DEPARTMENT OF HEALTH & HUMAN SERVICES 
Health Care Financing Administration  
 Center for Medicaid and State Operations 
7500 Security Boulevard 
Baltimore, MD 21244-1850 
March 17, 1999  
Dear State Medicaid Director:  
The purpose of this letter is to provide guidance on a recently issued final rule regarding States' obligation to notify the 
Office of Inspector General (OIG) when certain sanction actions are taken against Medicaid program participants.  
On September 2, 1998, a final rule was published ( Federal Register Volume 63, Number 170 , Page 46676) that addresses 
revisions to the OIG's administrative sanction authorities. Some of these revisions strengthen existing laws pertaining to 
information collection, reporting requirements, and exclusions from Federal health care programs, including Medicaid. 
The information to be reported will enable the OIG to more effectively exercise its authority to exclude practitioners and 
providers who pose a risk to Federal health care programs and beneficiaries based on actions to limit participation 
undertaken by State Medicaid agencies. We believe this regulation both complements and supplements our efforts to 
combat fraud and abuse and reduce waste in the Medicaid program, and we encourage you to collect the information 
necessary to promptly notify the Inspector General of actions your State takes to limit the ability of an individual or entity 
to participate in your Medicaid program in accordance with the revised regulation.  
A number of States have inquired about certain sections of this regulation. Of particular interest has been Paragraph 
1002.3, entitled Disclosure by Providers and State Medicaid Agencies, which requires agencies to promptly notify the 
Inspector General of any action it takes to "limit the ability of an individual or entity to participate in its program, 
regardless of what such an action is called. This includes, but is not limited to, suspension actions, settlement agreements 
and situations where an individual or entity voluntarily withdraws from the program to avoid a formal sanction."  
Therefore, we would like to provide clarification as to when a State Medicaid agency is obligated to notify the Inspector 
General when an individual or entity voluntarily withdraws from the Medicaid program, and when it is not obligated to 
report. This rule requires notification only after a formal proceeding has begun, as is noted on page 46683 of the Federal 
Register:  
Informal contacts with the provider, short of written notice, have been viewed as not constituting the start of a formal 
proceeding. If a provider withdraws from program participation at this early stage of an investigation or review prior to 
when formal charges or notification has been made, and the provider has not been offered an opportunity to respond, such 
a withdrawal would not be grounds for an exclusion. Under this situation, the State Medicaid agency is not required to 
report the matter to the OIG.  
However, notice to the Inspector General is required when a formal notice has been issued, a participant has been given an 
opportunity to respond, but chooses to withdraw prior to the completion of formal proceedings.  
We have enclosed a copy of the regulation for your review. If you have questions about this letter, please contact your 
HCFA regional office.  
Sincerely,  
/s/  
Sally K. Richardson   
Director   
Center for Medicaid and State Operations  
 
Enclosure  ( Note: File (fr02se98.pdf) is in Adobe Acrobat format)  
HCFA Regional Administrators  HCFA Associate Regional Administrators for Medicaid and State Operations  Lee 
Partridge - American Public Human Services Association  Joy Wilson - National Conference of State Legislatures  Matt 
Salo - National Governors' Association