In the span of three days, the Office of Inspector General for the U.S. Department of Health and Human Services (OIG) published two proposed rules in the Federal Register that substantially modify OIG’s exclusion and Civil Monetary Penalty (CMP) authorities. Below we summarize the major provisions of each proposed rule.

OIG exclusion authorities proposed rule

The 9 May 2014 proposed rule regarding OIG’s exclusion authorities (79 Fed. Reg. 26,809) is the most substantial revision to the exclusion regulations that OIG has released in some time. Comments to the exclusion authorities proposed rule must be received by 8 July 2014.

No limitations period for exclusions

Of particular importance to individuals and entities considering resolving False Claims Act investigations and litigation, the proposed rule would add a provision stating that exclusion proceedings will not be subject to the six year limitations period applicable to OIG’s other administrative remedies, even when the exclusion is based on a violation of another statute that has a specific limitations period. OIG reasons that this authority will allow the agency to wait to see how a potential settlement is resolved, rather than forcing OIG to take exclusion actions prematurely. OIG specifically points to the fact that many False Claims Act cases are resolved later than six years after the underlying conduct and that imposing a six-year limitations period to OIG’s exclusion authorities would force OIG to file exclusion actions prematurely. The provision purports to be a “clarification,” suggesting that OIG is seeking to support arguments that the unlimited limitations period applies retroactively to past violations of the statute.  The provision seems much broader than necessary to serve OIG’s interests.  Deference to DOJ's handling of an investigation could be achieved through less obtrusive means, such as tolling during pendency of investigations or underlying litigation. If finalized as proposed, however, individuals and entities could find themselves subject to exclusion long after the underlying violation has been resolved or the statute of limitations for the underlying violation has past, unless OIG has waived its exclusion authority related to the violation, generally at the price of agreeing to enter into an intrusive and resource-intensive integrity agreement.

Codification of permissive exclusions under the Affordable Care Act (ACA)

The ACA expanded OIG’s authority to protect Federal healthcare programs from fraud and abuse through exclusions. The proposed rule codifies OIG’s authority under the ACA to impose permissive exclusion for:

  • convictions relating to obstruction of an investigation or audit;
  • failure to provide payment information, including by individuals who “order, refer for furnishing, or certify the need for” items or services paid for by Medicare or State healthcare programs; and
  • making false statements or misrepresenting material facts in applications to participate as a provider or supplier under a Federal healthcare program.

Exclusion of individuals with ownership or control interests

OIG proposes to amend 42 C.F.R. Section 1001.1051 to state that for an individual with an ownership or control interest in a sanctioned entity “the length of the individual’s exclusion will be for the same period as that of the sanctioned entity with which the individual has or had the prohibited relationship” (emphasis added). Although, the part of the regulation that requires the individual to have been an owner, director or officer, or managing employee of the entity at the time of exclusion remains unchanged, the proposed change appears to open the door for OIG to argue that if the individual retains the ownership or controlling interest, or remains a director, officer, or managing employee, after the entity is sanctioned (excluded or convicted of a mandatory exclusion-type offense), then the individual cannot avoid exclusion by terminating the relationship with the sanctioned entity upon receiving notice from OIG of an intent to exclude.

Changes to aggravating and mitigating factors

The proposed rule makes numerous changes to the aggravating and mitigating factors OIG considers in determining whether to increase the length of exclusion above the minimum required. Mitigating factors are only considered if OIG has established one or more aggravating factors. The proposed changes include:

  • updating the dollar amounts for aggravating and mitigating factors that consider the financial loss to Federal healthcare programs as a result of the misconduct;
  • reworking the existing aggravating factors regarding other offenses into two new factors, one of which considers adverse actions based on offenses separate from those forming the basis of the exclusion and the other which considers adverse actions based on the same offenses;
  • removing all aggravating and mitigating factors that currently permit OIG to lengthen periods of exclusion based on the loss of a healthcare license and exclusion or suspension for a Federal or state healthcare program; and
  • removing the mitigating factor related to availability of alternative sources of the type of healthcare items or services furnished by the person; note, however, OIG will still consider this factor in whether a permissive exclusion should be imposed at all.

