Sanctions for Prohibited Payment Arrangement (Rev. 1, 10-01-03)

by  Find-A-Code
July 17th, 2015

A. Advice to Provider

If the contractor finds that a provider (for Part B, physician or other supplier, or party eligible to receive the payment under §30.2 as an employer, facility or organization) has entered into, or is considering entering into, a payment arrangement prohibited by §30.2, the contractor must advise that provider in writing that the arrangement violates Medicare law and regulations and subjects the provider to the penalties described in subsections B and C. When the improper payment arrangement is in effect, the contractor must require a change in the address to which the provider’s checks are sent. For an exception, see §

B. Bases for Termination of a Provider’s Medicare Participation Agreement

The CMS may terminate a provider’s Medicare participation agreement if the provider/physician:

• Executes or continues an assignment or a power of attorney, or enters into or continues any other arrangement, that authorizes or permits Medicare cost-basis payments to be made contrary to §§30.2, 42 CFR 405.1668, and §1815(c) of the Act after having been advised under subsection A above; or

• Fails to furnish upon request by CMS or the contractor such information as CMS or the contractor finds necessary to establish compliance with the requirements of this section.

The provider has the usual appeal rights applicable to agreement termination determinations.

C. Bases for Revocation of Assignment Privilege

The CMS may revoke the right of a provider to receive assigned payment for physician services if the provider:

• Executes or continues a reassignment or power of attorney, or enters into or continues any other arrangement, that authorizes or permits Medicare charge basis payments to be made contrary to §§30.2, 42 CFR 405.1680, and §1842(b)(6) of the Act, after CMS or the carrier gives the provider advice about such violation;

• Fails to furnish upon request by CMS or the carrier evidence needed to establish compliance with the requirements of §§30.2, 42 CFR 405.1680, and §1842(b)(6) of the Act;

• Violates the terms of assigned payment; e.g., by collecting or attempting to collect more than the allowable amount, after CMS or the carrier gives the provider advice about such violations; or

•Fails to desist from collection efforts already begun, or to refund monies incorrectly collected, in violation of the terms of assigned payment, after CMS or the carrier gives the provider instructions to cease to take such action.

A special appeals procedure is provided within CMS when action is taken to revoke a provider’s right to accept assignment.

The fact that a provider’s right to accept assignment is revoked does not preclude it from billing the beneficiary for the services or changing its arrangement with the physician to permit billing for rendered services, either on an assigned or unassigned basis. On the other hand, a provider is not ordinarily precluded from accepting assignment from a beneficiary for the services of a physician whose assignment privilege has been revoked if the beneficiary has an agreement with the provider giving it the right to bill for services rendered. There is an exception. The revocation of a physician’s assignment privilege automatically revokes the assignment privilege of any corporation, partnership, or other entity in which the provider/supplier directly or indirectly has or obtains all or all but a nominal part of the financial interest. Such entity may not accept assignment for the services of the physician or anyone else. What is a nominal interest depends upon the circumstances. The contractor may assume that an interest by other persons totaling at least five percent of the financial interest of the entity is more than nominal. The term “indirect interest” refers to the situation where the entity billing for the physician’s services is owned by another entity in which the physician has most of the financial interest.

D. Action When Violations Are Found

When the contractor finds that the provider/supplier has, after warning to the contrary, entered into, or continued, a prohibited payment arrangement, failed to cooperate in furnishing the information necessary to resolve the issue, violated its assignment agreement or failed to correct a violation of its assignment agreement, the contractor forwards a copy of the file to the program integrity staff in the RO. The RO considers whether further development of the facts or admonition of the provider will be useful before taking steps to terminate its participation agreement and/or to revoke its right to accept assignment.

In imposing the administrative sanction of revocation of the assignment privilege, the RO notifies the provider/supplier of the proposed revocation of its right to receive assigned benefits and gives it 15 days in which to submit a statement, including any pertinent evidence, explaining why its right to payment should not be revoked. After the statement has been submitted, or the 15-day period has expired without the filing of the statement, the RO determines whether to revoke the provider/supplier’s right to receive assigned payment. If its determination is to revoke, the RO notifies the contractor to suspend payment on all assigned claims submitted by the provider/supplier and received after the effective date of the revocation. It notifies the provider/supplier of the revocation and of its right to request a hearing on the revocation within 60 days. (The RO may extend the period for requesting a hearing.)

If the provider/supplier requests a formal hearing (to be conducted by a member of the hearings staff of CMS) and the hearing officer reverses the revocation determination, the RO instructs the carrier and FI to pay the provider/supplier ‘s assigned claims (the physician component). If the hearing officer upholds the revocation determination or if no request for a hearing is filed during the period allowed for this, the RO instructs the carrier and FI to make any assigned payments otherwise due the provider to the beneficiary who received the services, or another person or agency authorized under the law and regulations to receive the payments (e.g., the beneficiary’s legal guardian or representative payee or, if the beneficiary is deceased, the person who paid the bill). The revocation remains in effect until the RO finds that the reason for the revocation has been removed and that there is reasonable assurance that it will not recur. The RO decision to continue the revocation in effect may not be appealed.

The law provides that any person who accepts assignment of benefits under Medicare and who “knowingly, willfully, and repeatedly” violates the assignment agreement shall be guilty of a misdemeanor and subject to a fine of not more than $2000 or imprisonment of not more than six months or both. The RO may invoke the administrative sanction in appropriate cases to deny payment while criminal prosecution is being considered or in process, or, as an alternative, when prosecution is inappropriate or not feasible. Since this sanction may in some cases interfere with effective prosecution, imposition of the sanction is discretionary rather than mandatory.

Pub 100-04 Medicare Claims Processing Manual


Sanctions for Prohibited Payment Arrangement (Rev. 1, 10-01-03). (2015, July 17). Find-A-Code Articles. Retrieved from

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