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Key Takeaways from CMS’s Final Rule Requiring the Disclosure of Affiliates during Provider Enrollment

The Centers for Medicare & Medicare Services (CMS) recently published a final rule with comment period (the “Final Rule”) that is designed to increase CMS’s ability to identify and prevent bad actors from participating in Medicare, Medicaid, and CHIP.  Providers and suppliers should take note because implementation will be costly and burdensome.  Among other things, the Final Rule requires the disclosure of certain provider and supplier affiliations and permits CMS to revoke or deny enrollment where those affiliations pose an undue risk of fraud and abuse. The Final Rule also grants CMS several additional authorities to revoke or deny a provider’s Medicare enrollment and increases the duration of such revocations and denials.  The Final Rule takes effect on November 4, 2019.  Comments on the Final Rule are due by 5:00 p.m. on that same day.

Why CMS Issued the Final Rule

In general, CMS can deny, revoke, or terminate providers and suppliers from participation in federal health care programs. However, owners and managers of those providers and suppliers can often remain direct or indirect participants in federal health care programs absent a felony conviction, exclusion, or debarment from a federal procurement program. In the Final Rule, CMS gave two examples of how bad actors currently take advantage of this limited enforcement authority.

First, CMS noted that the agency currently struggles to deal with individuals and entities that enroll in Medicare, engage in inappropriate activities, and then depart the program only to reenter Medicare by shifting activities to another enrolled provider or supplier with which they are affiliated. Second, CMS gave the example of an entity that manages multiple Medicare providers, where one of those providers is involved in abusive behavior at the behest of the manager. If CMS were to revoke the abusive provider's enrollment, the managing entity could simply move its improper behavior to another of its managed providers. CMS does not currently have regulatory authority to prevent the managing entity from shifting to another enrolled provider.

Similarly, the U.S. Department of Health & Human Services’ Office of Inspector General (OIG) has long expressed concern that providers and suppliers who are not permitted to participate in Medicare may inappropriately receive Medicare payments by operating businesses publicly fronted by business associates, family members, or other individuals posing as owners. In 2011, OIG testified in front of a subcommittee of the Energy and Commerce Committee in the U.S. House of Representatives that bad actors in the industry recruit and pay “nominee owners” to operate businesses while concealing the true ownership of the entity. CMS has indicated that it shares OIG’s concern. The Final Rule is designed to counter these and similar strategies that permit entities to circumvent CMS’s current enrollment prohibitions and enforcement authority.

What the Final Rule Actually Requires

The Final Rule implements provisions of the Affordable Care Act that increase (1) the disclosures required during Medicare enrollment and revalidation and (2) CMS’s enforcement authority.

Increased Disclosure Requirements

The Final Rule adds new disclosure requirements to the enrollment and revalidation process. While providers and suppliers are currently required to disclose certain adverse actions only about their own organization, they will also now be required to disclose certain adverse actions taken against any other providers “affiliated” with the provider, its managing employees, or its owners.  

Specifically, CMS will require disclosure of an affiliation if the affiliate has any of the following, which are collectively deemed to be “disclosable events”: (1) has been suspended or excluded from participation in a federal health care program; (2) had enrollment denied revoked or terminated by a federal health care program; (3) had billing privileges suspended, revoked, or denied by a federal health care program; or (4) currently has an uncollected debt to federal health care program such as overpayments, civil monetary penalties, or other assessment.

The Final Rule broadly defines “affiliation” so that it includes:

  • direct or indirect ownership of 5% or greater;
  • general or limited partnership interest, regardless of the percentage;
  • managing employees;
  • officers or directors; or
  • any reassignment relationship under 42 C.F.R. § 424.80.

