On June 1, 2011, the Centers for Medicare and Medicaid Services (CMS) issued a final rule on Provider-Preventable Conditions (PPC), often referred to as "Never Events," that prohibits state Medicaid plans from making payments to providers for reasonably preventable conditions by requiring them to adopt, at a minimum, Medicare's nonpayment policy for preventable conditions (hereinafter the "Rule"). It also authorizes states to identify preventable conditions beyond the Medicare list for which Medicaid payments will be prohibited. The effective date is July 1, 2011, with a compliance deadline of July 1, 2012.

In an effort to augment quality improvement in the Medicaid program, PPACA requires that Medicaid prohibit payment for the following PPCs: the full list of Medicare Health Care-Acquired Conditions in the inpatient hospital setting, with the exception of deep vein thrombosis/pulmonary embolism following total knee replacement or hip replacement in pediatric and obstetric patients, and Other Provider-Preventable Conditions, including broad application to Medicaid inpatient and outpatient healthcare settings where adverse events may occur, surgery on the wrong patient, wrong surgery or wrong site, regardless of setting and other conditions that the state may choose to expand beyond this list with CMS approval. The Rule requires that states revise their Medicaid plans to comply with this provision. It also mandates that states implement provider self-reporting of PPCs through their claims systems and anticipates that the existing claims systems will be used as a platform for provider self-reporting of PPCs, even when the provider may have written off the charges and there is no associated bill.

The Rule extends nonpayment beyond the inpatient setting and into any healthcare setting where these events can occur, including physician offices, outpatient surgery centers and skilled nursing facilities. Unlike the nonpayment provisions for Medicare, the Rule does not contain a Present on Admission requirement, so healthcare providers should exercise care in documenting a patient's physical condition at the time of admission. The Rule, however, does not preclude the states from imposing a Present on Admission system.

The Rule will impact children's hospitals, cancer hospitals, long-term care facilities and outpatient physician settings, which previously had been excluded under the Medicare PPC rules. Further, it takes away the argument these providers had with third party payers in contracts negotiations around Never Events. As with the Medicare regulations, the Rule has malpractice implications and requires coordination among many departments at healthcare facilities and large physician groups, including legal, risk, billing and quality. If providers have not already established processes for the reporting and review of PPCs, they should engage their risk management and billing departments to develop them.