What is the Scope of a Mandatory Exclusion Brought Under Section 1128(a)(4) of the Social Security Act (Act)?

The Department of Health and Human Services (HHS), Office of Inspector General (OIG) exercises both mandatory and permissive exclusion authority with respect to Federal health care programs.[1] In a recent New York case, the OIG was required by law to mandatorily exclude an individual for a minimum of five years due to her recent prosecution and guilty plea to a State felony in a controlled substances diversion case.[2]  While the facts in this case are relatively routine, there are a number of important points that are addressed in the petitioner’s appeal of the OIG exclusion action.  This article examines those points.

I. Background Facts:

In this case, an individual working in a physician’s office surreptitiously obtained the physician’s prescription pad and fraudulently wrote out prescriptions. On at least 35 occasions, she took these prescription sheets to local pharmacies to obtain controlled substances that would have been otherwise unavailable to her without a proper prescription. After conducting an enforcement operation, State narcotics authorities charged the individual with felonious possession of controlled substances, forgery, and falsification of business records. The individual subsequently pleaded guilty to felony criminal possession of a controlled substance in the 4^th degree under New York State Penal Code Section 220.09(1), which mandates that:

“[a] person is guilty of criminal possession of a controlled substance in the fourth degree when he knowingly and unlawfully possesses…one or more preparations, compounds, mixtures, or substances containing a narcotic drug and said preparations, compounds, mixtures, or substances are of an aggregate weight of one-eighth ounce or more.” [3]

II. Impact of a State Conviction on an Individual’s Exclusion Status:

There are currently seven bases[4] upon which the OIG is obligated to exclude an individual from participating in Medicare, Medicaid, and other Federal health care programs.  A chart summarizing the seven mandatory exclusion provisions is set out below:

Mandatory Exclusion Provisions

Social Security Act Section	42 U.S.C. Section	Summary Description
1128(a)(1)	1320a-7(a)(1)	Conviction of Program-Related Crimes. Any individual or entity that has been convicted of a criminal offense related to the delivery of an item or service under subchapter XVIII or under any State health care program.
1128(a)(2)	1320a-7(a)(2)	Conviction Relating to Patient Abuse. Any individual or entity that has been convicted, under Federal or State law, of a criminal offense relating to neglect or abuse of patients in connection with the delivery of a health care item or service
1128(a)(3)	1320a-7(a)(3)	Felony Conviction Relating to Health Care Fraud. Any individual or entity that has been convicted for an offense which occurred after August 21, 1996, under Federal or State law, in connection with the delivery of a health care item or service or with respect to any act or omission in a health care program (other than those specifically described in paragraph (1)) operated by or financed in whole or in part by any Federal, State, or local government agency, of a criminal offense consisting of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.
1128(a)(4)	1320a-7(a)(4)	Felony Conviction Relating to a Controlled Substance.  Any individual or entity that has been convicted for an offense that occurred after August 21, 1996, under Federal or State law, of a criminal offense consisting of a felony relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance.
1128(c)(3)(G)(i)	1320a-7(c)(3)(G)(i)	Conviction of Two Mandatory Exclusion Offenses.
1128(c)(3)(G)(ii)	1320a-7(c)(3)(G)(ii)	Conviction on Three or More Occasions of Mandatory Exclusion Offenses.
1892	1395ccc(a)(2)(C)(ii)	Failure to Meet its Obligations Under the Physician Shortage Area Scholarship Program or repay Health Education Assistance Loans (HEAL).

Based on the State conviction, the OIG notified the individual that she was being excluded from Medicare, Medicaid, and other Federal health care programs pursuant to 1128(a)(4) of the Social Security Act (42 U.S.C. 1320a – 7(a)(4)), which requires the mandatory exclusion of any individual or entity who has been convicted of a Federal or State felony criminal offense relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance.As a result, the individual’s State conviction automatically triggered her exclusion from Federal health care programs for the required minimum of five years.  The individual (referred to as “Petitioner” in connection with the appeals process) filed a timely appeal of the OIG’s exclusion action and requested review of her name from OIG Exclusion list by an Administrative Law Judge (ALJ). [5]  At the ALJ hearing, a number of arguments were raised by the Petitioner have been addressed in the sections below.

