Medicare payment suspensions have become an increasingly common and disruptive challenge for healthcare providers, particularly laboratories. Medicare has broad authority to impose a payment suspension, which can have immediate, severe, and prolonged financial consequences for a provider’s practice. These suspensions are typically initiated when Medicare, through its contractors, identifies potential billing irregularities, fraud, or noncompliance with program rules.
In 2025, Frier Levitt observed a significant increase in L3 Explanation of Benefits (EOB) denials on laboratory claims, often marked as a “penalty.” Many laboratories initially dismiss these L3 EOB denials as minor administrative issues, not realizing that they are an early warning sign of a Medicare payment suspension, audit, or investigation.
Why Medicare Payment Suspensions Occur
Medicare payment suspensions are primarily initiated by the Centers for Medicare & Medicaid Services (CMS) Unified Program Integrity Contractors (UPICs), which are tasked with identifying and investigating potential fraud, waste, and abuse. UPICs often launch investigations based on patient complaints, data analytics, and referrals from other government agencies.
Medicare does not require definitive proof of wrongdoing before suspending payments. Instead, it relies on a “credible allegation” of fraud to justify its actions. Some common reasons for payment suspensions include:
- Patient Complaints: Allegations from Medicare beneficiaries about improper billing, unnecessary services, or quality-of-care issues can lead to an investigation.
- Billing for Services Not Rendered: Medicare may suspect that a provider is submitting claims for procedures or tests that were never performed.
- Incorrect or Misleading Billing Codes: Claims submitted with improper codes, whether due to error or intentional misrepresentation, can trigger scrutiny.
- Lack of Documentation: If a provider’s medical records do not adequately support the services billed, Medicare may suspend payments while reviewing the claims.
- Outstanding Overpayments: If Medicare identifies an overpayment but has not yet determined the full amount, a suspension may be imposed until the issue is resolved.
- Violations of Federal Law: Allegations of illegal financial arrangements, such as kickback schemes, can prompt enforcement actions.
What Happens Once a Payment Suspension Begins
Once a suspension is in place, all Medicare reimbursements to the provider are immediately halted, and payments are held in escrow. Providers may continue submitting claims, but those claims will not be paid until the suspension is lifted.
The payment suspension period can last up to 180 days, but Medicare frequently extends the suspension for an additional 180 days by asserting “further investigation” is required. In cases involving potential fraud, a suspension may last indefinitely, particularly if the matter is referred to the Office of Inspector General (OIG) or the Department of Justice (DOJ) for civil or criminal enforcement.
During the suspension, CMS contractors often conduct a detailed audit, frequently using statistical sampling and extrapolation to calculate the total amount of improper payments. If a provider fails to submit medical records when requested, Medicare assumes all related claims were paid in error and includes them in the overpayment total.
If the investigation confirms overpayment, the withheld funds will be used to offset the provider’s debt to Medicare. Any remaining funds may then be released, but in more serious cases, further legal action may follow.
Responding to a Payment Suspension
Despite the magnitude of the consequences, Medicare offers limited due process. Providers do not have the right to appeal a suspension. Instead, they have 15 days to submit a rebuttal statement.
Frier Levitt has successfully assisted providers in drafting effective rebuttals to CMS that:
- Directly address the reasons for the suspension and provide clear explanations for any discrepancies.
- Include supporting documentation, such as medical records and billing logs, to refute Medicare’s findings.
- Explain corrective actions taken to address any identified billing errors or compliance issues.
While a rebuttal can sometimes lead to an early resolution, Medicare has full discretion over whether to lift or continue the suspension. Providers must act swiftly and strategically with assistance of healthcare counsel to challenge the suspension and mitigate financial and operational disruptions.
How to Reduce the Risk of an Audit or Suspension
To minimize the risk of a payment suspension, providers should implement strong compliance measures, including:
- Regular internal audits to ensure billing accuracy.
- Thorough documentation to substantiate all claims.
- Prompt responses to Medicare record requests and challenges to any overpayment demands.
- Ongoing compliance training to prevent errors and detect potential issues before they escalate.
- Coordination with referring providers to ensure all documentation supporting the services rendered is documented clearly.
What to Do If You Receive a Suspension Notice or a Spike in L3 Denials
Medicare’s enforcement environment is becoming more aggressive, and regulatory expectations continue to evolve. A Medicare payment suspension can be devastating to a provider’s cash flow, financial stability and reputation. These suspensions can cause significant financial distress, especially for practices that rely heavily on Medicare revenue. If you receive a suspension notice or an influx of L3 denials, immediate action is essential.
If your practice is facing a payment suspension, experiencing L3 denials, or is under audit, contact us today to consult with our experienced healthcare counsel.
Frier Levitt helps providers navigate Medicare audits, rebut payment suspensions, and implement compliance strategies to reduce future issues. If you are facing a Medicare payment suspension, contact Frier Levitt immediately for a strategic response to protect your practice.