Creation of early reinstatement procedures for exclusion related to the loss of a license

Currently, individuals excluded under Section 1128(b)(4) of the Social Security Act (SSA) because of the loss of their healthcare licenses for reasons related to their professional competence, professional performance, or financial integrity are not eligible to be reinstated until the lost license is restored. OIG proposes to institute a process that allows such excluded individuals to apply for early reinstatement if they obtain a healthcare license, are permitted to retain a healthcare license in another state or retain a different healthcare license in the same state, or if they do not have a valid healthcare license but can demonstrate that they would no longer pose a threat to Federal healthcare programs and beneficiaries of such programs. The proposed regulations include factors OIG would consider in determining whether early reinstatement is appropriate, and OIG requests comments on any additional factors it should consider.

Notice of exclusion

Lastly, we note that there is a comment about the rule having a proposal “requiring indirect providers, such as companies that manufacture or distribute pharmaceuticals or devices, to notify their customers of their exclusion.” However, no such provision is included in the proposed rule itself.

Civil monetary penalties proposed rule

The 12 May 2014 proposed CMP rule (79 Fed. Reg. 27,079) would significantly amend and restructure the existing CMP regulations in 42 CFR Part 1003. The restructuring is intended to clarify the CMP regulatory scheme, in particular the difference between the different CMP authorities and their respective remedies. In addition, the proposed rule includes several important substantive changes. Comments to the CMP proposed rule must be received by 11 July 2014.

Factors considered in penalty, assessment, and exclusion determinations

As part of the reorganization, OIG has identified the primary factors considered in determining an exclusion period and the amount of penalties and assessments for violations. These include: (1) the nature and circumstances of the violation, (2) the degree of culpability of the person, (3) the history of prior offenses, (4) other wrongful conduct, and (5) other matters as justice may require. Unless a subpart of the proposed rule specifically provides otherwise, these factors would be applied for all CMP violations.

Of particular significance is that as part of the “degree of culpability” factor, OIG proposes a new aggravating factor that would allow OIG to consider whether a person had a level of intent to commit a CMP violation that is greater than the minimum intent required to establish liability. OIG gives as an example a CMP that is based on a “knew or should have known” intent requirement consistent with the False Claims Act standard that includes actual knowledge, deliberate ignorance, or reckless disregard. Under the proposed rule, a person who has actual knowledge of a false or fraudulent claim would not only incur CMP liability, but would also be subject to a finding of an aggravating factor. OIG also proposes to clarify that possessing a lower level intent to commit a violation (presumably within the range applicable to the particular CMP and not a lower level than the minimum required) “is not a defense against liability, a mitigating factor, or a justification for a less serious remedy.”

OIG proposes that a mitigating circumstance to the “degree of culpability” factor would be taking appropriate and timely corrective action in response to the violation. The only way to qualify for this mitigating factor, however, is to disclose the violation through OIG’s Self-Disclosure Protocol and fully cooperate with OIG in resolving the violation.

OIG also proposes to clarify and broaden how it considers the history of prior offenses or other wrongful conduct factors. First, OIG proposes clarifying that aggravating circumstances include the prior offenses or wrongful conduct of (1) the entity itself; (2) any individual who had a direct or indirect ownership or control interest in the sanctioned entity at the time the violation occurred and who knew, or should have known of the violations; or (3) any individual who was an officer or managing employee of the entity at the time the violation occurred. Second, OIG proposes broadening the scope of conduct considered to include prior offenses or wrongful conduct “in connection with the delivery of a health care item or service.” This would allow OIG to consider private insurance fraud in addition to other offenses related to the delivery of healthcare items or services.

The proposed rule also updates the dollar amount considered as a claims-mitigating factor from US$1,000 to US$5,000, and proposes a threshold dollar amount for the claims-aggravating factor of US$15,000 or more. In addition, the proposed rule clarifies how OIG will consider a respondent’s financial condition in determining the penalty or assessment amount.

New conduct covered under the ACA

The ACA expanded the CMP law by identifying new conduct that would subject a person to penalties, assessments, and/or exclusions from participation in Federal healthcare programs. Reflecting this expansion, the proposed rule codifies these new prohibited acts, which include (1) failing to grant OIG timely access to records; (2) ordering or prescribing while excluded when the excluded person knows or should know that the item or service may be paid for by a Federal healthcare program; (3) making false statements, omissions, or misrepresentations in an enrollment or similar bid or application to participate in a Federal healthcare program; (4) failing to report and return a known overpayment; and (5) making or using a false record or statement that is material to a false or fraudulent claim.

