Legal View: Avoiding exclusion from federal health care programs

By Christopher J. Hunter

The Daily Record Newswire

Exclusion from participation in federal health care programs can be professionally devastating and financially ruinous for individuals and entities.

Health care providers and entities that are excluded from Medicare, for example, are deprived of significant revenue and suffer potentially fatal damage to their reputation. The bases for mandatory exclusion have generally been clear and avoidable.

But less clear, and potentially less avoidable, have been the bases for permissive exclusion, or, in other words, exclusion that is not required by statute.

What's more, the risk of permissive exclusion appears to be rising. Recent federal government guidance, enforcement activity and legislative proposals all indicate an ever-broadening interpretation of when permissive exclusion authority will be exercised.

Severe penalties

The U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) exercises mandatory and permissive exclusion authority as one of several methods of protecting the integrity of federal health care programs.

An excluded individual or entity is prohibited from billing the government for services or items provided to patients. Entities that employ an excluded individual may not bill the government for services or items he or she provides. Similarly, entities may not submit reimbursement claims based on services or items provided by an excluded third party vendor or supplier.

The penalties for violating these rules are severe. An entity that bills for services rendered by an excluded provider may face civil monetary penalties of $10,000 per occurrence, triple damages for the amount claimed for each item or service and exclusion from participation in federal health care programs.

Mandatory exclusion occurs upon conviction for certain categories of criminal offenses and is for a minimum of five years. Felony convictions for health care fraud, crimes relating to patient abuse or neglect and controlled substances offenses trigger mandatory exclusion. Mandatory exclusion is easy to avoid: comply with the law and the risk of mandatory exclusion never presents itself.

The bases for permissive exclusion are many and, to a degree, more subjective. For example, convictions for crimes such as obstruction or fraud unrelated to health care programs may result in exclusion. Other trigger events include license revocation or suspension, submitting claims for medically unnecessary services or failing to supply information about subcontractors and suppliers. The duration of exclusion depends on the basis for exclusion.

One basis for permissive exclusion that has recently been the subject of significant attention relates to individuals controlling a sanctioned entity. Federal law authorizes HHS-OIG to exclude, among others, officers or managing employees of an entity that has been excluded or convicted of certain crimes.

HHS-OIG guidance

This basis for exclusion is the most frightening because the officers or managing employees can be excluded even if they had no knowledge of the wrongful conduct that resulted in their employer being sanctioned.

In October 2010, HHS-OIG issued a guidance document identifying the factors it will consider in deciding whether to impose permissive exclusion on unwitting officers and managing employees.

HHS-OIG identified four factors to guide its analysis. First, what were the circumstances of the misconduct and seriousness of the offense? To answer this question, HHS-OIG will examine the conduct itself. Did the misconduct result in actual or potential harm or cause financial harm to federal health care programs? Was the misconduct an isolated incident by one field-level employee or does it reflect officer-level involvement?

Second, what was the officer's or managing employee's role in the sanctioned entity? To answer this question, HHS-OIG will look to the individual's current and former positions with the entity and the degree of managerial control or authority. On this point, HHS-OIG asks: Did the misconduct occur within the individual's chain of command?

Third, what were the officer's or managing employee's actions in response to the misconduct? Did the individual immediately try to stop the misconduct, mitigate its effects and disclose it to the government? Did the individual cooperate with government investigators and prosecutors by providing them with documents and other evidence upon request?

Fourth, what is the nature of the entity itself? Is the entity a first-time offender or is the misconduct part of a recurring pattern? Is the entity large and complex, with a mature corporate governance structure, or is it small, with a limited number of employees trying to accomplish a lot with a little?


Two months after HHS-OIG issued this guidance, a federal judge upheld a 12-year permissive exclusion determination imposed on three former executives of Purdue Frederick Company, Inc. who had no actual knowledge of wrongdoing at their company.

The excluded executives were the company's former CEO, former Chief Medical Officer and former General Counsel.

The exclusion determination arose out of the misbranding of OxyContin. The company pleaded guilty in May 2007 to felony misbranding, and each of the three corporate officers pleaded guilty to misdemeanor misbranding.

In this case, the convictions were based on strict liability. That is, they were convicted even though there was no evidence they had actual knowledge of criminal wrongdoing. The government used the responsible corporate officer doctrine, also known as the Park doctrine, to hold them criminally accountable for failing to prevent, detect and correct the misbranding of OxyContin.

After their convictions, HHS-OIG exercised its permissive exclusion authority to bar the three executives from participating in federal health care programs for 20 years. Through the administrative appeal process, the duration was reduced to 12 years, and the executives are now appealing the 12-year term in federal court.

In the meantime, these health care industry executives are effectively barred from working in the health care industry. For the next 12 years, they may not work for any company that receives Medicare reimbursement money or any other federal dollars even though they were not found to know about or have committed criminal misconduct.

Proposed legislation

Given the government's successful defense of the Purdue Frederick matter so far, the aggressive exercise of permissive exclusion authority of officers and managing employees, as well as corporate entities, is likely to increase, and with new tools.

In February 2011, the Strengthening Medicare Anti-Fraud Measures Act was reintroduced in the U.S. House of Representatives with more than 20 sponsors. The bill expands the reach of HHS-OIG's permissive exclusion authority. The same legislation passed the House by a voice vote in the last Congress.

According to the bill's primary sponsors, Reps. Wally Herger, R-Calif., and Pete Stark, D-Calif., the legislation expands the authority of HHS-OIG to ban corporate executives from doing business with Medicare if their companies were convicted of fraud after they had left the company. It also gives OIG the ability to exclude parent companies that may be committing fraud through shell companies.

This means that if a compliance officer moves to a new company simply to take a new job and not because he or she is knowingly leaving a mess behind, that compliance officer could still be excluded based on his or her prior employing company's conviction. As applied to corporate entities, the Act would seem to give HHS-OIG the authority to exclude Purdue Frederick's parent company, Purdue Pharma LP, based on Purdue Frederick's felony misbranding conviction.

As of August 2011, the Act was pending before the Health Subcommittee of the House Ways and Means Committee.

Maintaining effective compliance programs

In the current regulatory and enforcement environment, how do managing employees attempt to inoculate themselves against being infected by the misconduct of others and excluded from federal health care programs?

HHS-OIG's guidance points the way to a possible vaccine. "If the individual can demonstrate either that preventing the misconduct was impossible or that the individual exercised extraordinary care but still could not prevent the conduct," the guidance advises, "OIG may consider this as a factor weighing against exclusion."

That could mean that ensuring the entity has an effective compliance program will weigh against, but not preclude, exclusion.

An effective compliance program is more than simply policies, procedures, hotlines, risk audits and governance structures. It is a way of being that permeates an entity's culture.

It is also a way to demonstrate why HHS-OIG should decline to exercise its permissive exclusion authority. That is, a managing employee could try to demonstrate that he or she exercised extraordinary care by ensuring the existence, implementation and monitoring of a comprehensive compliance program that, nevertheless, did not prevent the misconduct.

There are only two guarantees in life, and this is not one of them. But permissive exclusion authority should not result in the barring of unknowing managing employees who are genuinely and demonstrably committed to compliance.


Christopher J. Hunter is a former Assistant U.S. Attorney and FBI agent. He also has served as Counsel at LibbyHoopes, P.C.,, in Boston.

Published: Tue, Sep 6, 2011


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