Should you choose to participate in the Medicare and/or Medicaid programs, you must comply with a wide variety of program integrity requirements. One obligation, in particular, is often missed by physician practices, home health agencies, hospices, and laboratories – the “screening” of employees, contractors, and agents to ensure that the provider or supplier has not employed or entered into a business relationship with an individual or entity that has been excluded from participation in Federal health care programs.[1]  Does that mean that a Medicare provider can never employ an excluded individual or entity? Such as someone on the Medicare Exclusion List?  Not necessarily.  In this article, we will examine how the Department of Health & Human Services (HHS), Office of Inspector General (OIG) has interpreted the impact and scope of an exclusion action.

I. How Did Medicare Exclusion List Screening Obligations Arise?

When reviewing mandatory exclusion screening obligations with health care providers and suppliers, we are regularly asked – How did this obligation arise?  As described below, as a participating provider in the Medicare and / or Medicaid program, you have been prohibited from employing (or contracting with) any individual or entity that has been excluded from participation in Federal health benefit programs for more than 40 years. A brief overview of the evolution of your statutory and regulatory exclusion screening obligation is set out below:

• Medicare-Medicaid Anti-Fraud and Abuse Amendments. The statutory basis for the mandatory exclusion (from Medicare, Medicaid and other Federal health care programs) of physicians and other practitioners convicted of certain crimes was first enacted as part of the “Medicare-Medicaid Anti-Fraud and Abuse Amendments”[2]of 1977.

• Civil Monetary Penalties Law. The initial 1977 legislation discussed above was soon followed in 1981 by passage of the “Civil Monetary Penalties Law,”[3] which authorized the OIG to impose Civil Monetary Penalties (CMPs), assessments, and program exclusion actions against any party that submitted false, fraudulent or improper claims to Medicare or Medicaid for payment.

• Medicare and Medicaid Patient and Program Protection Act.  In 1987, Congress passed legislation which expanded the OIG’s administrative authorities.  Section 1128(a) of the Act[4] outlined a number of adverse actions[5] which mandated the exclusion of an individual or entity from participation in Federal health care programs.  The agency’s expanded authorities included the establishment of additional mandatory and discretionary basis’ for excluding individuals or entities.  Finally, Section 214 set out the minimum period of exclusion that could be assessed against “practitioners and persons failing to meet statutory obligations.”

• Health Insurance Portability and Accountability Act (HIPAA).[6]  Among its many landmark privacy and enforcement provisions, HIPAA also included statutory provisions related to the permissive exclusion of individuals and entities. For instance, under Section 212, the legislation established a minimum period of exclusion for certain individuals and entities subject to permissive exclusion from Medicare and State health care programs.  Additionally, Section 213 covers the permissive exclusion of individuals with ownership or a controlling interest in sanctioned entities.

• Balanced Budget Act (BBA of 1997).[7]  Under the BBA of 1997, Congress expanded the authorities under which an individual or entity could be excluded from participating in Medicare, Medicaid and other Federal health care programs. For instance, under Section 4301, individuals convicted of three or more health care related crimes became subject to permanent exclusion and pursuant to Section 4302, the Secretary could refuse to enter into Medicare agreements with individuals or entities convicted of felonies.  Finally, Section 4303 revised the Act to permit the Secretary of HHS (through the OIG), to exclude entities controlled by a family member of a sanctioned individual.  The BBA of 1997 also amended the CMPs that could be assessed against persons that contract with excluded individuals.

• Special Advisory Bulletin on the Effect of Exclusion from Participation in Federal Health Care Programs.[8]  This guidance was issued in an effort to help “affected parties better understand the scope of payment prohibitions that apply to items and services provided to Federal program beneficiaries, and to provide guidance to individuals and entities that have been excluded from the Federal health care programs and to those who employ or contract with an excluded individual or entity to provide such items or services.”

• Medicare Prescription Drug, Improvement, and Modernization Act of 2003.[9]  Under 42 USC 1314, Section 949, the Secretary, HHS (after consulting with the OIG) was given the authority to waive the exclusion of an individual or entity if the “individual or entity is the sole community physician or sole source of essential specialized services in a community,” AND the party’s exclusion would impose a hardship on individuals entitled to benefits.

