CMS Pub. 100-04, ch. 33, § 10.2.1

The first condition that must be met is that the Medicare program guidance must have

been erroneous. The analysis of whether the guidance was erroneous must consider two

standards and both standards must be met to conclude that the guidance was erroneous

for the purpose of invoking the provisions of this section.

The first standard is that the guidance was, in fact, erroneous at the time of the provider

or supplier’s act or omission that is the basis for the penalty at issue. If there was no error

in the guidance then a waiver of the penalty may not be granted.

The second standard is that the error must be material. That is, the error must be the

necessary cause of the provider or supplier’s act or omission that is the basis for the

penalty at issue. If the error is one that would not have caused a reasonable, similarly

situated provider or supplier to act or to refrain from acting in the manner that is the basis

of the penalty, then the contractor must conclude that a §903(c)-type error is not present

and must, therefore, conclude further that a penalty waiver under §903(c) may not be

granted.