DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
 
Center for Medicaid and State Operations 
SMDL #09-001 
January 16, 2009 
Dear State Medicaid Director: 
The Center for Medicaid and State Operations (CMSO) is issuing this State Medicaid Director 
Letter to strengthen the integrity of the Medicaid program and help States reduce improper 
payments to providers.  This letter advises States of their obligation to direct providers to screen 
their own employees and contractors for excluded persons.  This letter specifically: 
(1)  Clarifies Federal statutory and regulatory prohibitions regarding Medicaid payments for 
any items or services furnished or ordered by individuals or entities that have been 
excluded from participation in Federal health care programs; 
(2)  Reminds States of the consequences for failure to prevent payments for items or services 
furnished or ordered by excluded individuals and entities; 
(3)  Sets forth the Centers for Medicare & Medicaid Services (CMS) policy with respect to 
States responsibility to communicate to providers their obligation to screen employees 
and contractors for excluded individuals and entities both prior to hiring or contracting 
and on a periodic basis, and the manner in which overpayment calculations should be 
made; and 
(4)  Identifies the List of Excluded Individuals/Entities (LEIE) as a resource providers may 
utilize to determine whether any of their employees and contractors has been excluded. 
Background 
The HHS Office of Inspector General (HHS-OIG) excludes individuals and entities from 
participation in Medicare, Medicaid, the State Childrens Health Insurance Program (SCHIP), 
and all Federal health care programs (as defined in section 1128B(f) of the Social Security Act 
(the Act)) based on the authority contained in various sections of the Act, including sections 
1128, 1128A, and 1156. 
When the HHS-OIG has excluded a provider, Federal health care programs (including Medicaid 
and SCHIP programs) are generally prohibited from paying for any items or services furnished, 
ordered, or prescribed by excluded individuals or entities.  (Section 1903(i)(2) of the Act; and 42 
CFR section 1001.1901(b))  This payment ban applies to any items or services reimbursable 
under a Medicaid program that are furnished by an excluded individual or entity, and extends to:    Page 2  State Medicaid Director 
  all methods of reimbursement, whether payment results from itemized claims, cost 
reports, fee schedules, or a prospective payment system; 
  payment for administrative and management services not directly related to patient care, 
but that are a necessary component of providing items and services to Medicaid 
recipients, when those payments are reported on a cost report or are otherwise payable by 
the Medicaid program; and 
  payment to cover an excluded individual's salary, expenses or fringe benefits, regardless 
of whether they provide direct patient care, when those payments are reported on a cost 
report or are otherwise payable by the Medicaid program. 
In addition, no Medicaid payments can be made for any items or services directed or prescribed 
by an excluded physician or other authorized person when the individual or entity furnishing the 
services either knew or should have known of the exclusion.  This prohibition applies even when 
the Medicaid payment itself is made to another provider, practitioner or supplier that is not 
excluded.  (42 CFR section 1001.1901(b)) 
The listing below sets forth some examples of types of items or services that are reimbursed by 
Medicaid which, when provided by excluded parties, are not reimbursable*: 
  Services performed by excluded nurses, technicians, or other excluded individuals who 
work for a hospital, nursing home, home health agency or physician practice, where such 
services are related to administrative duties, preparation of surgical trays or review of 
treatment plans if such services are reimbursed directly or indirectly (such as through a 
pay per service or a bundled payment) by a Medicaid program, even if the individuals do 
not furnish direct care to Medicaid recipients; 
  Services performed by excluded pharmacists or other excluded individuals who input 
prescription information for pharmacy billing or who are involved in any way in filling 
prescriptions for drugs reimbursed, directly or indirectly, by a Medicaid program; 
  Services performed by excluded ambulance drivers, dispatchers and other employees 
involved in providing transportation reimbursed by a Medicaid program, to hospital 
patients or nursing home residents; 
  Services performed for program recipients by excluded individuals who sell, deliver or 
refill orders for medical devices or equipment being reimbursed by a Medicaid program;  
  Services performed by excluded social workers who are employed by health care entities 
to provide services to Medicaid recipients, and whose services are reimbursed, directly or 
indirectly, by a Medicaid program; 
  Services performed by an excluded administrator, billing agent, accountant, claims 
processor or utilization reviewer that are related to and reimbursed, directly or indirectly, 
by a Medicaid program; 
                                                 
* This list is drawn from the 1999 HHS-OIG Special Advisory Bulletin:  The Effect of Exclusion From Participation 
in Federal Health Care Programs.  Page 3  State Medicaid Director 
  Items or services provided to a Medicaid recipient by an excluded individual who works 
for an entity that has a contractual agreement with, and is paid by, a Medicaid program; 
and 
  Items or equipment sold by an excluded manufacturer or supplier, used in the care or 
treatment of recipients and reimbursed, directly or indirectly, by a Medicaid program. 
