically excluded from all federal programs.


Unfortunately, most criminal defense attorneys are not aware of these serious consequences while they hammer out a plea for their physician clients. The fact is a physician should try and plea to a misdemeanor whenever possible, as an exclusion for most misdemeanors is neither mandatory nor for five years. Once a physician has been convicted of a felony related to health care, their only avenue for avoiding the mandatory exclusion is through obtaining a sole community provider waiver. See Title 42 CFR § 402.38. This is done by filing an appeal with the appropriate state agency and arguing that the physician who is to be excluded is the role provider of certain medical services to Medicare/Medicaid patients within a defined geographic area. If they state agency agrees, they will then request a waiver of exclusion from the OIG. This is a narrow exception; if like most doctors, the physician practices in a urban area, he or she will likely be ineligible unless their practice is extremely specialized.


The bottom-line is that any physician facing criminal charges would be prudent with contacting an attorney knowledgeable in the applicable federal law and experienced before the Office of the Inspector General. In this way, the physician can be completely informed of the potential consequences of any particular plea. Failure to do so, can result in a plea that effectively foreclose their ability to avoid federal exclusion.


It is also worth keeping in mind that a criminal conviction will almost certainly cause an inquiry and possible sanction by state licensing boards, professional/credentialing societies, provider networks, and institutions where the physician holds credentials. Thus Medicare/Medicaid exclusion mirrors the general characterization of medical and professional licensing law as a veritable house of cards where the removal of one can cause the rest to quickly follow suit. This is an area where the retention of an experienced attorney can make all the difference.     

Over the summer the Attorney General Office hired 40 new lawyers as part of its ongoing initiative to redouble its efforts against Medicaid fraud. Besides investigating and prosecuting Medicaid fraud, the AG’s Medicaid Fraud Control Unit (MFCU) also zealously roots out cases of patient neglect, drug diversion, and ordinary fraud and theft connected with the institutions and seniors who benefit from the program.

In regards to Medicaid fraud, the AG has recently indicted the office manager of a Waxahachie nursing home for theft. The MCFU claims that in addition to writing out checks to herself from a resident’s personal checkbook, the defendant also diverted more than $350,000 into a trust fund account which she then withdrew for her own purposes.

The primary hunting ground for the MFCU has always been nursing homes and the medical personnel who serve their elderly patients. For example, in a 2006 press release the Attorney General lauded the recent uncovering by the Unit and local law enforcement of drug diversion in a nursing home. In response to a nurse’s complaint that another LVN was arriving to work while apparently under the influence, the AG determined that the suspect nurse was fraudulently diverting Oxycodone for her own use. Another case from last year involved an LVN’s guilty plea to charges of injury to an elderly person by reckless omission. The Unit’s prosecutor claimed that the nurse disregarded multiple reports of an elderly patient’s failing condition while she engaged in personal conversations on her cell-phone.

The AG’s hiring binge represents the culmination of several years of increased appropriations by the State Legislature and mirrors the increased pressure placed on the Texas Nursing and Medical Boards to weed out offenders. The addition of 40 new attorneys can only augur additional prosecutions of medical personnel and an increase in the licensing actions that inevitably follow such criminal proceedings.

Consider this scenario: You lose your medical (nursing, pharmacist, etc.) license to practice, so you move states in order to escape the ramifications of a surrendered or revoked license. 

Unfortunately, the ramifications of your lost professional registration may follow you in the form of an exclusion. An individual subject to an exclusion is significantly limited in her ability to work in the health care profession nationwide. The purpose of the exclusion remedy is to protect beneficiaries of Federal health care programs from incompetent practitioners and from inappropriate or inadequate care. In the broadest sense, a section 1128 exclusion prevents individuals and entities from participation in Medicare, Medicaid and State health care programs. However, this does not affect your rights to participate as a beneficiary (i.e., if you break your arm and Medicaid normally pays, then you can still collect these benefits). 

According to 1128(b)(4) of the Social Security Act, an individual may be excluded from participation in any Federal health care program if that person’s license was revoked, suspended, or otherwise lost, or because it was surrendered while a formal disciplinary proceeding was pending before an authority and the proceeding concerned the individual’s professional competence, professional performance, or financial integrity. The Office of Inspector General (“OIG”) will generally send you a letter informing you that you may be excluded from health care programs including:

  • Medicare
  • Medicaid
  • Veterans Administration
  • TRICARE, etc. 

The Social Security Act allows the OIG to exercise discretion when deciding whether or not to exclude individuals from participating in Federal health care programs. Even if the OIG decides to exclude you, they also have discretion to determine the length of the exclusion. Of course there are guidelines and considerations, such as:

  1. the nature of the act that gave rise to the exclusion;
  2. length of license suspension;
  3. criminal history, and;
  4. the availability of other sources of the type of health care services furnished by the individual. 

Continue Reading Surrendered Licenses & OIG Medicare Exclusions