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 #06-024 
December 13, 2006 
 
Dear State Medicaid Director: 
 
We are writing to offer guidance to State Medicaid agencies on the implementation of section 
6032 of the Deficit Reduction Act of 2005.  This provision establishes section 1902(a)(68) of the 
Social Security Act (the Act), and relates to Employee Education About False Claims 
Recovery. 
 
The following definitions are included in the accompanying State Plan Preprint, although 
additional guidance in this letter further clarifies the Preprint: 
 
An entity includes a governmental agency, organization, unit, corporation, partnership, or 
other business arrangement (including any Medicaid managed care organization, irrespective of 
the form of business structure or arrangement by which it exists), whether for-profit or not-for-
profit, which receives or makes payments, under a State plan approved under title XIX or under 
any waiver of such plan, totaling at least $5,000,000 annually. 
 
If an entity furnishes items or services at more than a single location or under more than one 
contractual or other payment arrangement, the provisions of section 1902(a)(68) apply if the 
aggregate payments to that entity meet the $5,000,000 annual threshold.  This applies whether 
the entity submits claims for payments using one or more provider identification or tax 
identification numbers. 
 
A governmental component providing Medicaid health care items or services for which 
Medicaid payments are made would qualify as an entity (e.g., a State mental health facility or 
school district providing school-based health services).  A government agency which merely 
administers the Medicaid program, in whole or part (e.g., managing the claims processing system 
or determining beneficiary eligibility), is not, for these purposes, considered to be an entity. 
 
An entity will have met the $5,000,000 annual threshold as of January 1, 2007, if it received or 
made payments in that amount in Federal fiscal year 2006.  Future determinations regarding an 
entitys responsibility stemming from the requirements of section 1902(a)(68) will be made by 
January 1 of each subsequent year, based upon the amount of payments an entity either received 
or made under the State Plan during the preceding Federal fiscal year. 
 
An employee includes any officer or employee of the entity. 
 
A contractor or agent includes any contractor, subcontractor, agent, or other person which or 
who, on behalf of the entity, furnishes, or otherwise authorizes the furnishing of Medicaid health 
care items or services, performs billing or coding functions, or is involved in monitoring of 
health care provided by the entity. 
  Page 2  State Medicaid Director 
It is the responsibility of each entity to establish and disseminate written policies which must 
also be adopted by its contractors or agents.  Written policies may be on paper or in electronic 
form, but must be readily available to all employees, contractors, or agents.  Although section 
1902(a)(68)(C) refers to any employee handbook, there is no requirement that an entity create 
an employee handbook if none already exists. 
 
An entity shall establish written policies for all employees (including management), and of any 
contractor or agent of the entity, that include detailed information about the False Claims Act and 
the other provisions named in section 1902(a)(68)(A).  The entity shall include in those written 
policies detailed information about the entitys policies and procedures for detecting and 
preventing waste, fraud, and abuse.  The entity shall also include in any employee handbook a 
specific discussion of the laws described in the written policies, the rights of employees to be 
protected as whistleblowers and a specific discussion of the entitys policies and procedures for 
detecting and preventing fraud, waste, and abuse.  The Centers for Medicare & Medicaid 
Services (CMS) is not providing model language, though States may elect to do so.  
 
The provisions of section 1902(a)(68) of the Act must be implemented no later than January 1, 
2007, except as provided in the section 6034(e) delayed effective date of the Deficit Reduction 
Act of 2005.  To the extent a State determines that it requires legislation to implement this 
section and wishes to avail itself of the section 6034(e) delayed effective date, it must request 
through CMS that the Secretary concur with the determination that legislation is required. 
 
The requirements of this law should be incorporated into each States provider enrollment 
agreements.  Each State must also determine the manner by which it will ensure an entitys 
compliance with section 1902(a)(68), which information each State must include in its State Plan 
along with a description of the methodology of compliance oversight and the frequency with 
which the State will re-assess compliance on an ongoing basis.  Each State shall so amend its 
State Plan not later than March 31, 2007, or by the end of the quarter in which the effective date 
of delayed implementation occurs, as described in section 6034(e).  CMS may, at its discretion, 
independently determine compliance through audits of entities or other means.  CMS may also 
review a States procedures through its routine oversight of States. 
 
If you have any questions on this guidance, please direct them in writing to:  Mr. Robb Miller, 
Centers for Medicare & Medicaid Services, Center for Medicaid and State Operations, Medicaid 
Integrity Group, 7500 Security Boulevard, Mailstop B2-15-24, Baltimore, MD 21244 or 
Ms. Claudia Simonson, Centers for Medicare & Medicaid Services, Center for Medicaid and 
State Operations, Medicaid Integrity Group, Division of Field Operations, 233 North Michigan 
Avenue, Suite 600, Chicago, IL 60601 or robb.miller@cms.hhs.gov or 
claudia.simonson@cms.hhs.gov. 
 
Sincerely,  
 
/s/ 
 
            Dennis G. Smith  
Director 
 
Enclosure 
  Page 3  State Medicaid Director 
 
cc: 
 
CMS Regional Administrators 
 
CMS Associate Regional Administrators 
    for Medicaid and State Operations 
 
Martha Roherty           
Director, Health Policy Unit 
American Public Human Services Association 
 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
 
Matt Salo 
Director of Health Legislation 
National Governors Association 
 
Jacalyn Bryan Carden 
Director of Policy and Programs 
Association of State and Territorial Health Officials 
 
Christie Raniszewski Herrera 
Director, Health and Human Services Task Force 
American Legislative Exchange Council 
 
Lynne Flynn 
Director for Health Policy 
Council of State Governments