On May 8, 2013, the Office of Inspector General for the U.S. Department of Health and Human Services (OIG) published an updated Special Advisory Bulletin (SAB) on the scope and effect of federal healthcare program exclusion. OIG is the agency with the authority to exclude from participation in Medicare, Medicaid, and other federal healthcare programs individuals and entities who have engaged in misconduct related to federal healthcare programs. The SAB updates and narrows guidance OIG issued 13 years ago on the practical implications of exclusion. Notably, the new guidance, in apparent conflict with current regulations, asserts that exclusion is limited to federal healthcare programs and does not prohibit excluded individuals and entities from participating in other government programs, including procurement programs. At the same time, however, the SAB details the significant effort the OIG expects of the industry to monitor arrangements and thereby avoid potential Civil Monetary Penalties (CMPs) for violating the exclusion provisions.

Scope of exclusion

Simply put, exclusion by the OIG prohibits federal healthcare program payment for any item or service furnished by an excluded individual or entity or at the direction or prescription of an excluded individual. This deceptively clear principle has proved difficult to implement at its margins. The updated SAB does little to remedy this difficulty. The SAB confirms prior guidance that the payment prohibition applies to all methods of federal healthcare program payments “whether from itemized claims, cost reports, fee schedules, capitated payments, a prospective payment system or other bundled payment,” and adds that the prohibition applies to “other payment system[ s ] and applies even if the payment is made to a state agency or a person that is not excluded.” Although the updated SAB seemingly focuses on “providers,” the OIG explicitly defines the term to include “providers, suppliers, manufacturers, and any other individual or entity, including a drug plan sponsor or managed care entity, that directly or indirectly furnishes, arranges, or pays for items or services.”

The updated SAB emphasizes that exclusion’s payment prohibition extends beyond direct patient care to include all items or services paid for by a federal healthcare program, including management or administrative services that may not be directly reimbursable. The OIG explains that administrative and management services should be broadly understood to include “health information technology services and support, strategic planning, billing and accounting, staff training, and human resources, unless wholly unrelated to federal healthcare programs.” Notably, the OIG explicitly states that “an excluded individual may not serve in an executive or leadership role (e.g., [ CEO, CFO, ] general counsel, director of health information management, director of [ HR ], physician practice office manager, etc.) at a provider that furnishes items or services payable by federal healthcare programs.” Moreover, although the updated SAB acknowledges that an excluded individual or entity is not expressly prohibited from owning a federal healthcare program-participating provider, the OIG emphasizes the risks of such ownership.

The updated SAB is similarly expansive in its articulation of which providers are subject to the payment prohibition. For example, the OIG explicitly states that providers may not bill for items or services on the basis of orders or prescriptions from excluded individuals. The OIG recommends that providers such as pharmacies, laboratories, durable medical equipment suppliers, imaging centers and other providers that furnish items or services on the basis of orders or prescription, take steps to ensure at the point of service that the ordering or prescribing physician is not excluded.

The OIG’s discussion of the recommended procedures for screening excluded individuals or entities, described below, contains a significant change in the OIG’s position regarding the effect of exclusion on participation in other government procurement and nonprocurement transactions. Current regulations provide that excluded entities and individuals are prohibited from participating in all federal government procurement and nonprocurement programs. 2 C.F.R. § 376.147. The updated SAB, however, states that “OIG exclusion does not affect a person’s ability to participate in other government procurement or non-procurement transactions.” The new guidance does not acknowledge the conflicting regulation, and provides no indication whether the OIG will seek to amend the regulation to reflect the apparent change in position.

Permissible arrangements with excluded parties

OIG also appears to have modified its position concerning the circumstances under which a provider may contract with or employ an excluded party. The updated SAB explains that a provider may contract with or employ an excluded party so long as federal healthcare programs do not pay, either directly or indirectly, for the items or services provided or furnished by the excluded party. Additionally, the provider may employ or contract with an excluded party so long as the excluded party only furnishes items or services to non-federal healthcare program beneficiaries. Clarifying prior guidance which provided that “no Federal program payment may be made to cover an excluded individual’s salary, expenses or fringe benefits,” the updated SAB explains that the provider need not pay the excluded party from a separate account so long as no claims are submitted to federal healthcare programs for items or services furnished by that excluded party.