• Solicitation of Information and Recommendations for Supplementing the Guidance Provided in the Special Advisory Bulletin on the Effect of Exclusion from Participation in Federal Health Care Programs. In November 2010, the OIG published a notice in the Federal Register, advising the public that it intended to update its 1999 guidance, “Special Advisory Bulletin on the Effect of Exclusion from Participation in Federal Health Care Programs,” and it sought comments from the public with respect to the development of the updated guidance.  As the request for comments noted:

“With time it has become even more apparent that exclusion has a significant impact, not only on those who have been excluded but also on entities that have employed or contracted with excluded persons and been faced with liability for overpayments and civil monetary penalties as a result. As OIG’s compliance and enforcement activities in this area have increased, many health care providers have discovered that they employ excluded individuals and have self-disclosed to the OIG.”[10]

• Patient Protection and Affordable Care Act of 2010.[11] Under Section 6401, the Affordable Care Act imposed increased disclosure requirements on health care providers and supplier participating in the Medicare, Medicaid and / or CHIP programs.[12]  Among the new disclosure requirements was the fact that excluded “affiliations” now had to be disclosed to CMS.

• Special Advisory Bulletin on the Effect of Exclusion from Participation in Federal Health Care Programs (Special Advisory Bulletin).[13]  In May 2013, the OIG released an updated Special Advisory Bulletin addressing the effect of exclusion from participation in Federal health care programs. The updated 2013 guidance goes into considerable detail describing the scope and effect of an exclusion action items or services furnished (1) by an excluded person, or (2) at the medical direction or on the prescription of an excluded person.  The guidance also discusses the scope and frequency of a provider’s screening obligations.

II. What is the Practical Effect of Exclusion from Federal Health Care Programs:

Simply stated, an exclusion action is perhaps the most severe administrative remedy that can be imposed on an individual or entity by the OIG. If an individual is excluded by the OIG from participating in Medicare, Medicaid and other Federal health care programs, he or she cannot be hired or contracted to work for any entity that participates in any of these programs. From a practical standpoint, the government does not want any Federal health care monies to be used to pay any of the salary or benefits of an excluded individual.  This “payment prohibition” serves as complete ban and applies to “all methods of Federal program reimbursement” regardless of whether the reimbursement results from an itemized claim, an entry on a cost report or is included in a capitated payment to an entity.[14]  As the OIG’s 2013 Special Advisory Bulletin notes, the broad payment prohibition applied to excluded parties includes, but is not limited to the following:

• Management, administrative or any leadership roles;

• Surgical support or other activities that indirectly support care; 

• Claims processing and information technology; 

• Transportation services including ambulance company dispatchers;

• Selling, delivering or refilling orders for medical devices;

Notably, even the work of an unpaid volunteer who is an excluded party can trigger CMP liability if the services provided are not “wholly unrelated to Federal Health Care Programs.” [15]  In consideration of these broad prohibitions, you may ask “Can a Medicare provider ever hire an excluded individual”?  As discussed below, there are only four limited circumstances under which a participating provider can hire an excluded individual and avoid overpayment and CMP liability.  Moreover, it is very difficult to qualify for any of the exceptions that have been identified.

III. When Can a Medicare Provider or Supplier Employ an Excluded Individual?

Exception #1:  If Federal health care programs do not pay, either directly or indirectly, for any of the items or services being provided by the excluded individual, then a participating provider may employ or contract with an excluded person to provide those items or services.[16]    Unfortunately, this exception is far easier to describe than it is to appropriately arrange.  Two challenges immediately arise.  First, how will a participating provider be able to ensure that an excluded party will not be paid, either directly or indirectly, with reimbursement monies paid by Medicare, Medicaid, and/or another Federal health benefits program? Second, how can a participating provider ensure that all of the items or services provided by an excluded individual “relate solely to non-Federal health benefit program patients?”  [17]

Exception #2:  If an employer employs or contracts with an excluded person to furnish items or services solely to non-Federal health care beneficiaries, a participating provider would not be subject to CMP liability.  As in the first example, this business arrangement is theoretically possible but would likely be difficult to properly execute.  Prior to entering into this type of arrangement, we strongly recommend that the participating provide seek an Advisory Opinion from the OIG to verify that the duties, structure, and payment practices would not trigger CMP liability.

Exception #3:  Seek an exclusion “Waiver” under Section 1128A(i)(5) of the Act. At the outset, it is important to note that an excluded individual does not have the authority to “request” a waiver of his or her exclusion action by the OIG.  If a mandatory exclusion action is based on a violation of 42 CFR §1001.101(a), (c) or (d), the Administrator of a Federal health care program has the authority to request an exclusion waiver from the OIG.[18]  However, even the Federal health care Administrator does not have the authority to seek an exclusion waiver if the exclusion action has been based on a conviction under Federal or State law of a criminal offense related to the neglect or abuse of a patient (as outlined under 42 CFR §1001.101(b)).