Expanded liability for Medicare Advantage (MA) and Part D contracting organizations

The proposed rule addresses two areas of expanded liability from the ACA related to MA and Part D contracting organizations. First, the proposed rule implements the broadening of general CMP liability of principals for the actions of their agents to include contracting providers and suppliers who would not traditionally qualify as agents of the contracting MA or Part D organization. Second, the proposed rule codifies that an MA or Part D contracting organization is subject to penalties and assessments if it (1) enrolls an individual without prior consent, (2) transfers an enrollee from one plan to another without prior consent, (3) transfers an enrollee solely for the purpose of earning a commission, (4) fails to comply with applicable marketing restrictions, or (5) employs or contracts with any person who engages in the conduct described in Section 1857(g)(1) of the SSA.

Calculation of penalties for excluded individuals who do not separately bill services

The proposed CMP rule explains that in cases where an excluded individual provided items or services that are not separately billed to Federal healthcare programs, OIG will calculate penalties based on the number of daysthe excluded person was employed, was contracted with, or otherwise arranged to provide non-separately billable items or services. The CMP regulations provide for a penalty of US$10,000 per day. Assessments would be based on the total costs of employing or contracting with the excluded person, including salary, benefits, insurance, and employer taxes. OIG’s recently updated Self-Disclosure Protocol revealed that OIG uses a similar methodology in calculating "damages" for resolving liability for employing or contracting with an excluded individual. However, whereas the methodology described in the Self-Disclosure Protocol includes an adjustment for the disclosing entity’s Federal healthcare program payor mix, the proposed rule does not specifically include such an adjustment.

Default penalty for overpayments

OIG has proposed regulatory text regarding the default penalty for not reporting and returning overpayments by the later of 60 days after the date the overpayment was identified or the date any corresponding cost report is due as required by Section 1128(d) of the SSA. The proposed rule interprets the default penalty to be up to US $10,000 for each day a person fails to report and return an overpayment after the required deadline. OIG requests comments on whether to interpret the default penalty as up to US $10,000 for each item or service as pertaining to each claim for which an overpayment has been identified. The provision, if adopted, is potentially significant in that it would enable OIG to impose penalties even when DOJ or a Relator could not make the showing now required under the False Claims Act that an overpayment was not only identified, but that the Defendant “knowingly and improperly” avoided repayment.

Anti-Kickback Statute CMP authorities

OIG proposes regulatory language that, for Anti-Kickback Statute violations, penalties may be imposed for “each offer, payment, solicitation, or receipt of remuneration and that each action constitutes a separate violation.” The proposed rule would allow that OIG does not consider whether any portion of remuneration has a lawful purpose in calculating assessments.

Additional modifications reflecting self-implementing statutory authority

As part of the general reorganization of 42 C.F.R. Part 1003, OIG proposes several amendments to the CMP regulations addressing areas in which statutory authority is self-implementing even in the absence of the new regulatory language. The proposed amendments would reflect OIG’s statutory authority to impose:

  • a penalty up to US$5,000 on any person who offers any financial or other incentive for a Medicare-eligible individual not to enroll, or to terminate enrollment, under a group health plan or a large group health plan that would, in the case of such enrollment, by a primary plan;
  • penalties for violations of Section 1882(d) of the SSA, related to the sale of Medicare Supplemental Policies; violations include, but are not limited to, making false statements or misrepresentations in the sale of Medicare Supplemental Policies and issuing or selling an individual benefits that duplicate benefits the individual is otherwise entitled to receive under titles XVIII or XIX of the SSA; and
  • penalties for failing to report or knowingly reporting false drug pricing information as required by Section 1927(b)(3)(A) of the SSA and refusing to provide information or knowingly providing false information about charges or prices in connection with a survey being conducted pursuant to Section 1927(b)(3)(B); OIG proposes to calculate such CMPs at the nine-digit National Drug Code level for both Average Sales Price and Average Manufacturer Price on a per-day basis for each day the required information is not provided.

Procedural changes

The proposed rule amends the methods through which service of a notice of intent to impose a penalty, assessment, or exclusion may be provided. Currently, the regulation requires service by certified mail, return requested. However, Section 1128A(c)(1) of the SSA permits service by any method authorized by Rule 4 of the Federal Rules of Civil Procedure. OIG proposes amending the regulations to reflect this, and any future amendments to Rule 4 would thus be automatically applicable in the CMP context.

Additional provisions

The proposed rule also includes provisions addressing penalties, assessments, and/or exclusions for:

  • violations of EMTALA, including by on-call physicians; and
  • telemarketing that improperly uses the words, letters, symbols or emblems of HHS, CMS, Medicare, or Medicaid, including email and website violations.