Overview
The Trump administration and 119th Congress are preparing to reduce federal expenditures by targeting Medicare and Medicaid fraud, waste, and abuse. Medicare enrollment revocations, Medicaid enrollment terminations, and extrapolated overpayments resulting from program integrity concerns can have devastating effects on providers. Providers and investors should be aware of preventative measures and appeal strategies to mitigate the anticipated increase in provider enrollment actions and reimbursement audits in the coming months and years.
In Depth
BACKGROUND
The US Department of Health and Human Services estimates that Medicare overpaid fee-for-service providers $32 billion and Medicaid overpaid providers $31 billion in 2024. Only a fraction of these estimated improper payments were recovered, and these estimates do not include all fraudulently received payments. Between October 2020 and September 2023, the Centers for Medicare & Medicaid Services (CMS) revoked the Medicare billing privileges of almost 8,500 providers, preventing them from participating in the Medicare program for one to 10 years. Medicare revocations often cause providers to be added to the “preclusion list,” which prevents them from receiving payment from Medicare Advantage plans or writing prescriptions for Part D reimbursable drugs. If a provider is revoked from Medicare, the provider must be revoked from all state Medicaid programs. A Medicare revocation may prevent the provider from being involved in any item or service reimbursed by Medicare or Medicaid.
In fiscal year 2023 alone, more than 2,500 providers were terminated from state Medicaid programs. Termination from one state Medicaid program requires the provider to be terminated from all other state Medicaid programs and may lead to Medicare revocation.
Owners, directors, officers, and managing employees of Medicare and Medicaid providers that are revoked from Medicare or terminated from Medicaid also may be subject to enforcement scrutiny because of their affiliation with the revoked or terminated provider. CMS uses extensive provider ownership and control reporting obligations to identify common ownership or control of providers subject to enforcement action.
SIGNS OF ADVANCES IN PROGRAM INTEGRITY
Reporter: “Can you guarantee that Medicare, Medicaid, Social Security will not be touched?”
President Trump: “I have said it so many times . . . We’re not going to touch it. Now, we are going to look for fraud.”
Cabinet Meeting, February 26, 2025
“The President said over and over and over, ‘We’re not going to touch Social Security, Medicare or Medicaid.’ We’ve made the same commitment. Now, that said, what we are going to do is go into those programs and carve out the fraud, waste and abuse, and find efficiencies.”
US House of Representatives Speaker Mike Johnson, February 26, 2025
Under some metrics, Medicare and Medicaid program integrity audits are a highly cost-effective strategy to reduce federal healthcare program expenditures. For example, prior reports have found that certain hospital admission audits have returned $24 – $29 to the Medicare trust fund for every $1 spent on audits.
The apparent cost effectiveness of program integrity audits can be amplified in cases where CMS alleges that a high level of payment error exists at the provider. In these cases, CMS can evaluate a small sample of the provider’s claims to determine whether any claims were arguably improperly paid, and if so, multiply (or “extrapolate”) CMS’ alleged “error rate” from the sample across the entire universe of that provider’s claims for a defined time period. Through extrapolation, CMS can turn an alleged overpayment of thousands of dollars into multiple millions of dollars. CMS’s decision to extrapolate is generally not appealable.
The CMS Center for Program Integrity conducts payment and compliance audits through contractors, including the Unified Program Integrity Contractors and the Recovery Audit Contractors. The Medicare Administrative Contractors (MACs) conduct “targeted probe and educate” audits focused on identifying overpayments and implement enrollment revocations. CMS contractors are private companies, their staff are not federal employees, and CMS selects the contractors through a competitive request for proposal process. All of these features, in addition to the cost-effective nature of auditing activities and accessibility of overpayment extrapolation, make the contractors an ideologically aligned mechanism for the Trump administration to reduce federal healthcare program expenditures by reducing fraud, waste, and abuse without cutting specific benefits or entitlements.
PROGRAM INTEGRITY AUDIT RESPONSE
Robust compliance programs are the foundation for preventing and defending potential Medicare or Medicaid program integrity audits. Compliance programs should ensure that all claims submitted to third-party payors meet coverage requirements and are properly billed consistent with payor instructions. Internal and external auditing and monitoring of high-risk areas can prevent providers from engaging in anomalous billing practices that trigger an audit and can ensure the provider has sufficient medical record documentation to produce to an auditor. Auditing and monitoring for compliance with enrollment requirements are effective ways to prevent a potential enrollment revocation or termination.
Once a reimbursement audit begins, it is critical to work with experienced legal counsel to ensure that the appropriate provider documentation is reviewed and produced to the auditor and that any appropriate explanations or supplemental information are provided. Legal counsel should assist with strategies to ensure that the provider is best positioned for success based on applicable legal standards and interpretations. The documentation and communications exchanged with the auditor should deescalate the audit and form the basis for any subsequent administrative appeal.
If the audit results in a material finding that the provider believes was in error, it is important to appeal the finding and prevent cascading audits from other federal healthcare programs. Often, audits begin with a relatively small, low-value “probe” sample. If the probe sample reveals a high error rate that is not overturned, the provider is likely to be subject to further scrutiny and audits that may include a statistically valid sample and extrapolation. Sustained high error rates through appeal may require significant changes to the provider’s service offerings, revisions to documentation processes, and dedicated resources to support the services on a go-forward basis.
For all of these reasons, strong advocacy during a program integrity audit and administrative appeal of adverse enrollment actions or overpayments is key to ensuring the continuity of medically necessary services for federal healthcare program beneficiaries and participants.
TAKEAWAYS
- Medicare and Medicaid program integrity audits, extrapolated overpayments, and enrollment actions may significantly increase under the current administration.
- Program integrity reimbursement audits often begin with a low-value “probe” sample that progresses into a much larger statistically valid sample and extrapolated overpayment.
- Providers that do not successfully overturn overpayment findings on appeal may be required to review historic claims for overpayments and change their operations, documentation, or billing on a go-forward basis, adversely affecting revenue for the item or service line.
- Significant overpayment findings and enrollment enforcement actions at one provider may generate scrutiny for others, including providers with common ownership or control.
- Investors should closely review active program integrity audits to understand potential risk exposure (direct and indirect) and how that exposure may be mitigated by qualified legal counsel.
- Investors considering investing in a provider subject to Medicare or Medicaid audits should incorporate transaction terms that consider the potential exposure associated with potential enforcement actions and operational impacts.
