The Inspector General's permissive authority to exclude officers and managing employees of excluded or sanctioned entities now seems less "permissive" as new guidelines underscore individual accountability.
Under Section 1128(b)(15) of the Social Security Act (the "Act"), the Office of the Inspector General (OIG) for the Department of Health and Human Services has the discretion to hold members of an entity individually accountable if the entity is convicted of certain offenses or excluded from participation in federal health care programs. The Act sets forth two standards for exclusion based on the function of the individual in the sanctioned entity, differentiating between owners and managing employees. OIG’s discretion under the Act is not subject to administrative or judicial review.
On October 20, 2010, OIG issued guidance related to the implementation of this permissive exclusion authority under the Act. This guidance outlines a new presumption for exclusion under certain circumstances, as well four factors OIG may consider in determining whether to exercise its authority.
Presumption for Individual Exclusion
With respect to owners, who are defined as having direct or indirect ownership or control of the sanctioned entity, the Act requires the showing of a certain degree of knowledge on the part of the individual of the conduct that was the basis of the sanctions. Per the recent guidance, however, evidence of such knowledge now creates a presumption in favor of the individual’s exclusion, which in turn may be overcome through a showing of "significant factors" weighing to the contrary.
No such knowledge is required for officers and managing employees (e.g., a general manager, business manager, administrator, or director who exercises operational or managerial control over the entity, or who directly or indirectly conducts the day-to-day operations of the entity), presumably due to the more "hands-on" role of such individuals in a company. As such, every officer and managing employee of a sanctioned entity may potentially be excluded regardless of any actual individual wrongdoing. While OIG does not intend to exclude all such individuals, per the latest guidance, if there is evidence of knowledge on their part, OIG will operate with a presumption in favor of exclusion. The presumption may be overcome through a showing of countervailing "significant factors."
What OIG May Consider in Determining to Act on Its Permissive Authority The notice outlines four categories of informal and nonbinding factors OIG may use in determining whether to exercise its permissive authority in the absence of evidence of the individual's knowledge of misconduct. OIG prefaces this portion of its guidance by stating that it may consider anything it deems relevant, and that the presence or absence of any of these factors will not be the only reason prompting OIG to exercise its authority. Nevertheless, companies and individuals should note the following:
- What are the circumstances of the misconduct, and how serious is the underlying offense? Included in this analysis is a determination of the level within the sanctioned entity at which the misconduct took place (e.g., in a branch office vs. company headquarters), the type and degree of the resulting harm, and whether the entity is a repeat offender.
- What is the individual’s role in the sanctioned entity? For example, OIG will evaluate how much control the individual has and his or her position when the misconduct took place.
- What was the individual's response to the misconduct? Whether the individual attempted to stop the misconduct or mitigate its harm, and whether the individual cooperated with the ultimate investigation are factors OIG may consider, and presumptively would weigh in the individual's favor. OIG may also consider whether the individual, despite "exercis[ing] extraordinary care," was unable to prevent the misconduct, or whether preventing the misconduct would have been "impossible."
- What type of entity was involved? Interestingly, OIG will not only consider whether this entity, but also whether a related entity, had been previously convicted of a crime or found civilly or administratively liable in a case with a federal or a state government entity. OIG will also consider such things as size and structure of the entity in its analysis.
To what degree OIG will exercise the new presumption for exclusion is yet to be determined. Until now, OIG has infrequently exercised its permissive authority under Section 1128(b)(15), but the recent guidance may be read as a warning of a more aggressive policy going forward. Hence, companies should review their chain of command and reporting policies and procedures to ensure that misconduct is reported quickly, and that all branch offices and subsidiaries of the company are communicating with each other.
Individuals should be aware of their position in the organization as well as their potential risk of exclusion for misconduct by other employees. Managers and officers in particular should ensure that employees with whom they have direct and indirect reporting relationships have an effective mechanism by which potential misconduct can be quickly brought to light and resolved before OIG even steps in to investigate.