In order to request an exclusion waiver from the OIG, the Administrator of a Federal health care program must first determine that:

“(1) The individual or entity is the sole community physician or the sole source of essential specialized services in a community; and

(2) The exclusion would impose a hardship on beneficiaries (as defined in section 1128A(i)(5) of the Act) of that program.”

If an exclusion action has been based on one of the OIG’s permissive exclusion authorities, the OIG can only grant a waiver of the exclusion action if the agency determines that imposition of the exclusion would not be in the public interest.[19]

Exception #4:  Seek an Advisory Opinion from the OIG.  To the extent that you believe that a proposed arrangement that contemplates the employment of an excluded individual would not constitute grounds for the imposition of CMP sanctions, you may submit a request for an Advisory Opinion from the OIG.  From our review, it appears that there have only been three Advisory Opinion requests seeking guidance from the OIG on this issue since the issuance of the initial guidance in 1998.  Two of the Advisory Opinions involved the proposed employment of an excluded individual and the remaining Advisory Opinion examined whether a participating provider could purchase real estate that was owned and managed, in part, by an excluded individual.  The three Advisory Opinions examining the excluded party issue include:  

• OIG Advisory Opinion No. 01-16: Issued September 2001 / Posted October 5, 2001.

• OIG Advisory Opinion No. 03-01: Issued January 13, 2003 / Posted January 21, 2003.

• OIG Advisory Opinion No. 19-05: Issued September 6, 2019 / Posted September 11, 2019.

Notably, the OIG held that none of the three proposed arrangements involving an excluded party would give rise to CMP sanctions. Before you jump to conclusions, however, we recommend that you read the specific factual scenarios involved in each of the requests for Advisory Opinion.  None of the proposed arrangements encompass situations that would be controversial or questionable in light of the financial and reimbursement relationship between the participating provider and the excluded individual.

IV. Recommendations for Medicare Providers Seeking to Employ an Excluded Party:

[1] Now codified in Section 1128B(f) of the Social Security Act (the Act), the term “Federal health care program” means:

“(1) any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government (other than the health insurance program under chapter 89 of title 5, United States Code); or

(2) any State health care program, as defined in section 1128(h).”

[2] See 42 USC 1395y, Sec. 7. https://www.govinfo.gov/content/pkg/STATUTE-91/pdf/STATUTE-91-Pg1175.pdf.

[3] See 42 USC 1320a-7a.  https://www.ssa.gov/OP_Home/ssact/title11/1128A.htm.

[4] See 42 USA 1395, Section 1128(a) and (b).  https://www.govinfo.gov/content/pkg/STATUTE-101/pdf/STATUTE-101-Pg680.pdf

[5] Generally, these mandatory exclusion actions included: (1) Conviction of Program-Related Crimes, and (2) Conviction Relating to Patient Abuse.  The legislation also covered a number of “permissive” exclusion actions.  These included:  (1) Conviction Related to Fraud; (2) Conviction Related to Obstruction of an Investigation; (3) Conviction Related to Controlled Substance; (4) License Revocation or Suspension; (5) Exclusion or Suspension Under Federal or State Health Care Program; (6) Claims for Excessive Charges or Unnecessary Services and Failure of Certain Organizations to Furnish Medically Necessary Services; (7) Fraud, Kickbacks and other Prohibited Practices; (8) Entities Controlled by a Sanctioned Individual; and (9) Failure to Disclose Required Information; (10) Failure to Supply Requested Information on Subcontractors of Suppliers; (11) Failure to Supply Payment Information; (12) Failure to Grant Immediate Access; (13) Failure to Take Corrective Action; and, (14) Default of Health Education Loan or Scholarship Obligations.

[6] Health Insurance Portability and Accountability Act of 1996, Public Law 104-191.  (August 21, 1996).

[7] Balanced Budget Act (BBA) of 1997, Public Law 105–33.

[8] 64 FR 52791 (September 30, 1999).

[9] Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173.  (December 8, 2003).

[10] 74 FR 69452, 69453 (November 10, 2010).

[11] Patient Protection and Affordable Care Act of 2010, Public Law 111-148. June 9, 2010.

[12] For a more detailed discussion on these disclosure requirements, see the article outlining the Final Rule entitled “Medicare, Medicaid, and Children’s Health Insurance Programs; Program Integrity Enhancements to the Provider Enrollment Process.” 

[13] Special Advisory Bulletin on the Effect of Exclusion from Participation in Federal Health Care Programs.  Issued May 8, 2013.

[14] Ibid, at pgs. 6 and 7.

[15] Ibid, at pgs. 11 and 12.

[16] Ibid, at pg. 12.

[17] Id.

[18] 42 CFR 1001.1801(a).

[19] 42 CFR 1001.1801(c).