NJ Medicaid Provider Audits: Preparedness Checklists

Every year, the New Jersey Medicaid Fraud Division (MFD), the watchdog agency for New Jersey’s Medicaid program, releases a workplan which informs providers, suppliers and their advisers about the agency’s focus for the up-coming year. The MFD’s 2012 workplan outlines a comprehensive audit and review agenda.  We have summarized the agency’s audit criteria to help New Jersey Medicaid providers become aware of and stay prepared for scrutiny in 2012.

All Providers

  • Prepare and implement a compliance program

Even before it was made mandatory by the Affordable Care Act (ACA), implementing a compliance program was recommended by the Office of Inspector General (OIG) to physicians and other healthcare providers and “strongly encouraged” by the MFD for New Jersey “providers whose payments from the Medicaid program exceed $100,000 per year…”

Section 6401 of the ACA made clear that compliance programs are now a requirement for physicians and other healthcare providers enrolling or revalidating in the Medicare, Medicaid and SCHIP programs. While the Centers for Medicare and Medicaid Services (CMS) has yet to impliment this requirement imposed by the ACA, it is no longer a question whether a compliance program will be needed but rather when. It therefore behooves healthcare practices to be prepared for the upcoming change.

Moreover, a separate section of the ACA, 6102, requires nursing homes to adopt “compliance and ethics program that is effective in preventing and detecting criminal, civil, and administrative violations under this Act and in promoting quality of care,” by 2013. The OIG within the Department of Health and Human Services has already announced in its 2012 workplan that it plans to “review Medicare- and Medicaid-certified nursing homes’ incorporation of compliance plans into their day-to-day operations and determine whether the plans contain elements identified in OIG’s compliance program guidance.” Furthermore, starting in 2013, the OIG “will determine whether CMS has incorporated compliance requirements into Requirements of Participation…,” for nursing homes enrolling or revalidating their enrollment.

The MFD’s 2012 workplan acknowledges that ACA requires providers to have an effective compliance program.  The workplan recognizes that “[h]aving a vigorous and effective compliance program is in the best interests of all health care providers as it strengthens a provider’s ability to control fraud, waste, and abuse and consequently improves the quality of health care and lowers costs.” The MFD will meet with a provider’s senior management where the agency identifies significant compliance or control weaknesses, to “identify the reasons for the compliance program’s failure or why no compliance program existed.”

Primary Care Physicians

Audit Checklist

  • Maintain licensing accreditation
  • Check exclusion lists
  • Maintain proper documentation to support the medical necessity for the services rendered and items ordered

The agency plans to audit Primary Care Physicians to ensure that they were properly licensed and not excluded when rendering services. The MFD will also check for proper documentation to support the services rendered or items ordered. Of interest to non-Medicaid referring providers is the decision by the MFD to audit their records “to determine whether there is sufficient medical necessity for services ordered that exceed $50,000 per year, such as pharmaceuticals, laboratory tests, and durable medical equipment.” If the MFD finds that a non-Medicaid provider, “listed as a referring provider, writes a prescription that is not medically necessary, and the Medicaid recipient fills the prescription at a Medicaid pharmacy, the physician who wrote the prescription will be liable to the State for reimbursement.”

Lab Services

Audit Checklist

  • Maintain proper documentation to support the services rendered and items ordered
  • Check proper billing procedures of laboratory tests for residents of facilities

The MFD will audit sample claims of independent clinical laboratories and review the supporting documentation for compliance with the Medicaid regulations.  This year the audits will specifically focus on whether the labs submitted claims for “residents of facilities where the laboratory tests are included in the facility rate or if laboratories submitted claims that unbundled laboratory services.”


Audit Checklist

  • Monitor for fraudulent transactions, such as drug diversion, buying back and reselling medication
  • Maintain proper documentation to support the services rendered
  • Maintain proper purchase invoices from wholesale suppliers

The MFD has stated that there is “significant” fraud, waste and abuse in pharmacies and the agency will focus its attention on issues such as drug diversion, buying back and reselling medication, and knowingly participating in illegal narcotics transactions. The MFD will check for proper supporting documentation that claimed services were actually rendered, review purchase invoices, and scrutinize pharmacies’ wholesale supplier.

Separately, the Division of Medical Assistance and Health Services has also contracted with a third party vendor who will conduct 1100 pharmacy audits per year and 1200 durable medical equipment audits per year for the next three years. The audits will be a combination of desk and on-site audits and will be coordinated by the MFD.


Audit Checklist

  • Review hospital contracts and arrangements with physicians to avoid Stark and anti-kickback law violations
  • Review the fair market value compensation component of physician contracts
  • Maintain proper documentation to support the services rendered or goods ordered

As an increasing number of physicians seek Hospital employment, more attention is being paid by governmental auditors to the relationship between a physician or physician group and hospitals. The MFD is targeting hospitals in 2012 to analyze whether there were improper payments for direct care services, administrative payments for undocumented or unnecessary services, physician practice subsidies and physician contracts.

Also significant for both physicians and hospitals is the agency’s focus on physician compensation arrangement to determine if they are at fair market value.

Home Health Service and Personal Care Services

Audit Checklist

  • Verify certification and educational background of staff providing home health services
  • Maintain proper documentation to support the medical need for home health services rendered
  • Ensure that physician ordered care plans are followed and properly supervised by certified personnel

The MFD plans to audit home health service agencies, which provide a variety of professional medical services to the public at home, in order to “verify that all aides are certified and have appropriate educational background to perform the services billed for; that the recipient’s diagnosis justifies the higher reimbursement rate for home health services; that charts contain adequate documentation and care plans; and that services billed were in fact rendered.”

Similarly, the agency will evaluate personal care services, which provide home-maker services to long-term chronic individuals, to “determine whether appropriate care plans were developed and followed and whether services were performed by appropriately trained and certified and/or licensed staff, supervised by a registered nurse.”

Adult Medical Day Care Services

Audit Checklist

  • Maintain proper documentation to support the medical necessity criteria for care received
  • Maintain proper compliance plan and document policies and procedures

The MFD indicated that it will be monitoring these programs to ensure that participants meet the medically necessary criteria and that the care ordered is received by participants by comparing physician orders to medical charts. Facilities policies and procedures will also be examined.

The MFD will also focus its audit activities this fiscal year on Managed Care Organizations, medical transportation, nursing facilities as well as child behavioral health services.

If you have questions about New Jersey Medicaid, MFD audits, the New Jersey Managed Care Organizations, or have other legal needs, please contact us.