While most reputable providers and suppliers are unlikely to have an affiliation with an individual or entity that has experienced a disclosable event about which the provider or supplier “knew or reasonably should have known,” the Final Rule should nevertheless be of concern because all providers and suppliers must implement a system for tracking the information needed to do the required analysis.  CMS has indicated that the provider or supplier must put forth a sufficient effort to research actual and possible affiliations and disclosable events, which is likely to be incredibly onerous. In fact, CMS estimates that implementation of the Final Rule will cost just shy of $1 million every year for the first three years to collect the required information. The agency also stated that it intends to issue subregulatory guidance to clarify the agency’s expectations regarding the level of effort required of providers and suppliers in securing relevant information about affiliates.

Because these new disclosure requirements place an information-gathering burden on providers and suppliers, CMS will phase in the new disclosure requirements gradually. Initially, CMS will only require disclosure from providers and suppliers that the agency has identified as possibly having affiliations that trigger disclosure. CMS will apply the disclosure requirements more broadly through future rulemaking.

Lastly, the Final Rule applies these new disclosure requirements to Medicaid and CHIP.  States therefore must require providers and suppliers to comply with the same disclosure requirements established by CMS for Medicare.

Increased Enforcement Authority

In the Final Rule, CMS pairs the increased disclosure requirements with an increase in the agency’s enforcement authority. The rule permits CMS to deny or revoke a provider’s enrollment in Medicare if the agency determines that a disclosed affiliation represents an undue risk of fraud or abuse – e.g., an owner or managing employee of an enrolled provider is “affiliated” with another revoked provider. In determining the existence of undue risk, CMS will look to: (1) the length and period of the affiliation; (2) the nature and extent of the affiliation; and (3) the type of disclosable event and when it occurred. The agency noted that determinations of undue risk will be heavily dependent on the individual facts and circumstances involved.

The Final Rule also grants CMS the authority to revoke or deny Medicare enrollment if:

  • a provider or supplier circumvents program rules by coming back into the program, or attempting to come back in, under a different name;
  • a provider or supplier bills for services/items from non-compliant locations;
  • a provider or supplier exhibits a pattern or practice of abusive ordering or certifying of Medicare Part A or Part B items, services, or drugs; or
  • a provider or supplier has an outstanding debt to CMS from an overpayment that was referred to the Treasury Department.

In addition, the Final Rule strengthens CMS’s penalties when revoking or denying Medicare enrollment by lengthening the amount of time that CMS can bar re-enrollment from up to 3 years to up to 10 years for an initial revocation and up to 20 years for any subsequent revocation.  CMS is now also able to prevent a provider or supplier from enrolling in Medicare for up to 3 years for submitting false or misleading information on the initial enrollment application.

Key Takeaways for Medicare Enrolled Providers and Suppliers

  • Even though the new disclosure requirements initially will apply only to entities that CMS identifies as potentially having affiliations that must be disclosed, all providers and suppliers should begin planning how they are going to track their affiliations and consider the costs of information collection for budgeting purposes.
  • Providers and suppliers should monitor future subregulatory issuances from CMS for additional guidance on key concepts, such as the scope of investigative efforts that providers and suppliers must put forth to ensure compliance with this requirement.
  • CMS now has stronger penalties at its disposal, including a re-enrollment bar for a provider or supplier subject to a Medicare revocation of up to 10 years after the initial revocation (versus 3 years previously) and up to 20 years after the second revocation.  Although a provider or supplier can appeal, the bar remains in place pending the outcome.

This rulemaking comes as no surprise given that CMS and other agencies have moved away from the “pay-and-chase” enforcement model in recent years.   While CMS claims to be implementing these tools to increase its ability to root out bad actors, the Final Rule gives CMS increased enforcement discretion that can be used more broadly.  Providers and suppliers thus should be on notice and implement the necessary systems not only to track affiliations, as discussed above, but also to prepare and submit accurate enrollment applications in all respects.

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Daryl Berke

Karen S. Lovitch

Chair, Health Law Practice & Co-Chair, Health Care Enforcement Defense Practice

Karen advises industry clients on regulatory, transactional, operational, and enforcement matters. She has deep experience handling FCA investigations and qui tam litigation for laboratories and diagnostics companies.