Consequences to States of Paying Excluded Providers 
Because it is prohibited by Federal law from doing so, CMS shall make no payments to States 
for any amount expended for items or services (other than an emergency item or service not 
provided in a hospital emergency room) furnished under the plan by an individual or entity while 
being excluded from participation (unless the claim for payment meets an exception listed in 42 
CFR section 1001.1901(c)).  Any such payments actually claimed for Federal financial 
participation constitute an overpayment under sections 1903(d)(2)(A) and 1903(i)(2) of the Act, 
and are therefore subject to recoupment.  It is thus incumbent on States to take all reasonable 
steps to prevent making payments that must ultimately be refunded to CMS. 
Previous Guidance Regarding Preventing Payments For Goods and Services Furnished by 
Excluded Individuals and Entities 
In a State Medicaid Director Letter issued on June 12, 2008, CMS notified States of their own 
obligation to attempt to determine whether an excluded individual has an ownership or control 
interest in an entity that is a Medicaid provider, and of States obligation to report information 
regarding such excluded individuals to the HHS-OIG.  In a State Medicaid Director Letter issued 
on March 17, 1999, and in a follow-up State Medicaid Director Letter issued on May 16, 2000 
(Medicare/Medicaid Sanction Reinstatement Report), CMS described the HHS-OIGs 
authority to exclude persons based on actions taken by State Medicaid Agencies. 
In the State Medicaid Director Letter dated May 16, 2000, CMS reminded States that the 
Medicare/Medicaid Sanction-Reinstatement Report, formerly known as HCFA Publication 69 
and now replaced by the Medicare Exclusion Database (the MED) is a vital resource available to 
States for ascertaining and verifying whether an individual or entity is excluded and should not 
be receiving payments.  The guidance also stated that the payment prohibition applies to any 
managed care organization contracting with an excluded party. 
In a second State Medicaid Director Letter dated May 16, 2000 (State's Obligation to notify the 
Department of Health and Human Services Office of Inspector General), CMS reminded States 
of their responsibility to promptly notify the HHS-OIG of any action taken by a State to limit the 
ability of an individual or entity to participate in its program.  See 42 CFR section 1002.3(b)(3).  Page 4  State Medicaid Director 
Policy Clarification: States Should Advise Medicaid Providers to Screen for Exclusions 
To further protect against payments for items and services furnished or ordered by excluded 
parties, States should advise all current providers and providers applying to participate in the 
Medicaid program to take the following steps to determine whether their employees and 
contractors are excluded individuals or entities: 
  States should advise providers of their obligation to screen all employees and contractors 
to determine whether any of them have been excluded.  States should communicate this 
obligation to providers upon enrollment and reenrollment.   
  States should explicitly require providers to agree to comply with this obligation as a 
condition of enrollment. 
  States should inform providers that they can search the HHS-OIG website by the names 
of any individual or entity.   
  States should require providers to search the HHS-OIG website monthly to capture 
exclusions and reinstatements that have occurred since the last search. 
  States should require that providers immediately report to them any exclusion 
information discovered. 
This line of defense in combating fraud and abuse must be conducted accurately, thoroughly, and 
routinely.  States must notify the HHS-OIG promptly of any administrative action the State takes 
against a provider for failure to comply with these screening and reporting obligations.  See 42 
CFR section 1002.3(b)(3).  States can satisfy this obligation by communicating the relevant 
information to the appropriate Regional Office of the OIG Office of Investigations. 
