United States: Providers Cannot Ignore Exclusion Dangers

While many health care professionals are taking extraordinary steps to combat such health care foes as reduced payment from the Balanced Budget Act of 1997, increased regulations and a tight labor market, many have ignored a danger just as potent— a business associate who has been excluded from participation in the Medicare and Medicaid programs.

The federal government uses exclusion as a powerful weapon to combat abuses of Medicare and Medicaid.  Briefly stated, any individual or entity ("person") (e.g., physician partner, medical staff member, owner, managing employee) that abuses a federal or state health care program risks being excluded from further participation in those programs.  There are two types of exclusion laws in the Social Security Act, Section 1128 (42 U.S.C. Section 1320):

Mandatory exclusion.  Applies to any person convicted of crimes relating to delivery of an item or service under Medicare or any state health care program.  It also applies to any conviction relating to patient neglect or abuse, and felony convictions relating to health care fraud or a controlled substance.

Permissive exclusion.  Applies to any one of 15 offenses.  Some of the more notable offenses that can lead to permissive exclusion include:

• Health care fraud not subject to mandatory exclusion
• Theft or embezzlement
• Breach of fiduciary duty
• Obstruction of a fraud investigation
• License revocation or suspension
• Claims for excessive charges or unnecessary services
• Permitting an excluded individual to remain in control of an entity as owner or manager

In general, the period of exclusion from participation in federal and state health care programs is 5 years if mandatory and 3 years if permissive.  Exclusion bars the excluded person from program participation which can be the death knell for many providers.  Exclusion prohibits providers from claiming program payment for items or services rendered by excluded persons.  The prohibition extends to payment for administrative and management services not directly related to patient care.  Program payment may not be made to cover an excluded person’s salary, expenses or fringe benefits, regardless of whether they provide direct patient care.  Further information on the effects of exclusion can be obtained from the OIG special bulletin at http://oig.hhs.gov/frdalrt/exclude2.htm

Providers are subject to exclusion for employing or contracting with excluded persons.  The OIG may exclude a provider from program participation if an excluded person (1) has a direct or indirect ownership or control interest of 5% or more; (2) is the owner of a whole or part interest in any mortgage, deed of trust, note, or other obligation secured (in whole or in part) by the provider or any of the property or assets thereof, which whole or part interest is equal to or exceeds 5% of the total property and assets of the provider; (3) is an officer, director, agent, or managing employee of the provider; or (4) if the excluded person has transferred the interests described above to an immediate family or household member in anticipation of or following a conviction or exclusion.  Furthermore, if a provider employs or contracts with an excluded person, the provider will be subjected to a civil money penalty of not more than $10,000 per day.

Because providers that continue a business relationship with an excluded person risk exclusion and civil monetary penalties themselves, we recommend including in contracts and partnership agreements a representation that the party with whom the provider is contracting is not excluded.  The contract also should include a provision that the contracted party will provide notification if it or one of its employees or contractors providing services under the contract becomes excluded. The contract also should call for the termination of the agreement if the service provider becomes excluded.  Violations of these provisions should be considered a material breach of the contract and entitle the innocent party to damages.  It also is a good practice to frequently check the List of Excluded Individuals/Entities on the Office of Inspector General’s Web site at http://www.exclusions.oig.hhs.gov/search.html.

The government recommends, as part of a compliance program, a written policy that the provider will not knowingly employ or contract with an individual or entity who is listed by a federal agency as currently debarred, suspended or otherwise ineligible to participate in federal programs.   In cases where providers are found to have violated fraud and abuse laws, the government typically requires a corporate integrity agreement which, among other things, requires providers to make reasonable inquiry into the status of any current or potential employee, consultant or contractor.  The world of exclusion is fraught with peril.  Although it is not possible to remove all risk, it is important to mitigate it by including protective language in contracts and partnership agreements.