III.  Collateral Attacks on an Underlying Conviction are Not Permitted:

The Petitioner in this case argued that the ALJ should not give the State’s criminal complaint any weight because it did not contain her sworn statements or describe any admissions that she made. In presenting its case, legal counsel representing the OIG argued that the Petitioner’s arguments amounted to an impermissible collateral attack on her guilty plea and the resulting conviction.[6]  You may ask “What is a collateral attack?”  Simply put, in the appeal of an exclusion action, a Petitioner is prohibited from re-litigating her conviction.  In this case, the Petitioner’s plea and conviction for criminal possession of controlled substances are not reviewable in an exclusion appeal proceeding.  As 42 C.F.R. § 1001.2007(d) provides:

“(d) When the exclusion is based on the existence of a criminal conviction or a civil judgment imposing liability by Federal, State or local court, a determination by another Government agency, or any other prior determination where the facts were adjudicated and a final decision was made, the basis for the underlying conviction, civil judgment or determination is not reviewable and the individual or entity may not collaterally attack it either on substantive or procedural grounds in this appeal.”

42 C.F.R. § 1001.2007(d)

IV. What Does it Mean for a Conviction to be Related to the Manufacture, Distribution, Prescription, or Dispensing of a Controlled Substance?

In presenting her case, the Petitioner also argued that her felony plea and conviction for possession of a controlled substance did not constitute a ”felony related to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance.”  The ALJ hearing this case disagreed with the Petitioner’s position in this regard and upheld the exclusion action taken by the OIG. In taking this action, the OIG predicated the exclusion on the fact that the Petitioner’s conviction related to the unlawful prescription and dispensing of a controlled substance, one of elements laid out under section 1128(a)(4).As the ALJ noted in his opinion, he was “not bound by the elements of the offense of conviction” and had to “look beyond the elements of that offense to determine whether Petitioner’s conviction is related to the manufacture, distribution, prescription, or dispensing of a controlled substance.” In other words, even though the petitioner had only been convicted of possession in the 4^th degree, which alone does not entail the unlawful prescription or dispensing of a controlled substance, the surrounding facts and circumstances of the criminal conviction nonetheless created sufficient nexus between the petitioner’s improper actions and the unlawful prescription and dispensing of controlled substances to warrant exclusion under section 1128(a)(4).Ultimately, the ALJ affirmed the OIG’s exclusion of Petitioner under section 1128(a)(4).  Moreover, the ALJ agreed with the 5 year period of exclusion imposed by the OIG.  In light of the ALJ’s decision, the Petitioner filed a timely appeal to the Departmental Appeals Board (DAB).[7]

V. The OIG’s Delay in Imposing a Mandatory Exclusion Action is of no Consequence and Presents no Defense for Petitioner:

As the ALJ decision reflects, the Petitioner allegedly falsified the prescriptions for controlled substances during the period April 2009 through December 2010.  Her conduct resulted in her conviction in May 2011 but the OIG allegedly did not notify Petitioner of her exclusion from the Medicare, Medicaid and other Federal health care program until August 2015.[8]  Petitioner argued that the effective date of her exclusion should be moved to an earlier date.  In response, the OIG argued that “there is no statutory or regulatory requirement to impose exclusion within a specific timeframe following conviction, and that in any case, [the ALJ has] no authority to adjust the effective date of Petitioner’s exclusion.”  While sympathetic to the Petitioner’s position, the ALJ noted that under the Social Security Act, he has no authority to modify the effective date of an exclusion imposed by the OIG.[9]

VI. The Standard of Review Applied by the Departmental Appeals Board (DAB) Makes it Difficult to Overturn an ALJ Decision:

When reviewing an ALJ decision, the standard of review that the DAB must apply is whether the ALJ decision is supported by substantial evidence in the record as a whole.[10]  You may ask “What constitutes substantial evidence? As it turns out, meeting this standard isn’t difficult for the government.  Substantial evidence has been defined as “more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”[11]

In reviewing this case, the DAB agreed with the ALJ’s analysis and further affirmed the probative value of the sworn criminal complaint of the investigator with the State narcotics bureau. The DAB acknowledged that this complaint provided the only facts in the record but that it still presented ample evidence of the Petitioner’s criminal conduct. The DAB recounted some of the details of the investigator’s sworn complaint to emphasize the sheer number of times – 35 — that the Petitioner used her employer’s prescription sheets to fraudulently obtain controlled substances. This pattern of misconduct reinforced the case against the Petitioner and demonstrated that it was based on substantial evidence far beyond a mere scintilla. Ultimately, the DAB affirmed the ALJ decision with respect to both the legal and factual disputes presented.