States also should inform providers that civil monetary penalties may be imposed against 
Medicaid providers and managed care entities (MCEs) who employ or enter into contracts with 
excluded individuals or entities to provide items or services to Medicaid recipients.  (Section 
1128A(a)(6) of the Act; and 42 CFR section 1003.102(a)(2)) 
Policy Clarification: Calculation of Overpayments to Excluded Individuals or Entities 
As stated above, Federal health care programs, including Medicaid, are generally prohibited 
from paying for any items or services furnished, ordered, or prescribed by excluded individuals 
or entities.  The amount of the Medicaid overpayment for such items or services is the actual 
amount of Medicaid dollars that were expended for those items or services.  When Medicaid 
funds have been expended to pay an excluded individuals salary, expenses, or fringe benefits, 
the amount of the overpayment is the amount of those expended Medicaid funds.  We recognize 
that there may be instances when the connection between expended Medicaid funds and the  
                                                 
 This State Medicaid Director Letter uses the term managed care entity to refer briefly to managed care 
organizations (MCOs), prepaid inpatient health plans, prepaid ambulatory health plans, and primary care case 
management (PCCM).  States should not confuse this abbreviation with the statutory definition of managed care 
entity which only refers to MCOs and PCCMs.  See section 1932(a)(1)(B) of the Act.  Page 5  State Medicaid Director 
items or services furnished by the excluded individual or entity are too attenuated to trace.  When 
such circumstances arise, the overpayment is no more than the amount which the State is certain 
was paid with Medicaid dollars. 
Where Providers Can Look for Excluded Parties 
While the MED is not readily available to providers, the HHS-OIG maintains the LEIE, a 
database accessible to the general public that provides information about parties excluded from 
participation in Medicare, Medicaid, and all other Federal health care programs.  The LEIE 
website is located at http://www.oig.hhs.gov/fraud/exclusions.asp and is available in two 
formats.  The on-line search engine identifies currently excluded individuals or entities.  When a 
match is identified, it is possible for the searcher to verify the accuracy of the match using a 
Social Security Number (SSN) or Employer Identification Number (EIN).  The downloadable 
version of the database may be compared against an existing database maintained by a provider.  
However, unlike the on-line format, the downloadable database does not contain SSNs or EINs. 
Additionally, some States maintain their own exclusion lists, pursuant to 42 CFR section 
1002.210 or State authority, which include individuals and entities whom the State has barred 
from participating in State government programs.  States with such lists should remind providers 
that they are obligated to search their State list routinely whenever they search the LEIE. 
Conclusion 
We know you share our commitment to combating fraud and abuse.  We all understand that 
provider enrollment is the first line of defense in this endeavor.  If we strengthen our efforts to 
identify excluded parties, the integrity and quality of the Medicaid program will be improved, 
benefiting Medicaid recipients and taxpayers across the country. 
If you have any questions or would like any additional information on this guidance, please 
direct your inquiries to Ms. Claudia Simonson, Centers for Medicare & Medicaid Services, 
Center for Medicaid and State Operations, Medicaid Integrity Group, 233 North Michigan 
Avenue, Suite 600, Chicago, Illinois 60601 or claudia.simonson@cms.hhs.gov.  Thank you for 
your assistance in this important endeavor. 
Sincerely, 
/s/ 
Herb B. Kuhn 
Deputy Administrator 
Acting Director, Center for Medicaid and State Operations  Page 6  State Medicaid Director 
cc: 
CMS Regional Administrators 
CMS Associate Regional Administrators 
Division of Medicaid and Childrens Health 
Ann C. Kohler 
NASMD Executive Director 
American Public Human Services Association 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
Matt Salo 
Director of Health Legislation 
National Governors Association 
Debra Miller 
Director for Health Policy 
Council of State Governments 
Christie Raniszewski Herrera 
Director, Health and Human Services Task Force 
American Legislative Exchange Council 
Barbara W. Levine 
Chief, Government Relations and Legal Affairs 
Association of State and Territorial Health Officials