Consequences for exclusion violations

The updated SAB devotes significant discussion of the penalties for failing to abide by the payment prohibition. The guidance makes clear that any payment involving an excluded party constitutes an overpayment, irrespective of who receives the payment. The OIG also emphasizes its statutory authority to impose CMPs on an individual or entity that “arranges or contracts (by employment or otherwise) with an individual or entity that the person knows or should know is excluded. . . .” The OIG may impose a penalty of up to $10,000 for each item or service as well as an assessment of up to three times the amount claimed. Moreover, a violation of the payment prohibition is itself a basis for exclusion. Excluded individuals and entities that violate the terms of their exclusion may face criminal, civil, and administrative penalties in addition to being denied reinstatement.

The updated SAB reminds providers that they can use the OIG’s recently revised Provider Self-Disclosure Protocol to resolve potential CMP liability for arranging or contracting (by employment or otherwise) with an excluded party. See Health Alert: OIG releases revised and expanded self-disclosure protocol (April 19, 2013).

OIG’s screening recommendations

The updated SAB significantly expands on the recommendations for screening individuals and entities, including details regarding when screenings should be performed, who should be screened, and how the screenings should be performed.

When to screen

The OIG includes a specific recommendation regarding the frequency of screenings. While acknowledging that there is no statutory or regulatory screening requirement, the updated SAB advises that a monthly screening protocol “best minimizes potential overpayment and CMP liability.”  Previously, the OIG had recommended screening prior to hire and periodically thereafter. There is no indication that OIG has truly contemplated the financial and administrative burden associated with implementing their proposed monthly screenings.

Who to screen

To determine who should be screened, the OIG recommends that providers review its relationships to identify individuals and entities who provide or order any item or service that is directly or indirectly, in whole or in part, payable by a federal healthcare program. The OIG notes that liability could result if a claim includes any item or service furnished by an excluded individual or entity regardless whether the provider paid the excluded party for their services (e.g. “a non-employed excluded physician who is a member of a hospital’s medical staff or an excluded healthcare professional who works at a hospital or nursing home as a volunteer.”) The OIG cautions that providers should determine whether to screen contractors, subcontractors, and the employees of contractors using the same analysis the provider would use in deciding which of its own employees to screen. The OIG gives providers some guidance on how to prioritize screening efforts by noting that the greatest risk of CMP liability is for those integral to the provision of patient care.

How to screen

The OIG’s new recommendations for screening appear more extensive than the current screening practices of many providers. While acknowledging that providers may utilize third parties or contractually obligate their contractors to perform the screening functions, the OIG emphasizes that the ultimate responsibility for preventing prohibited payments rests with the provider. Accordingly, the provider may not only be subject to overpayment liability for any items or services furnished by any excluded individual or entity regardless of whether or by whom screening is done, but may further be subject to CMP liability if the provider does not ensure that the screening was appropriately performed. The updated SAB specifically recommends that when relying on another party to perform a screening function, the provider exercise due diligence to assure that the contractor or third party is actually and properly performing the screening (e.g. “by requesting and maintaining screening documentation from the contractor.”) Finally, the OIG strongly encourages providers to utilize the exclusion information in the List of Excluded Individuals and Entities (LEIE) accessible through the OIG’s website rather than other sources such as the General Services Administration’s System for Award Management (SAM), the National Practitioner Data Bank, or the Healthcare Integrity and Protection Databank.

Practical considerations

In sum, the updated SAB is a decidedly mixed blessing for those dealing with the implications of federal healthcare program exclusion. On the one hand, providers seeking to utilize excluded parties for activities that do not implicate federal healthcare programs now have a clearer and more flexible framework to maintain those relationships, and excluded parties will have greater freedom to participate in occupations or activities that receive some form of federal funding so long as they do not involve the provision of items or services reimbursed by federal healthcare programs. On the other hand, the updated SAB underscores the OIG’s willingness to pursue overpayments and CMPs against anyone that violates the federal healthcare program payment prohibition as broadly understood. Moreover, the OIG’s new recommendations for screening are likely to be quite administratively burdensome and costly, particularly for health plans, pharmacies, laboratories and other providers and suppliers whose federal healthcare program payments rely on the services or orders of other healthcare providers. As providers revisit their current screening protocols it remains to be seen whether they will conclude that the potential for overpayments and CMP liability warrants adopting the full risk mitigation strategy proposed by the OIG. Taken together with the recent update to the Self-Disclosure Protocol, this updated SAB demonstrates yet again the OIG’s commitment to utilizing and enforcing its exclusion authority.