VII. Final Thoughts Regarding Section 1128(a)(4):

Individuals and entities should expect the OIG to interpret its mandatory exclusion obligations broadly under Section 1128(a).  Moreover, on appeal, a Petitioner will likely find that administrative panels will look for any common sense connection between an individual’s criminal conduct and the exclusion statute.We have seen multiple instances where an individual has pleaded guilty to a criminal offense that has unexpectedly led to his or her mandatory exclusion from participation in Federal health care programs.  This case also serves to remind us that the reporting mechanisms between State and Federal enforcement agencies are imperfect and can result in the delayed reporting of a State conviction, or possibly the complete failure of a State to relay a reportable adverse event to the OIG.  The bottom line is that you, as a participating health care providers or supplier must regularly screen employees, agents, contractors and vendors against both Federal and State exclusion lists.  Need help with your screening obligations?  For a complimentary consultation, give us a call.  The sanction professionals at Exclusion Screening can be reached at:  1 (800) 294-0952.  [1] For a detailed look into the OIG exclusion process, please see our article, “A Provider’s Guide to OIG Exclusions,” by Paul Weidenfeld.[2] For a look at another recent New York exclusion case, we recommend you review Liles Parker’s article titled “A Disruptive Conviction Can Result in Medicare Exclusion,”  dated September 20, 2020.[3] https://www.nysenate.gov/legislation/laws/PEN/220.09[4] The first six bases listed in the chart are all brough under various provisions of Section 1128 of the Social Security Act.  The seventh basis for mandatory exclusion is based on a violation of Section 1892 of the Social Security Act / 42 USC 1395ccc(a)(2)(C)(ii) and (a)(3)(B). It is worth noting that the OIG also exercises permissive exclusion authority over individuals who default on health professions scholarship obligations or loans that are made or secured, in whole or in part by the Secretary, HHS, under Section 1128(b)(14) of the Social Security Act / 42 USC 1320a-7(b)(14).[5] Kami L. Purvis (Petitioner) v. The Inspector General (Respondent), DAB CR5419 (2019).[6] 42 C.F.R. § 1001.2007(d).  Also see Travers v. Shalala, 20 F.3d 993, 998 (9th Cir. 1994).[7] Kami L. Purvis, DAB No. 2990 (2020).[8] It is worth noting that the timeline cited in the DAB decision varies from that stated by the ALJ.  Regardless of which timeline is correct, the ALJ remains on point and still applies.[9] See Thomas Edward Musial, DAB No. 1991 (2005), citing Douglas Schram, R.PH., DAB No. 1372 at 11 (1992) (“[n]either the ALJ nor this Board may change the beginning date of Petitioner’s Exclusion.”); David D. DeFries, D.C., DAB No. 1317 at 6 (1992) (“The ALJ can not . . . decide when [the exclusion] is to begin.”); Richard D. Phillips, DAB No. 1279 (1991) (“An ALJ does not have ‘discretion . . . to adjust the effective date of an exclusion, which is set by regulation.’”); Samuel W. Chang, M.D., DAB No. 1198 at 10 (1990) (“The ALJ has no power to change . . . [an exclusion’s] beginning date.”); see also 42 C.F.R. § 1001.2002(b) (“The exclusion will be effective 20 days from the date of the notice.”).[10] 42 CFR 1005.21(h).  As this provision provides:

“(h) The standard of review on a disputed issue of fact is whether the initial decision is supported by substantial evidence on the whole record. The standard of review on a disputed issue of law is whether the initial decision is erroneous.”

[11] Richardson v. Perales, 402 U.S. 389, 401 (1971), quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229 (1938).

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